Housing legal aid: sustainability research

To help the government understand the financial realities facing civil legal aid providers, we commissioned an in-depth study from Frontier Economics.

Frontier has worked in-depth with providers across the market to understand their operating model and financial situation.

The research will form part of our submission to the government’s review of civil legal aid, which is due to report in March.

Key findings from an interim report on housing include:

• the majority of providers the research engaged with are loss-making. However, after adjusting for the recovery of inter-partes costs, all providers are found to be loss-making
• the average fee earner is only able to recover around half of the full costs of providing housing legal aid
• providers rely on cross-subsidisation to sustain their legal aid housing work
• losses are largely created by low incomes and high cost burdens
• it’s increasingly difficult to recruit and retain talent, and housing providers are exiting the market

Why are legal aid housing providers making a loss?

The research found that – generally – the reason for providers making a loss is twofold: low incomes and high cost burden.

Low income

Legal aid fees have not increased since 1996, and in 2011 were cut by 10%.

Conversely, typical legal costs have increased 90% since 1996, and by 40% since 2011.

To illustrate, current housing legal aid work is compensated at hourly rates of £46 to £72, whereas recent guideline hourly rates published by Civil Justice Council range from £134 to £546.

High cost burden

The administrative burden of complying with legal aid requirements is significant and costly, and often higher than other types of legal work.

The time-cost of some of these compliance activities cannot be recovered from the Legal Aid Agency. These can include:

• screening clients in line with eligibility requirements
• dealing with complex clients
• managing legal aid contract requirements

Furthermore, current fee rate levels leave very little surplus with which legal aid firms can conduct other activities required to run their practice, such as training and recruitment.

There is also a time-lag between completing legal aid work and getting paid for it. This can take up to two to three years, which has significant implications on cashflow.

The impact of loss-making

Frontier also observed solicitors working longer than their contractual hours.

The lack of profitability is contributing to wider issues in housing legal aid, including:

• difficulties with recruitment and retention, leading to an ageing supervisory group and a thin pipeline of talent willing to pursue a career in the area
• market exit – the number of housing legal aid providers has reduced by a quarter in the last five years

What this means for the public

There is a chronic lack of housing legal aid providers in the market, and this is getting increasingly worse.

Not only are some factors making providers exit the market, persistent high barriers to entry are disincentivising new providers.

This has created legal aid deserts. Our own research from last year showed that 42% of people in England and Wales did not have access to a local housing legal aid provider.

Our view

Law Society of England and Wales president Nick Emmerson said:

“This vital research reveals the lengths providers have to go to keep housing legal aid afloat in the current environment – routinely working grossly excessive hours and cross-subsidising from other parts of their businesses.

“At a time when the cost-of-living crisis is driving rising numbers of evictions and repossessions, the UK government needs to use its civil legal aid review to invest in legal aid now before it collapses completely.

“We urge the government to provide the civil legal aid system with the investment needed to ensure there is a future for this vital public service.”