Reform of Legal Aid in England and Wales: the Government Response Part 40
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This is Part 40 of the government response to Reform of Legal Aid in England and Wales. Please read the other parts for a full picture. Used under the terms of the Open Government Licence http://www.justice.gov.uk/downloads/consultations/legal-aid-reform-government-response.pdf.
243 Reform of Legal Aid in England and Wales Government Response
Annex J: Alternative sources of funding
Introduction
1. The consultation paper set out a series of questions seeking views on two
proposals for offsetting the costs of legal aid: the establishment of a
scheme to secure the Interest on Lawyers’ Trust Accounts, and the
introduction of a Supplementary Legal Aid Scheme.
Interest on Lawyers Trust Accounts (IOLTA)
2. The consultation paper proposed options for securing the Interest on
Lawyers’ Trust Accounts (IOLTAs), based on similar models used in other
international jurisdictions. The consultation asked:
Question 40: Do you think there are any barriers to the introduction of a
scheme to secure interest on client accounts –
Question 41: Which model do you believe would be more effective:
Model A: under which solicitors would retain client monies in their
client accounts, but would remit interest to the Government; or
Model B: under which general client accounts would be pooled into a
Government bank account –
Question 42: Do you think that a scheme to secure interest on client
accounts would be most effective if it were based on:
a) a mandatory model;
b) a voluntary opt-in model; or
c) a voluntary opt-out model.
3. There were 897 responses to question 40. 578 (64%) thought that there
were barriers to the introduction of an IOLTA scheme, 189 (21%) did not
think there were barriers and a further 130 (14%) commented. There
were 717 responses to question 41. Of these, 317 (44%) preferred
Model A, 94 (13%) favoured Model B and 306 (43%) preferred neither
Model A nor Model B. There were 657 responses to question 42.
216 (33%) preferred option (a), 102(16%) option (b), 47 (7%) option (c)
and 292 (44%) favoured none of the options.
Key issues raised in consultation
4. Although there was positive support for the policy principle from a number
of quarters, including some sections of the Bar and the Advice Services
Alliance, in general respondents had concerns around both the general
concept of an IOLTA scheme and the specific approaches proposed, with
no consensus generated around either model.
5. Generally, the concerns about the proposed scheme were largely
reflected in the Law Society’s response. They pointed out that many firms
244 Reform of Legal Aid in England and Wales Government Response
of solicitors already used the interest generated on client accounts in a
variety of different ways:
– some solicitors account for the interest to the client and forego their
entitlement to it;
– others use the money towards the costs of administering the
accounts and the handling of clients’ money generally – research
suggests that those costs might have amounted to over £80 million
which suggests that most firms are currently having to finance their
handling of client money from their general fees;
– some use the money to fund related services – we understand that
many “free conveyancing” offers for remortgages are, in fact,
financed by the interest that solicitors are entitled to retain on the
funds in their client account;
– some explicitly put the money towards pro bono or other charitable
work.
6. They further argued that IOLTA schemes:
– are unlikely to yield amounts of money that are sufficient to justify the
damage that they will cause;
– would not provide a certain income;
– would be relatively easily avoided;
– may reduce the level of pro bono work; and
– may reduce the level of interest, service and competitiveness of the
sector and may cause significant harm to a number of small
businesses
The Government response
7. IOLTA schemes are not a new idea, and other countries, including the
United States of America, Australia and France have similar schemes. It
is evident, however, that the amounts generated by an IOLTA scheme
vary with interest rates and the state of the economy generally. This is
borne out by the experience of other countries, such as the USA, where
income from their IOLTA scheme was as much as $370 million in 2007,
before falling to around $92 million in 2009.
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8. Following the global economic crisis and the impact this has had on the
financial sector, we were particularly sympathetic to the argument that
having a choice of bank in which to place client monies helped firms to
secure better rates and services for both their clients and themselves.
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See: http://www.brennancenter.org/content/resource/the_economy_and_civil_legal_services/
245 Reform of Legal Aid in England and Wales Government Response
9. We have listened carefully to the arguments made by those who
responded to the consultation on the wider benefits and disadvantages of
developing an IOLTA scheme. In particular, we have given considerable
weight to the views of the Law Society. The Government commends in
particular those providers that already use the monies generated from
their client accounts to help fund pro bono and charitable work. We would
encourage other providers of legal services to follow the example set by
these firms. We also suggest that the Law Society could look carefully at
this area and consider whether they can play a more active role in helping
firms establish similar practices, perhaps providing strategic input into
how such funding could be best targeted to maximise the benefit it offers.
10. Having considered carefully the arguments put forward on the
consultation, the Government has concluded, on balance, not to pursue
an IOLTA scheme for England and Wales at this time.
Supplementary Legal Aid Scheme
Introduction
11. The legal aid consultation paper proposed implementing a Supplementary
Legal Aid Scheme (SLAS) for all areas of civil legal aid cases where
general damages are successfully claimed. In addition, we proposed that
the SLAS would also apply to any out-of-scope case which was funded
through the exceptional funding scheme. The proposals were consulted
on at the same time as Lord Justice Jackson’s proposals for reform of
civil litigation funding and costs.
12. The legal aid consultation invited views on introducing a Supplementary
Legal Aid Scheme and on how funds should be recouped if a SLAS were
implemented. Two different models of SLAS (self-funding and partially
self-funding) as well as different methods of recovery were put forward for
consideration. For example, possible methods of recovery under a
partially self-funding SLAS included a percentage of damages paid by the
legally aided person or a percentage of the interparty costs awarded to
the claimant lawyer at the conclusion of the case.
13. The consultation asked:
Question 43: Do you agree with the proposal to introduce a
Supplementary legal Aid Scheme –
Question 44: Do you agree that the amount recovered should be set as a
percentage of general damages – If so, what should the percentage be –
14. There were 622 responses to question 43. 176 (28%) agreed with the
proposal, 273 (44%) disagreed, and 173 (28%) neither agreed nor
disagreed. There were 565 responses to question 44. 259 (46%) agreed
with the proposal, 182 (32%) disagreed, and 124 (22%) neither agreed
nor disagreed.
246 Reform of Legal Aid in England and Wales Government Response
Key issues raised in consultation
15. Some respondents saw merit in introducing a Supplementary Legal Aid
Scheme, if Lord Justice Jackson’s proposals on conditional fee
arrangements and a percentage uplift in damages were implemented.
However, the view that a SLAS may be a positive development was
subject to broader uncertainty as to how such a scheme would work and
its viability particularly in light of the proposed scope changes. Several
respondents highlighted that they found it difficult to understand what was
actually being proposed in light of the consultation paper’s proposals to
remove clinical negligence, education damages and housing damages
cases from scope.
16. Many respondents, particularly representative bodies, questioned
whether the SLAS would be likely to generate much money. The source
of initial set up costs of the self-funding scheme was also questioned.
Some respondents highlighted that any scheme of this type relies on a
sufficient number of strong cases to ensure its viability. It was also argued
in some responses that, if implemented, the SLAS proposals would be
less favourable compared to current CFAs. Consequently, some
respondents suggested that the SLAS would only attract the riskiest and
most difficult cases should it be implemented in isolation (with the current
CFA system remaining unchanged).
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