Government targets client account interest as it outlines £400m legal aid cuts

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Solicitors could be struck off for failing to pay the interest they have made on client accounts to the government, under proposals released today.

The interest would be used to bolster the legal aid fund after the Ministry of Justice (MoJ) today unveiled a package to cut as much as £440m from the legal aid budget, taking a swathe of civil areas out of scope and cutting criminal legal aid fees. It would reduce the number of cases dealt with under legal aid by around half a million.

The MoJ is also pushing ahead with implementing those parts of the Jackson reforms that it had previously flagged, but has suggested a series of “refinements” aimed at addressing some of the criticisms made of the Jackson package.

The Conservatives floated the idea of using client account interest to supplement legal aid before the election, and the MoJ has put forward two possible models for claiming client account interest:

• Solicitors would hold client account money in the present way but be professionally obliged to remit any money that does not have to be paid to clients to the government on an annual basis. Failure to do so would be a “gross misconduct disciplinary offence leading to being struck off the roll of solicitors”;
• A government bank account would hold general client money and it would pay clients a “fair sum” in lieu of the interest they would receive under the current arrangements. However, the consultation raises the possibility that solicitors could also retain the sums they currently earn from interest due to the extra interest that would come from consolidating client accounts.

Speaking to reporters today, legal services minister Jonathan Djanogly would not at this stage put a figure on how much money client account interest could raise for legal aid. The government will do so after the consultation, he said.

The consultation also puts forward a supplementary legal aid scheme – under which a portion of a legally aided client’s damages would go back into a fund to support other claimants – and calls for greater use of before-the-event legal expenses insurance.

Civil legal aid reform will take out of scope routine family, clinical negligence, debt, education, employment, housing, immigration and welfare benefits cases, unless life or liberty is at stake, or a claimant is at risk of serious physical harm or immediate loss of their home. Means testing in civil and family legal aid will mean claimants contributing towards the costs of their case where they have at least £1,000 of disposable capital. Fees will also be cut 10% across the board.

Criminal legal aid will remain where it is currently available, but fees will be more “controlled” and the plan is to move to competitive tendering.

Mr Djanogly said the proposals were “long overdue” as legal aid’s scope has “widened far beyond what was originally intended”.

Among the possible “refinements” on the Jackson recommendations are:

• Success fees should remain recoverable in certain categories, such as complex clinical negligence claims or cases where damages are not sought;
• After-the-event insurance premiums in respect of disbursements should still be recoverable;
• Instead of a 10% increase in general damages, a better approach might be to retain an element of the success fee which is recoverable by the claimant but to provide for this to be calculated as a sum equal to 10% of the general damages award in each case (including settled cases). This would ensure that the level of damages is left to the courts and that those not funded through conditional fee agreements do not gain a windfall;
• To ensure the proposal for qualified one-way costs-shifting does not cause uncertainty, there could be a presumption that the claimant would not be liable to pay the defendant’s costs unless the court – on application by the defendant as early in the proceedings as possible – orders otherwise.

As reported on Legal Futures last week, the aim is to extend the road traffic accident claims process to other areas of personal injury by April 2012, while Mr Djanogly said the government would hold fire on a decision on referral fees pending both the Legal Services Board’s investigation and the advent of alternative business structures.