LSB State of Legal Services 2020 report

Overview

On 25 November, the Legal Services Board (LSB) published its State of Legal Services 2020 report, which gives a high-level evaluation of the legal services sector under a decade of regulation since the introduction of the Legal Services Act 2007.

The report, supported by an evidence compendium, is informed by data and conversations with a wide range of people and 72 organisations, including representatives of the solicitors’ profession.

Achievements of the legal sector

The report acknowledges the sector’s key achievements over the past 10 years, such as:

  • a high level of customer satisfaction (84%)
  • increased choice, with a growing number of alternative business structures
  • strong economic performance, with turnover increasing by 22% and employment by 24%
  • the solid international standing of the jurisdiction

Challenges facing the legal sector

Alongside the successes, much of the report focuses on the challenges the sector faces in terms of achieving fairer outcomes for both clients and those in the profession.

The report classifies these as:

  • fairer outcomes:
    • lowering unmet legal need prevalent across society
    • achieving fairer outcomes for groups experiencing deeper disadvantage
    • dismantling barriers to a diverse and inclusive profession at all levels
  • stronger confidence:
    • ensuring high-quality legal services and strong professional ethics
    • closing gaps in consumer protection
    • reforming the justice system and redrawing the regulatory landscape
  • better services:
    • empowering consumers to obtain high quality and affordable services
    • fostering innovation that designs services around consumer needs
    • supporting responsible use of technology that commands public trust

The LSB's analysis

The LSB remains concerned about the scale of unmet legal needs but admits that regulation is not the root cause. It recognises that barriers to access go beyond cost and can be linked to legal capability and service design.

The report also has a strong focus on diversity and inclusion and states that success will mean a sector that better reflects the communities it serves and a profession that has an inclusive culture will encourage people of all backgrounds to enter the law and support them to pursue rewarding legal careers.

The report considers COVID-19 as the watershed moment that could lead to positive change in the sector, highlighting, for example, an increased take up of technology.

The LSB wants to size up on major policy reviews into legal aid, the criminal justice system and other policies to further improvements and drive change.

The report restates the LSB’s longstanding support for a reform of the regulatory framework, with a move to a single regulator for all legal services and activity-based regulation.

However, the LSB recognises that without government appetite for wholesale reform of the Legal Services Act, some challenges may need to be addressed within smaller scale short-term legislative reforms.

Whilst the challenges are clearly laid out, the report does not draw any firm conclusions about what this means in practice in terms of specific recommendations.

We expect these to be set out in the LSB’s strategy consultation, due to be published in December.

The report echoes many of the issues we flagged up in a paper on legal sector priorities we submitted to the LSB.

We issued a press statement in response to the report stating that access to justice and diversity are central to the future of the legal profession.

Below, we provide a summary of key policy areas the report focuses on.

Access to justice

The report flags up access to justice issues as one of the main challenges facing both the sector and society as a whole.

Evidence from the Legal Needs Survey is cited that estimates that 3.6 million people a year in England and Wales fail to have their legal needs met in resolving a dispute.

The report also refers to estimates from the Law Centres Network that millions of people fall into a ‘justice gap’ where they cannot afford to pay for legal services but are not poor enough to be eligible for legal aid.

Ensuring access to justice is a key priority for us and our members.

We were pleased to note that the LSB echoes arguments we've made that access to justice problems will not be fundamentally addressed through more or less regulation.

Instead, as the report states “the inability of so many citizens to afford legal services is rooted in wider social and economic inequalities”.

We’ve pointed out that many consumers will not have the means to fund the cost of legal services, no matter how competitively priced it is. For these consumers, there is no realistic prospect of addressing their legal needs by regulatory changes and what is required is a properly funded legal aid system.

The report also acknowledges that the inability to resolve legal problems can be physically, mentally and financially damaging to individuals resulting in wider damage to society by:

“undermining economic productivity and adding to the cost of services outside of the justice system like healthcare and social welfare. It also makes society poorer by undermining trust in the rule of law and our public institutions.”

This has also been a key argument for us; that legal aid cuts are short-sighted and do not take into account the wider financial and social costs of failing to address legal problems at an early stage.

The crux of the legal aid problem is funding. There have been no rates increases for criminal and civil legal aid since the 1990s, and legal aid fees have decreased by 34% in real terms since 1998.

The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) civil legal aid cuts reduced the areas of law for which legal aid was available.

COVID-19 and the worsening economic climate are likely to increase the number of people needing legal help, but with many legal aid firms leaving the market, people might struggle to find an appropriate provider.

Equality, diversity and inclusion (EDI)

The LSB report mirrors many of the insights from our Diversity Profile report on the current state of diversity and inclusion in the profession.

The LSB notes some improvements in overall representation of women, BAME and LGBT+ individuals, but it noted the ongoing under-representation of disabled people and those from lower socio-economic backgrounds, and highlighted evidence of ongoing differential treatment and inequalities within the legal profession.

The LSB links delivering fairer outcomes for those who use legal services – one of the three key challenges it identifies – to diversity and inclusion within the profession. It says a step-change is needed on diversity and inclusion.

The LSB notes that some positive steps and initiatives have been put in place in some large City law firms, but that commitment is variable across the sector as a whole, and there’s a lack of clear tangible outcomes.

The report emphasised the importance of getting better data across the sector and using that data to drive change and evaluate and learn what works.

It also suggests a stronger regulatory response is needed:

“The pace of progress needs to rapidly accelerate to ensure that the legal profession at all levels reflects the diversity of the communities it serves. While there are examples of leadership and good practice, our experience points to deep-seated inertia that requires a harder-edged regulatory response to force the necessary pace of change and hold people to account where meaningful progress is not being made.”

The COVID-19 crisis makes “it more urgent to drive further and faster progress on diversity” according to the LSB.

While there are potential positive signs about lasting changes to working practices that may benefit EDI, like more flexible and remote working, the report notes the following challenges:

  • it may become harder to begin legal careers, for example, due to fewer training contracts or pupillages being available. COVID-19 may exacerbate existing inequalities, for example, those who face the greatest challenges to achieving the grades needed for law school entry are from lower-income families where there are higher proportions of BAME people
  • it may be harder to progress to senior roles if, for example, the economic impacts of COVID-19 create fewer opportunities for progression, or people who work remotely due to caring responsibilities are overlooked for promotion
  • the professionals forced out of the market because of COVID-19 may be the groups with the most diverse representation. Surveys have indicated the greatest risks are to legal aid practitioners, junior barristers, small firms and sole practitioners
  • mental health issues risk being overlooked due to remote working, and there is evidence that wellbeing has worsened

In the accompanying compendium of evidence, the LSB identifies the following as the key drivers of change for EDI in the legal profession and legal services:

  • COVID-19 is widening and entrenching inequalities in society
  • increased demonstration of the public mood to injustice stemming from deficiencies in diversity and inclusion. The Black Lives Matter and MeToo campaigns are significant signals of a global impatience with evident equality gaps
  • disciplinary bodies taking greater interest in personal conduct involving EDI issues
  • increased focus on social mobility, which is stagnating in society as a whole
  • EHRC turning its spotlight on the criminal justice system and legal aid
  • strengthened legislative requirements, such as gender pay gap reporting

Technology and innovation

The LSB considers the level of innovation in the legal sector as less disruptive than in financial services, but notes that COVID-19 has forced many law firms, solicitors and the justice system more broadly to turn to technology to help maintain business continuity, recover and ensure the wheels of justice continue to turn.

The LSB wants to build on the momentum created by COVID-19 and use technology to reduce cost of legal services, potentially unlocking access to justice.

We agree with the LSB and our analysis suggests that the adoption of new technologies could reduce the cost of legal services to UK business users by £350 million by 2030, and double productivity growth in the legal sector (from 1.3% per year to 2.7% per year).

Our analysis shows that with every £1 spent on legal services supporting £1.39 in further spending across the rest of the economy, supporting growth in the lawtech sector will play an important role in driving the UK’s economic recovery post-coronavirus.

The report also highlights some of the challenges that need to be resolved before lawtech can reach its full potential, including:

  • digital exclusion preventing many accessing legal services online
  • challenges posed by artificial intelligence
  • building consumer and profession’s trust in new technologies
  • more suitable regulatory environment for the digital age that is easy to navigate and covers different parts of the ecosystem such as technology developers, legal services providers, investors, many of which are currently unregulated

To address these barriers, we’ve called for an investment strategy that can unleash legal services to drive the economic recovery from COVID-19, harness lawtech to build a UK scientific superpower, and reinforce the UK’s place in the world as a global legal centre.

To this effect, we’ve called on decision makers to:

  • empower law firms to create the new jobs that will provide the backbone of the sector in the long-term, by giving them the flexibility to spend apprenticeship levy money on lawtech seats and training in lawtech skills
  • invest in driving the adoption of technologies that will build the resilience of local economies and provide the bedrock of our future prosperity – including:
    • providing tax incentives for law firms, legal services providers and lawtech start-up that develop and adopt lawtech, such as research and development tax credits and allowances (similar to capital allowances)
    • extending the eligibility of the future fund to lawtech start-ups in England by relaxing the requirement of a minimum level of £250,000 of seed capital
    • embracing the data revolution by establishing a legal data trust to improve accessibility of data for those seeking to innovate in the legal services sector (including court data as highlighted by the LSB)
    • investing in upskilling the judiciary to ensure the business and property courts are able to deal efficiently with intellectual property claims arising from lawtech, and task the Intellectual Property Office with educating firms and lawtech developers on how to ensure their lawtech IP is protected

As we have said previously, we would urge caution in considering any form of regulation related to legal technology.

We agree that the implications of these technologies need to be considered now.

We’re contributing to the debate by undertaking a discussion exercise on the ethical implications of the uses of legal technology. We’re engaging with the LSB and the SRA in this exercise.

Regulatory landscape

The report highlights a high level of customer satisfaction (84%) and trust in lawyers (64%) and points out to some positive signs of the recent regulatory reforms, including the new price transparency and internal governance rules (IGRs).

For example, the LSB notes that the transparency rules delivered increased transparency across large parts of the markets, and even had a spill-over effect on areas not covered by the rules such as divorce.

The new IGRs created a greater degree of independence between regulators and representative bodies, with most in the sector voluntarily establishing a greater institutional separation above the minimum mandatory requirements.

Yet the LSB wants to see a greater impact of these reforms on customer outcomes.

While evidence shows that shopping around is increasing, and consumers are finding it easier to compare prices and service quality, the LSB is concerned that only 30% of consumers shop around and even fewer (2%) use a comparison service to find a law firm, and only 25% law firms are fully compliant with SRA transparency rules.

The LSB is also disappointed about the limited impact of the transparency rules on the cost of legal services, saying:

“There is no clear pattern of the spread of prices for similar services narrowing, while most prices are going up and there is evidence of firms increasing prices because competitors are doing so”.

The report gives a downbeat assessment of transparency reform, despite more encouraging trends identified by the recent SRA transparency research showing that 68% of law firms are publishing the required information and 77% of people find the information useful.

The LSB is also concerned about quality issues, with consumers finding it difficult to compare quality of legal advice.

Technical quality appears to be lagging in some areas of law, with the LSB flagging advocacy in the criminal and youth courts, and immigration and asylum work.

The LSB is currently developing proposals to address quality issues.

The report confirms the LSB’s appetite for:

  • redrawing the regulatory landscape and considering the current list of reserved activities as an ‘accident of history’ and in need of a review
  • identifying consumer protection gaps in relation to unregulated providers with clients lacking access to redress
  • finding a dispute resolution model that can deliver timely and effective universal redress for all consumers of legal services

In addition, the LSB continues its support for a single regulator for all legal services, fully separated from representative bodies. The LSB hints this could save regulatory costs, pointing out that £124.7m practising certificate fees were collected across the regulators in 2020-21.

We recognise that the current regulatory framework is not perfect but, as the report acknowledges, it has delivered some very real and important successes.

The COVID-19 pandemic has shown the current regulatory framework provides flexibility to adapt to novel situations whilst protecting the public, facilitating regulatory oversight and compliance, and allowing innovation.

The recent substantive reforms are likely to be more visible in terms of consumer outcomes as the changes properly bed in.

We encourage the LSB to make better use of its existing regulatory powers to ensure that people can access legal advice when they need to, and have trust and confidence in the regulators, the profession and the legal system.

In particular, the LSB should focus on its core oversight functions of holding the frontline regulators to account, while providing challenge and support to the Legal Ombudsman.

We’re keen to work closely with the LSB to address the most pressing issues.

Next steps

The report aims to inform the LSB’s new strategy for legal services regulation on which the LSB plans to consult this winter.

We’ll continue to engage with the LSB on the strategy development and will be responding to the consultation on behalf of our members.

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