So Price Competitive Tendering is dead in the water. We can be thankful for that but frankly, it could never have worked and even this Government realised that in the end. What we seem to have in its place is a crude cut of 17.5% by 2015/16 which will destroy the profession as quickly as PCT.
In paragraph 4.2 of the original April consultation promoting PCT the Ministry said, “Legal aid remuneration for litigation and advocacy has been subject to a number of fee reforms and reduction in fee levels over recent years. As we set out in our 2010 consultation, while it is possible over the short term to address the financial pressures on public expenditure, we recognise that it is unlikely to be sustainable in the longer term to continue to tighten remuneration indefinitely within broadly the current fee and market structures.”
In other words, the MOJ knows that the profession cannot continue to handle cut after cut as we have experienced over the last decade and more. Grayling said in discussion with Catherine Baksi of the Law Society Gazette in May 2013 that ‘It would have been very easy for us to have just said we’ll cut everybody’s fees by 17.5% – it would’ve been quicker and more straightforward…we wouldn’t have to go through the complication of a competitive tendering process,’ . He went on to say ‘It’s precisely because I recognise that there’s a lot of people who are not earning a lot of money, and a lot of little firms that are struggling – that we need to change the way this sector works.’ The only way to do this and retain a ‘sensible structured industry’ he adds, is to undergo a process of ‘supported re-engineering’.”
“A process of supported re-engineering” may well be management speak straight out of the Thick Of It or Yes Minister but what Mr Grayling was saying was that he was fully aware that the profession cannot take a cut of 17.5% in fees. The Law Society should be aware of it too as their own research by Otterburn has found the market to be extremely fragile. Generally the profit margin for legal aid firms is unlikely to be above 10% and in many cases significantly below that figure. It does not take a genius to work out that if you lose 17.5% of your turnover to rate cuts; you will not be making a considerable loss.
But what of the figures? The new consultation repeats the required figure for savings of £220 million by 2018. In the original consultation this was based on the 2012 figure of £1.08 billion. It should be no different in this consultation. Saving £220 million on that figure would leave the Government with a budget for 2108 of £860 million. However, their previous estimates of what is likely to be spent have proved to be pessimistic, largely due to the severity of the cuts and loss of fees due to procedural changes such as removal of committals. The actual spend in 2012/13 was £970 million against an estimated £1.025 billion. The estimated spend for the current year (2013/14) is £940 million. So when the cuts fall we will be looking at cuts in the context of a budget of £940 million not £1.08 billion.
A cut of 8.75 % on £940 million would save £82.3 million. With a similar figure to be saved the following year with another 8.75% cut, the 2016 budget will be about £160 million less than the £940 million estimated to be spent in 2013/14, i.e. it would be down to about £780 million. You will see that this figure is already some £80 million more than the Government has said that it wanted to save by 2018.
These figures are crudely worked out and would clearly benefit from some refinement. They do not include the absolutely absurd 30% reduction on VHCC fees which will make that work completely unviable for most firms. The figures do not take account of the advocacy cuts and may be too pessimistic.
However, what they illustrate in basic terms is that the Government does not need to save the amount that they are saying they must save and that these proposed cuts will take their savings well beyond their goals. They are already a very large part of the way to their target.
It should also be taken into account that savings will be made when the restrained funds of those charged with crime can be used in the calculation of legal aid contributions. This will save considerable money in the system as for those convicted the contributions, most likely for the full defence costs, will be taken from restrained funds and not the legal aid fund.
Do nothing more than that and with the current falling volume, the Government will reach its target of a budget of £860 million by 2018. Except that no-one in Government is prepared to say what the end target is. The question is constantly dodged including by Grayling himself. It is a simple question: you want to save £220 million, so what figure do you want to get to? Can the Minister please answer this and we will all know where we actually are and what savings actually need to be made. We will have a better idea of how such savings might be made and it most certainly will not be by a cut of 17.5% in fees and 30% in VHCC fees. Those cuts will decimate the profession and Grayling knows it. He simply does not care as he will have moved on to pastures new to wreck something else by the time it all falls apart.