House again in Committee on Clause 70.
On Question, Whether Clause 70 shall stand part of the Bill?
The Minister told us that the alternative business structures, as set out in the Bill, are to achieve the regulatory objectives set out in Clause 1(1)(a) to (g). At Second Reading, the noble and learned Lord the Lord Chancellor said:
“I move from regulation to alternative business structures. Part 5 provides a means of increasing competition and choice for the consumer”.
Looking at the regulatory objectives, we see that that answers paragraphs (c) and (d). He went on:
“Companies and firms will now be permitted to have different types of lawyers and non-lawyers working together on an equal footing and will be able to do so with the benefit of external investment”.—[Official Report, 6/12/06; col. 1165.]
Those are the pros of Part 5. It does nothing to support the constitutional principle of the rule of law. As the noble and learned Lord, Lord Woolf, said in a pointed intervention, it does nothing to improve access to justice. It certainly does not encourage an independent, strong, diverse and effective legal profession, but the reverse. As for increasing public understanding of citizens’ legal rights and duties, it does nothing. Promoting and maintaining adherence to the professional principles? Nothing. From what the noble and learned Lord the Lord Chancellor said about the regulatory objectives we can see that the balance is against the proposal.
We considered at length how best to improve Part 5 as a whole and concluded that nothing would do so. Unless you accept the principle of alternative business structures as a good thing in itself—we do not—the only thing is to have a stand part debate for every clause in Part 5. That is the reason for the lengthy and complicated stand part group on today’s Marshalled List.
One must then consider the other side. The Minister said at Second Reading that the Bill provided robust safeguards to protect the consumer—but from what? The answer is a diminution in the service that the legal profession now gives to the consumer. I am glad to see that the noble Lord, Lord Whitty, is back in his place because he will tell us why, in principle, he supports the Bill. How he can do that as the lone voice of the consumer, as I have previously said, when it is clearly contrary to the consumer interest to have the high street devoid of the legal firms that serve it at the moment, I do not know. How he can do that when the reverse of competition will create monopolies and when competition will not produce the lowering of fees that he, no doubt, looks for, I do not understand.
It may be that the de Nederlandsche Bank will wish to co-operate in this country in legal practices—we have the Dutch connection that the Minister was telling us about—but how does that bank or any bank, insurance company, supermarket chain or motoring organisation know where it is best to provide legal services? This is a big issue, and the Minister has told us that she will think about it. What is the situation? When it is considering licensing, will the Legal Services Board look round the country and say, “That’s quite a good place for an alternative business structure. We will invite people to apply for that area”, or will the alternative business structure come forward with an assessment of a place—shall we say in my part of Wales, north-east Wales—and present to the Government its assessment of the need for it to add a legal element or firm to its bank, insurance company or supermarket?
What will happen? I have been involved in the small high street firm, and I know that high street firms will no longer be able to compete, so they will close down. When they do that, the fees of the large firms that come in will go up. It is classic competition. I remember that, in my early days as a solicitor, the banks used to offer a trustee service. They would then go to local solicitors and ask them to act on their behalf, which they did. The fees charged by the trustee services of the various banks were far in excess of what high street firms charged. As for usability, how many of us are able to talk to a bank manager in the bank? The Minister is indicating that she can, and she is very lucky. She will have to tell me his name—she will tell me the name of her bank in a minute. In most cases, the manager is somewhere in the country on the end of the phone and inquiries go in all directions. We miss and lack personal involvement with a local solicitor. It is sometimes said that such people have limited expertise, but they have direct access through the legal system of this country—not that of Europe, the Netherlands or wherever else—to the leading people in their field for whatever problem crops up.
I mentioned at Second Reading that, as an articled clerk, I had instructed Lord Elwyn-Jones leading the noble Lord, Lord Hooson. I recall on another occasion—this was on the high street—instructing the noble and learned Lord, Lord Lloyd of Berwick, on a commercial case that happened to crop up. Such cases did not crop up very often but, when they did, we had access to the very best of advice. How is this alternative business structure capable of replacing a system like that by adding on to the banks, insurance companies, motoring organisations and commercial retail firms to which the noble Baroness referred an office for legal services? They are bound to cherry pick, and they are bound not to carry out the community services that we used to do for nothing. I do not believe that it is in the consumer interest for that to happen. It may perhaps be in the interests of the lawyer who wants to sell out and get some capital, but it is not in the consumer interest at all. You also have to consider the professional problems—clause after clause of the Bill seeks to address them—of confidentiality, of legal professional privilege and, specifically, of conflict of interest in a firm that has other interests that go well beyond the interests of the particular client.
I said yesterday and I repeat it today: the Bill is fuelled by the Consumer Council, which sees the LSB as an extension of the Consumer Council. It should not be that way. It is dealing with professional organisations with a long history. It may be that the Law Society has fallen down in one aspect, that of dealing with complaints, in the past few years—it did not used to, but it has recently—but that is not a good enough reason, nor is it in the consumer interests, wholly to throw the legal profession of this country into disarray, to put people out of business and to introduce the alternative business structure that Part 5 provides for. A better service? I do not believe it. A cheaper service? I do not see it.
The Committee will gather that I should declare an interest as a lawyer, but—this is the point that I make—I am at the end of my career. I heard some noble Lords say, “No, no”, and I hope that more people will say that. I have no personal interest in this continuing, but I have a deep feeling for the needs of the legal profession and a deep understanding of how it has served the community of this country. There have been areas where it has fallen down but, compared with the way in which the legal profession of this country represents people, both in this community and in the international community, those setbacks are as nothing. So, without making a further Second Reading speech, I oppose Clause 70.
I suppose I need to respond to the noble Lord. I apologise that I was not in the Chamber at the beginning of his speech, which I hope was slightly more constructive than some of the rest of his remarks. I came in when he said that I am the lone voice of the consumer. I know we are fairly sparse at this stage of the evening, but it would be deeply regrettable if in the course of this Bill I was the only person who felt it necessary to speak primarily on behalf of consumers. I think he corrected himself a little later on and began to talk about the consumer interest.
I accept entirely that the consumer interest is not always served by greater competition. Some competition can drive out the best and reduce standards. In general, though, where we have loosened up the markets over the past 30 years, the consumer interest has been served by increased competition—not always, but in general. That has had to be accompanied by effective regulation in the consumer interest and in the interest of the stability of supply of the service or goods.
The Bill seems to do both. It cautiously advances a bit of competition. Compared with every other market we have changed over the past 30 years, this is pretty cautious. The extension of allowing legal services to be conducted in a multidisciplinary firm or to be invested in by non-lawyer interests seems to give great scope for providing more, better and more sophisticated and integrated one-stop shop—although I know the noble Lord does not like that term—services.
In my small town there are almost as many lawyers as there are estate agents, and almost as many again as mortgage brokers. For most consumers, it would be jolly handy if those services were all in one firm when they were conducting the biggest financial investment that they will make in their lives.
Does the noble Lord not agree that if that were to happen, competition in all sorts of fields in his small town would decrease? Is not the essence of the small-town solicitor that he is in competition with other firms? Is it not the essence of the Bar that every barrister, self-employed, on his own, is in competition with every other barrister?
It is part of the present structure that that aspect of, for example, buying a house is, theoretically, a national competition. But the noble Lord is almost contradicting his own arguments, because in practice the people of that small town will probably go to one of their local high street solicitors. There is already competition among solicitors and estate agents. Equally, there would be competition among multidisciplinary ABSs. That is the essence of this issue: the service that solicitors provide ought to be available in many different forms and in combination with other services.
As I was hinting in my intervention on an earlier amendment, there may be areas where that degree of competition could not possibly survive. In the remoter rural areas and very small towns, I suspect that would be a problem. For that reason, assessment and monitoring by the regulator of the effects of introducing these alternative business structures would be a valuable addition to the Bill, at least in terms of government commitment if it is not a legislative matter. That would be an important aspect. For the vast bulk of people, though, it must be better that the range of services that they normally need in any complex legal transaction could be made available in one place. If they do not like it, they can go back to dealing with the estate agent and the solicitor elsewhere.
I said earlier to the noble Lord, Lord Campbell of Alloway—sotto voce, so it is probably not in Hansard—that some of my best friends are lawyers. Rather fewer are estate agents. Among the lawyers I occasionally see, and I had better not name them, there is quite a keenness for developing new and creative ways of providing their service and new partnerships with other professionals in their locality or sphere of specialism. At the moment, the whole structure inhibits such creativity and the growth of alternative services in that respect.
That is why, in principle, for the bulk of consumers there would be an improvement in the services offered. There would almost certainly be an improvement in the price and the value for money of those services. There needs to be some protection for those areas of the country and those particular specialisms that might be adversely affected; they should probably be provided for. In principle, this change must be a good thing, and I therefore strongly oppose any move to exclude these clauses from the Bill.
We created alternative business structures under Section 66 of the Courts and Legal Services Act 1990. What prevents many of the manifestations of those structures coming into place is the lack of rules and regulators. Removing this entire part of the Bill does not remove alternative business structures, it simply removes an opportunity to create the structures in the way that we have designed them.
I reiterate that it is important we do not set ourselves up in your Lordships’ House as being either the consumer or not the consumer. I do not believe that in any of our constructive discussions my noble friend Lord Whitty has been the only voice of the consumer. Indeed, many noble Lords have been at pains to point out that, although they may or may not come from the legal profession, they are here to represent their views in the context of either having been a consumer, that they are a consumer, or that they serve a consumer. I am a bit saddened that once again the noble Lord, Lord Thomas of Gresford, refers to my noble friend as the “lone voice of the consumer”, especially considering the party from which the noble Lord comes. I have huge respect for the Liberal Democrat party. I have worked closely with the party over the years and one of the things I believed it felt most passionately about, until today, was that it represented the consumer interest, both in the context—
I really cannot allow the Minister to get away with that, however pleasantly she puts it across. I am representing the consumer when I say the consumer will suffer. That is what I said—it was the whole burden of my speech: the consumer will suffer with these alternative business structures. The consumer will suffer because at the moment legal services are highly competitive among themselves—you can go anywhere and get as many quotes as you like for whatever you want to do. Whatever legal business you are in, it is highly competitive and it remains so. I am saying that from the consumer point of view, the introduction of a structure that licenses alternative businesses is an additional cost. These licences will not be cheap and they will be passed down to the consumer with no benefit to him. That is my point. We are the party of the consumer and I repeat that. That is why I said earlier when this point was raised that when it comes to this matter, the Government are on the wrong side.
I am sure that I did say that but that was in the context of the one person who says, “I am a lay person and I am for the consumer”. We are for the consumers. The legal profession is for the consumers—they are the people we serve. We serve the people. We are the mechanicals who keep all the legislation that Government pass going.
I am pleased that the noble Lord believes—reasonably, I am sure—that the legal profession is for the consumer, but it is important in these debates that we do not try to differentiate the roles. The point I was making was entirely linked to the statement that the noble Lord, Lord Whitty, is the lone voice of the consumer. I do not deny that the noble Lord, Lord Thomas of Gresford, passionately believes that his distrust of this part of the Bill is based on his desire to serve the consumer well. I was merely making the point that it is a pity if we find ourselves in this Committee trying to differentiate our roles in that way—and I think that it is a pity especially if it comes from the Liberal Democrat Benches. That is the point I was making.
I do not believe that the provision is a diminution of the legal profession—that is not the intention. This is about enabling the legal profession to go into partnership with bodies with which it may have a connection, and which are then able to support it by investment and working closely with it to provide better services. I agree with the noble Lord that if we fail to achieve that, this process will not have been satisfactory and the structures will not have delivered what is important.
I referred earlier to the Netherlands and the august figure of Neelie Kroes, the European Commissioner for Competition. She is a highly respected woman who serves the Commission well and is regarded as one of the best commissioners. It is not as if the Netherlands were going to encroach on our legal professions but the competition commissioner is interested in the work going on here. I hope that the noble Lord has the benefit of meeting her at some point, as I have had, and seeing the quality of the way in which she approaches her work.
I am not suggesting that the Legal Services Board should look around the country and invite people to come forward. I am suggesting that there may be cases—we can already think of circumstances in which that might happen—where people believe that they can provide services in conjunction with those from the non-legal world. The assumption that this must be anti-legal profession or anti-consumer worries me. Were anyone to seek that, we believe that the safeguards in the Bill—with the proviso I gave about looking again at them—will and should deal with that effectively. It is about better services for the professions and for consumers; it is overarchingly in the public interest.
Those who wished to enter into such arrangements would go to the licensing authorities and set out their reasons. The authorities would look at their circumstances in the context of the regulatory objectives and make a decision. We should not make assumptions about the detriment to the high street; we should not make the assumption that the high street always provides all the services that people want at the quality and price they want. We are looking for better opportunities but within the context of making sure that access to justice is preserved alongside the other objectives.
The noble Lord asked me, and I put my hand up, whether I go to a high street bank and whether I ever meet my bank manager. Yes I do. I have the phone number of my local bank and there is a person I can speak to. It is not because I am special but because that is how they do it. It is possible to have business structures which provide a highly individualised service. I accept that we have to ensure that that is the case. I also accept what the noble and learned Lord, Lord Woolf, who is no longer in his place, said in Committee and to me privately. He would worry if we lost the personal touch. I understand that and will think about it further. I do not accept that there will necessarily be cherry-picking, but I accept that we have to guard against it. That is partly in the Bill.
I have had many discussions with the noble Lord, Lord Phillips of Sudbury, who is no longer in your Lordships' House, and I know that he has been talking to a number of noble Lords. I wish he were here to talk about the Bill.
It is his choice, not mine. I have already told him I think that he should. He talked about pro bono work, and I think that the noble Lord, Lord Thomas of Gresford, may have referred to it obliquely. I declare my interest: I spent 15 years of my life developing programmes for pro bono work across a whole range of professions, including the legal professions, to support many community projects. I was a director of Business in the Community, an organisation familiar to many. The noble Lord, Lord Phillips of Sudbury, was our legal adviser, so I worked closely with him there as well.
Interestingly, it was in the main the larger, high-quality firms which were able to offer pro bono work. The difficulty for the smaller organisations was having the resources and the economies of scale needed to release people for that expertise. I remember the noble Lord telling me 20 years ago that his firm got more applications from graduates than any other. It was because of the company’s ethos and approach; it gave graduates opportunities beyond the legal professions. I am sure that he was right and that Members of the Committee who belong to legal firms or know of them will also know that that is one of their attractions. Pro bono work, secondments and so forth, have always been an added bonus, particularly in attracting the brightest and best from those who wish to go into the profession.
From everything that I know about this, I do not accept for a minute that pro bono work would suffer as a consequence. That is simply not the case—quite the opposite. The more opportunities that are available to a company—because it is bigger and more able to cope—the better. I do accept, and have accepted throughout our discussions on Part 5, our need to ensure within the legislation that we have achieved the things that I mentioned to the noble Lord, Lord Kingsland. We must ensure that safeguards are correctly in the Bill, look again to see that the regulatory objectives are properly covered and take forward the monitoring. We must do those things and look again, without commitment because I do not know what will come forward as a consequence. The Committee should support this measure, not only in the interests of the consumer, important though that is, and not just in the interests of the opportunities for the profession, important though they are, but because I believe fundamentally that this is a new and important step in making sure that our citizens and our professions get the right quality services. Parliament should support that.
My noble friend may recall that I said some while ago in answer to the noble Lord, Lord Kingsland, that there are real problems with piloting an approach where we are trying to allow business to flourish—not least because it could be anti-competitive. We were looking at how to approach in a cautious way the development of alternative business structures. We could pilot it, but then you run into the problems I indicated in my previous discussions, as my noble friend will remember. If you say that a pilot means that the first 20 firms to apply get it, what will that do for the quality of the applications of the first 20 firms? Surely, those who wish to will rush forward and say, “We want it because the potential is enormous”. How do you then deal with the fact that you have allowed those firms to come forward and not others, bearing in mind that we no longer have a geographical locality for business? Because of the internet and other means you can have a nationwide approach, which could make the difference.
Or do you take a sectoral approach and say that companies involved in this sector are allowed to become alternative business structures and move in on the market? I have real difficulties with how one could do that. A cautious approach should be taken. We should make sure that we have set up the rules and the licensing authorities properly. One issue that bears looking at, which the noble Lord, Lord Kingsland, raised and others supported, is how one finds out what has happened. You want to make sure that you have identified the structures that give the best possible effect. I have agreed to look at that issue.
The noble Lord, Lord Campbell-Savours, raised an important point. The whole question of pilot schemes greatly exercised the Joint Committee and we did not reach a firm conclusion, but it is worth reflecting for a moment whether it might present a way forward. The Minister is right that it is difficult to decide how to structure a pilot scheme. Earlier in our deliberations today the Minister said, “Who will be the lucky ones who will get those opportunities to demonstrate how alternative business structures can proceed?”, but that is probably the wrong way to look at this.
We had a vigorous debate about pilot schemes on home improvement packs and I engaged in quite a lengthy debate with the Minister's colleague, the noble Lord, Lord Rooker. We had quite a problem about geographical area and whether the scheme would be voluntary or compulsory. The noble Baroness, Lady Andrews, recently decided that the issue was probably a little more on the backburner now because we have been exploring how it could be introduced and it gets more and more difficult.
However, I also advocated pilot schemes for conditional fee agreements. On reflection, if we had had pilot schemes for conditional fee agreements we might have avoided some of the very serious problems that have arisen. The great advantage of pilot schemes is that you can in a location or particular area look at the effect that a whole new system is going to have. As the noble and learned Lord, Lord Woolf, said earlier, you could have a pilot scheme—I am not suggesting that Wales, in particular, would be a good idea for a pilot scheme on alternative business structures—in central or north Wales or, indeed, some part of England. You could take a region and see what effect alternative business structures would have. Although the Joint Select Committee did not reach a clear view, I hope that the Minister has not ruled it out. We are all determined to try to make this a success but we need to test the water.
Earlier the Minister was musing on whether she was in favour of evolution or revolution. I have never seen her as a revolutionary. I think that she is much more in favour of evolution. My noble friend referred previously to an incremental approach. There must be a better way in which to test this new concept; even if we do not go back to Sir David Clementi’s ideas of starting with LDPs, we should at least test the water first.
I am grateful to the noble Lord for putting forward those propositions. LDPs come into force when the Bill is passed, so we will have the benefit of them in any event. The difficulty of piloting, if it were desirable—and no one has yet solved this problem—is with the assumption that the provision of legal services is on a strictly geographical basis—in the north of England or central Wales, for example—when services are not necessarily provided in that way. We do not have localities in the same way as we did; services are provided by the internet and other means across the country. The local high street solicitor might be a fabulous idea, like the sound of the ball on the willow bat, but the situation has moved on in many cases—and that is very difficult to constrain.
By doing as noble Lords suggest, we might end up enabling in a particular locality something that could be construed—I have not tested this yet and merely make the proposition—as a very anti-competitive measure. We would have to select the first 20 companies or a group of companies operating in a certain locality that could create new structures and operate on that basis, offering different kinds of services. But in the next town, or five miles up the road or 200 yards up the road, there would be companies that could not do that. That is my difficulty with the proposal.
I have tried to approach the suggestion that the process should be incremental by looking at it in the context of ensuring when it is set up it is right. Although I know that the noble Lord has quite reasonably raised issues about conditional fee agreements—and I have considered them—this is a different issue. It is right and proper to think about lessons learnt from setting up different aspects up of a regulatory framework and we have to ensure that we get it right, but that is how I would go with the opportunity to monitor. Perhaps we can think further about that.
I am extremely grateful to be able to intervene, because in a sense I am a latecomer to this debate—although I must say that noble Lords all look very nice on the monitor.
I want to throw in one aspect that ties in with what the noble Lord, Lord Whitty, was saying. We should not be frightened of competition. I do not think that the providers of legal services have ever had need to be frightened of competition. We have seen an extraordinary amount of change in the past 20 years. It is not at all territorial—I can think of lawyers going from respected firms in London to live in Scotland who continue to give highly specialised employment law advice. I know that schools with which I am associated take advice on employment issues from people who are not lawyers and that accountants and lawyers already work together. My point is that we should not be frightened of competition. Whatever we do to be cautious and protect from bad developments, we must be careful not to over-regulate. What we expect from lawyers, wherever they are and whoever they are associated with in partnership, is that they are properly trained, that they keep up to date and that they maintain the high professional standards that we expect from all parts of the profession. If we achieve that, we will have gone a long way.
I agree with the noble and learned Lord. Given that this is about members of the legal profession taking an opportunity presented to them that is supported, not only by the consumer lobby, but elsewhere in the professions, we are providing choice for them—choice to develop partnerships, choice to work in conjunction in different ways, retaining their professional responsibilities and upholding their standards and so on, and their desire to provide a high-quality competitive service to their clients. We would agree with all of that.
It is an opportunity, nothing more; we are not forcing anyone to do anything. It is an opportunity for new forms of business to develop; but that can happen only when we have got the rules right, when we have licensed people appropriately, when we have clarified matters, as I have promised, to ensure that the devastating effect on access to justice described by the noble and learned Lord, Lord Woolf, does not arise—that simply could not happen—and when we have looked again at how the Legal Services Board might review what has happened. This is potentially an exciting proposition that is largely welcomed outside your Lordships’ House.
My job is to allay the concerns of the noble Lord, Lord Thomas of Gresford, and others who worry in principle that somehow this is a bad change. They are concerned about loss of linkage between the individual solicitor and the client and they are concerned about cherry picking. They want to ensure that those concerns are dealt with appropriately. Equally, I wish to address the slightly different concerns of the noble Lord, Lord Hunt, in this context and those of the noble Lord, Lord Kingsland, in relation to the previous group of amendments. They say that while they do not oppose the idea, they oppose anything that is not thought through properly and does not incorporate the stages that would make a difference. I am not opposed to that. I have to say to my noble friend Lord Campbell-Savours that I am opposed to piloting, because I do not think that it works. I am opposed to incremental stages because that approach does not work. I cannot think of a way in which it could be done without there being all sorts of difficulties. However, I am absolutely certain that we have to get this right. My job is to demonstrate that we have thought the issue through further or to demonstrate that adequate provisions are already in the Bill. If I can do that, I hope that people will be genuinely excited that this could be an opportunity to develop services.
I hope the noble Lord, Lord Thomas of Gresford, will forgive me for returning to the suggestion of a pilot scheme made by the noble Lord, Lord Campbell-Savours. Before the Minister closes the door on that, as she appeared to suggest, perhaps we might explore another possibility—to respond to the representations that have been made to us all by organisations such as the AA. I have met Mr Molloy of the AA, who, as the Minister has just said, is very excited about the prospect of being able to offer legal services through alternative business structures. I have also met Mr Gulliford of the Co-operative movement, who is equally enthused. Citizens Advice would like also to explore these alternative business structures. Rather than have a geographical spread, would it not be possible to tell a small number of organisations—a select number who have shown enthusiasm and met the necessary qualifications—that they can be the first to test this concept? I am trying to explore whether the noble Lord’s suggestion is possible in a different way; perhaps the organisations could provide the pilot scheme. I hope the Minister will not rule it out.
The proposal that the AA should be given an advantage—that is certainly how it would be perceived by other organisations, not least the RAC—creates enormous difficulties. It is right that they are enthusiastic; the Law Society equally so. I hope I am right in saying that; I think I am. The Government cannot pick individual organisations and give them what could and would be seen in the world of business as a competitive edge. That is a fundamental difficulty with the noble Lord’s suggestion. Again, I return to the approach that I have tried to propose: to make sure that we have got this right, we must be absolutely clear. Could the licensing authorities look at, and perhaps model, what could happen?
That modelling process might mean that one is able to reconcile. I understand the noble Lord’s desire for piloting, to make sure that we know what the consequences might be. Again, that is something we can think about. This is not going to come in tomorrow. It is an important and potentially exciting business opportunity for the legal professions, with great consumer benefits. We have to make sure that the potential for any detriment is negated by the way in which it is set up. The noble Lord knows that I am open to, and willing to talk about, all sorts of proposals. Nobody has yet found a proposal that I think is better than the one I have put forward. Simply, it would be wholly inappropriate and wrong to pick a few companies and give them, and nobody else, the chance to do this. We would be unable to do it. We would find ourselves in grave difficulties.
I am not going to get into the processes for that, because I do not know what they were. In any processes of this kind one has to consider the rules on competition and, I would argue, justice for the business community in being able to compete. If the AA were given, as the noble Lord, Lord Hunt of Wirral, suggests, first bite at this, would that necessarily fulfil our objectives of making sure that there were choices, and so on? I know that is not what the noble Lord would want either. It is an important area, but between the work of the Select Committee and noble Lords, we can make progress and find ourselves able to rejoice in Part 5 of the Bill. Even the noble Lord, Lord Thomas of Gresford, may yet find himself rejoicing.
I do not normally quote myself, but we have a principle in the courts that you can refer, if challenged, to the consistency of what you have previously said. Therefore, this is what I said at Second Reading:
“There is undoubtedly a case for a one-stop professional service so that accountants, insurance agents, estate agents or architects may make cost savings in marketing, administration and office expenses. There are certainly benefits for the professionals, but I query whether there are benefits for the consumer of having only one door to go through, but then being directed to various offices inside a single building”.—[Official Report, 6/12/06; col. 1174.]
There are benefits and cost savings for the professionals, and I have no doubt that that is why the Law Society has expressed such support for the idea. I know that the Law Society has supported this. It is not doing so with the consumer in mind. It sees it as a way of sharing costs and expenses and possibly of getting more people through the door. However, from the consumer’s point of view, that is not a way that the Government should go. If they really put the consumer first, it is wrong.
As the Minister said, we on these Benches have a track record of supporting consumers. I am not speaking for lawyers; I am speaking on behalf of the consumers. I can do it because I have seen the legal profession at every level, from articled clerk all the way through, and I can see the service that is provided. I reject the suspicion that has permeated some of the comments on the Bill that any objection to what the Government are doing is the result of the lawyers getting together in some way and trying to do down the public. That is rubbish. Although I shall withdraw my opposition to the clause for the moment, I look forward to the further fresh thinking that the Minister promised us to see whether anything actually emerges. In the mean time, I hope to work with the noble Lord, Lord Kingsland, on some of his ideas, which at the least will have an ameliorating effect.
Clause 70 agreed to.
Clause 71 [“Licensable body”]:
Amendments Nos. 108ZA and 108ZB have been incorrectly marshalled. I shall call Amendment No. 108ZB before Amendment No. 108ZA.
moved Amendment No. 108ZB:
108ZB: Clause 71 , page 40, line 38, at end insert—
“provided that a body is not a “licensable body” if the only managers who are non-authorised persons are individuals who do not provide any services to consumers”
The noble Lord said: This amendment, which has been inspired by the City of London Law Society, would ensure that a law firm will not become an ABS solely because it wishes to appoint as a manager—that is to say, a partner member—a non-lawyer professional. Examples of individuals whom it might want to appoint are a head of finance, a head of IT or a head of similar skills. The amendment will apply only if these appointees exclusively provide internal services to their firms and do not provide any services to clients of the firm.
We agree that it is important to protect consumers through regulation of firms with outside investment or those which are controlled by non-lawyers. However, the additional burden of the ABS regime should not apply wholesale to any firm that may in future appoint a non-lawyer manager as head of one of the activities to which I have referred the Committee and who does not supply any external services. In these situations alone, the protection to the consumer afforded by the ABS regime will be entirely superfluous; and the firms will not be faced with the burden of unnecessary bureaucracy. I beg to move.
I strongly agree with my noble friend. It is important to listen to the City of London Law Society in the following respect: it is vital that we should not draw into alternative business services the sort of situations that my noble friend has just described. Otherwise, we will be faced with all sorts of bureaucratic problems and administrative hurdles. Adding the words,
“provided that a body is not a “licensable body” if the only managers who are non-authorised persons are individuals who do not provide any services to consumers”
makes the point that my noble friend identified. I hope that the Minister will accept the amendment.
I agree strongly with the points that have been made. I understand that a large number of such situations are already in existence. Many firms of solicitors employ an accountant, for example, as their practice manager. He or she has an important position in the firm. I am quite sure that it is not the Government’s wish to make the whole regulatory system more complex or elaborate. If they have not already done so, it is important that they do a good deal of reconnaissance to find out exactly what is happening presently that does not need any change. They must ensure that they are not doing what one might previously have called “piling Pelion on Ossa”. I have never quite understood how you stick one mountain on top of another, but the point is there. We do not add one level of regulatory requirement to another, or force one down a different but inappropriate route.
Unsurprisingly, I am not inclined to accept this amendment. I want to explain the basis on which we have organised how firms will be regulated. The principle behind the amendment is that legal practices could offer partnership or equivalent status to non-lawyers who work internally within the business—such as IT or human resources directors—and would not need to be licensed as an alternative business structure.
In the alternative business structures discussed by Sir David Clementi in Chapter F of his report, a firm of this type is a legal disciplinary partner practice. Non-lawyers could become partners or directors, but for the purposes of assisting the business in the development of legal services. I know that there is widespread interest among existing firms in adapting their management structures in this way, as the noble and learned Lord said. I would not be surprised if this arrangement were one of the first to emerge under the new alternative business structure licensing arrangements, but I am not persuaded to exclude them altogether from Part 5.
The safeguards within the Bill take a flexible approach to new opportunities for practices owned and managed by different combinations of lawyers. We have provided that firms with small numbers of non-lawyer managers can qualify as what we have called low-risk bodies, under Clause 106. This provision was created with exactly this type of arrangement in mind.
I am not sure that by exempting them I could be confident that we had any form of regulation over the managers in question. In particular, we need to make sure that there is proper protection for legal services, which in an alternative business structure is the function of the head of legal practice. In principle, I entirely agree that non-lawyer managers can make a real contribution. In most cases their influence is a positive one. Yet as managers they are in an undeniably important position to influence the business, as head of resources or head of business development. It is for that reason that Sir David Clementi recommended that they should be properly accountable to the regulator. As a function of Part 5 of the Bill, if a firm is a licensed body all people in positions of control, whether lawyers or not, are subject to this supervision, bound by specific statutory duties and sanctioned for non-compliance. These safeguards should apply to all managers whether they provide services to consumers or not.
We cannot necessarily make a realistic distinction between these cases. Being a partner or director in a firm brings with it influence and responsibility. Where legal services are concerned, it is right that anyone in a position of great influence should be effectively regulated. Effective regulation in Part 5 may be applied flexibly in practice. The provisions in the Bill for low-risk bodies strike the right balance, so I ask that the amendment be withdrawn.
The Minister is quoting Sir David Clementi, and particularly Part F of his report. Yet he did not recommend the alternative business structures that we are now talking about—far from it. Therefore, I do not see that the noble Baroness can really plead Sir David’s recommendations in support of what she is now proposing. Obviously, I wait to hear the reaction of my noble friend, but I wonder whether the Minister appreciates the fact that, within a law firm, the head of human resources is the head of human resources. He or she has all the power and influence of being head of HR, and the same applies to the heads of IT and finance and so on.
We are talking about an artificial structure in which those people are currently prevented from being partners in a practice. There may be only one such partner in a 200-partner practice, but at the moment they are restricted by not being allowed to become partners or part-owners. In most cases, they would play a very small role and their influence would not really increase, but this artificial barrier would be removed. In these amendments, the City of London Law Society is seeking to ensure that this small change does not immediately result in the full panoply of alternative business structures.
It does not result in the full panoply of business structures. That is why I made the point about low risk. We can take one of two views. The first is that, if we are to make structural changes in the way that the legal profession works, we should do so in a cautious, measured and appropriate way, recognising concerns that companies may swoop in and take over legal firms in the high street, bringing with them all kinds of negative practices in their relationship with the client, and so on—I exaggerate, but not much; that proposition has been put to me. On the other hand, we could say, “Well, it’s okay if the lawyers have a couple of people in. One is head of business development, one is head of finance, and they can do what they like because they are lawyers and, anyway, we are only talking about a couple of people”.
We are in a very difficult and, I suggest, dangerous world. A proper regulatory framework might have the flexibility for people to say, “People coming into our legal firms as partners are able to offer real expertise, support the profession appropriately and provide proper and appropriate legal services”. However, to say that they should not be people of influence or that such matters can be left to the firms is to say, “Well, it’s okay in that set of circumstances but it’s not okay in other sets of circumstances”. There needs to be an appropriate response, which we believe we have in Part 5, bearing in mind everything that I have already said. That response says, “If you make changes, you need to make them properly and recognise that we want to ensure that legal services are provided appropriately”.
The noble Lord, Lord Hunt of Wirral, is undoubtedly right that in the vast majority of cases these people are of high quality and they provide extra services. However, occasionally one or two individuals could have enormous influence on the direction of a legal firm that could alter the access to justice provisions and the regulatory framework objectives and so on. So we have said that we require a gentle and light-touch approach but one that, none the less, recognises that there has been a change.
Can the noble Baroness enlighten us in relation to what I think the City of London solicitors are getting at and what I was getting at? Let us take a firm that has 50 partners and whose practice manager is an accountant. What regulatory structure will exist in relation to that accountant or the 50 partners that is different from what exists today, except that the accountant is regulated by his membership of the Institute of Chartered Accountants? Over and above that, what will change?
The principles that we have set out within the Bill recognise that this is a low-risk situation. It is not without risk but it is low-risk. It is possible for an eminent accountant to have an enormous influence, and that may be right and proper.
I apologise for interrupting but I want the noble Baroness to answer my question, not speak motherhood and apple pie about there not being much risk. What is the structure going to look like? What will the firm and the accountant, who is the practice manager, have to do now?
I was not trying to be motherhood and apple pie, not least because I do not like apple pie. I was trying to say that if one has that scenario, and we accept that there is a person of great influence, we have set out in the Bill a framework that says one can do it in a low-risk way. We will have to think about and work through the detail. I am happy to write to the noble and learned Lord and explain further from my honourable friend who has the policy responsibility what that might look like. The fundamental principle that I am trying to establish at this point is that it is about low risk. We are not suggesting that this is a high-risk situation, but one cannot think that there could never be circumstances—that is the point I was trying to reach with the bit about motherhood—where that individual could not have a huge impact on that firm.
The noble Baroness will not be surprised to hear that I am disappointed by her reply. This is a situation in which the individual in question is providing exclusively internal services to his or her firm and there is no question of that person providing any services to the clients of the firm. It seems that the logic that lies behind Part 5 and the alternative business structures does not have any application to the amendment that the City of London Law Society wanted to see advanced in Committee. Nevertheless, the noble Baroness has been clear in her opposition to what the amendment seeks to achieve. In those circumstances, I shall have to go away and consider the matter.
I do not want to detain the noble Lord, but the issue is the same whether it is a major company coming into partnership with a legal firm or an individual. Neither is directly providing legal services to the clients nor involved in doing so. The issue is that if we have that conjunction of different people, the influence that they bring to bear on the provision of legal services cannot be discounted. If it is an individual, or two or three individuals with specific roles within the legal firm, it can be argued that that is a much lower risk and much less of an issue than if it were a major company coming in with huge resources and so on, but I cannot accept the idea that they have no influence. All I was saying was that it is the same proposition; but the degree is very different and I completely accept that. I do not accept that one can simply say that it does not have any influence and it would not affect the way that the legal services were provided and therefore we can ignore it.
The noble Baroness has sought to underpin further the view that she expressed earlier. I shall go away and consider whether it would be appropriate to retable the amendment on Report. Meanwhile I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.