jcdlsb 250706 pn2

Session 2005 -06, 25 May 2006
Press Notice 2

JOINT COMMITTEE RAISE CONCERN OVER PROPOSALS IN THE LEGAL SERVICES BILL

A joint Lords and Commons Parliamentary Select Committee has today raised concerns over various aspects of the Government's the draft Legal Services Bill, most notably potential damage it might cause to the independence of the legal profession.

The Committee has drawn particular attention to those parts of the Bill that depart from the recommendations made by Sir David Clementi.

In its unanimous report published today, the all-party Committee has identified the level of government involvement in the proposed new regulatory system for legal services proposed in the draft Legal Services Bill as potentially damaging to the independence of the legal profession from government. In particular, the Committee has raised concerns about the proposed role of the Secretary of State (the Lord Chancellor) in the appointment of the chairman and members of the new Legal Services Board.

The Committee recommends that the draft Bill be amended so that initial membership of the LSB is appointed by the Secretary of State, but only after full consultation with the Lord Chief Justice and the Constitutional Affairs Select Committee of the House of Commons. It also proposes that the LSB should then be allowed to establish a nominations committee to appoint future members, other than the chairman, who would continue to be appointed by the Secretary of State after full consultation with the Lord Chief Justice.

The Committee expresses concerns too with regard to the direct powers over the legal profession the draft Bill would grant to the Lord Chancellor. It asks the Government to consider whether these powers are necessary, and to transfer as many as possible back to the legal regulators. The Committee also draws attention to the critical importance of the legal profession being perceived by the public to be independent from government influence.

There are also criticisms of proposals in the draft Bill to 'de-regulate' the business structures within which legal services can be provided. The report raises concern about potential conflicts of interest in these Alternative Business Structures (ABSs), particularly between lawyers and shareholders if firms offering legal advice have outside ownership. Another concern is that, within firms offering legal and other services, lawyers might be pressurised into promoting or 'cross-selling' other services, such as insurance.

The Committee's overall view of the ABS proposals is that the Government should have consulted more widely and ought to consider moving more slowly and cautiously towards implementation. It also contends that, even at this stage, the Government should look to instruct the LSB to take a step-by-step approach to ABSs, initially allowing only partnerships of different types of lawyers without outside ownership or management. Its conclusion about the impact of ABSs is that "no-one can be sure how it will work out".

The Committee also highlights concerns about the Government's estimates of the cost of the reforms and questions whether there is evidence for the future efficiency savings identified.

The tight deadline the Committee was set for conducting its inquiry is also criticised: the Committee, which was formed only on 23rd May, was required to report by 25th July. The Committee felt this was not an adequate timescale for investigating fully all the relevant details of so complicated a Bill.

Commenting on the report, Lord Hunt of Wirral, who served as Chairman of the Joint Committee on the Legal Services Bill, said:

"We have some very real concerns about the proposals put forward in this Bill. The draft Legal Services Bill departs from the recommendations of Sir David Clementi in a number of important respects and it is essential the Government should explain each of those departures fully. Most of our substantive recommendations would come under a single heading, namely that of going back to the future - the future envisaged by Clementi.

"It is vital that industry and the public have faith that our legal profession is independent of government. The legal system must not only be independent, it must be perceived as being independent - and we are worried that the proposals as they stand would give the Lord Chancellor far too much direct involvement in regulating the legal services market. To command general support and confidence, regulation must be proportionate and genuinely arm's-length.

"We feel, for example, that the appointment of members of the Legal Services Board should be made by an independent nominations panel and not be in the gift of a member of the Government.

"The proposals for Alternative Business Structures are welcome, in that they should allow greater innovation in the provision of legal services. However the way they have been put forward without sufficient thought to their impact runs the risk of allowing conflicts of interest between the legal practitioners and the shareholders who, ultimately, will become their employers."

Other recommendations in the report include:

  • That the Bill be redrafted to reinstate the "public interest" alongside the "consumer interest" in the objectives of regulation;

  • That the Bill should include a right of appeal to the High Court against regulatory decisions of the Legal Services Board€”a proposal supported by the House of Lords Constitution Committee;

  • That the Bill should include a 'fitness-to-own' test for anyone wanting to own a substantial share in a firm providing legal services

Notes To Editors

1. The members of the Committee who conducted the inquiry are:

Lords Members

Lord Hunt of Wirral (Chairman)
Lord Bach
Lord Campbell of Alloway
Baroness Falkner of Margravine
Baroness Henig
Lord Neill of Bladen

Commons Members

David Burrowes MP
Michael J Foster MP
John Hemming MP
Stephen Hesford MP
David Kidney MP
Emily Thornberry MP

2. The report, which is published by The Stationery Office, The Draft Legal Services Bill, Joint Committee on the Draft Legal Services Bill, HL 232-I/HC1154-I, ISBN 0 215 03015 X, Price £20.00.

3. The second volume containing oral and written evidence will be published on Thursday 3 August by The Stationery Office, The Draft Legal Services Bill, Joint Committee on the Draft Legal Services Bill, HL 232-II/HC1154-II.

4. The report will be available shortly after publication at:

http://www.parliament.uk/parliamentary_committees/jcdlsb.cfm

5. Witnesses and organisations who appeared before the Committee include: The OFT, the Law Society, the General Council of the Bar, the Lord Chief Justice, the Bar Standards Board, the Federation of Small Business, Citizens Advice and several companies including the AA and RAC who have expressed an interest in providing legal services under more open market conditions.

Press: For embargoed copies of the report or to request an interview with Lord Hunt and David Kidney MP (the senior Commons member) on Monday 24th or Tuesday 25th July please contact Owen Williams (Committee Press Officer) on 020 7219 8659.

Witnesses/DCA: Embargoed copies of the Report be collected by witnesses and UK Government Departments* from the reception of 7 Millbank, House of Commons, London, SW1P 3JA from 11am on Monday 24th July.

*(If you would like to collect an embargoed report please call

020 7219 8387 or e-mail: [email protected] )