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Legal Services Bill [HL]

Volume 689: debated on Tuesday 6 February 2007

My Lords, on behalf of my noble and learned friend Lord Falconer of Thoroton I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved accordingly, and, on Question, Motion agreed to.

House in Committee accordingly.

[The CHAIRMAN OF COMMITTEES (Lord Brabazon of Tara) in the Chair.]

Clause 71 [“Licensable body”]:

108ZA: Clause 71, page 40, line 38, at end insert—

“( ) A body is not a “licensable body” if it is regulated under section 9(A) of the Administration of Justice Act 1985 (c. 61).”

The noble Lord said: The aim of this amendment, together with Amendments Nos. 150A, 150B and 150C, is to enable legal disciplinary practices, that do not have external ownership, do not seek to provide multidisciplinary services and offer only the services that an ordinary firm of solicitors can provide, to be regulated under the Law Society’s mainstream regulatory amendments. We emphasise that even if these amendments were accepted, multidisciplinary practices and firms in which there was external capital investment would still be regulated under Part 5; that is, under those provisions which deal with alternative business structures.

These amendments develop the approach of those discussed right at the end of the third day of Committee: to permit those who play a significant part in running a firm, such as the finance director, to be recognised with the status of a partner even though they are not qualified lawyers. Under the Bill, it will be possible to make non-lawyers partners in solicitors’ firms, but the price of doing so is that those firms will be regulated under Part 5. In our submission, that is bound to cause a substantial but unnecessary regulatory burden.

Sir David Clementi’s report identified the additional challenges for regulation that would arise from either external ownership or the provision of multidisciplinary services, and we have no argument with that. But in dealing exclusively with practices that have neither of these characteristics, Sir David makes no sharp distinction between firms all of whose partners are solicitors and those with some legally qualified partners and some who are non-lawyers. In his report he said:

“Legal disciplinary practices (LDPs) are law practices which permit lawyers from different professional bodies, for example solicitors and barristers, to work together on an equal footing to provide legal services to third parties. They may permit others … to be Managers, but these others are there to enhance the services of the law practice, not to provide other services to the public”.

Sir David concluded that the majority of the partners should be lawyers. These amendments, therefore, are designed to secure precisely that. The Law Society would establish a register for permitted non-lawyer partners and set requirements for eligibility on the register. The requirements would include a character and suitability test so that individuals who could not, by virtue of previous misconduct, become solicitors would not be permitted to become non-lawyer partners. Moreover, potential partners would have to demonstrate familiarity with the Law Society’s principles of professional conduct, as all managers and partners of a firm share a responsibility for ensuring that the firm complies with its regulatory responsibilities. In our view, this would respond to the hesitations expressed by the Minister at a rather late hour. There is no reason to assume that the Law Society’s regulations would be any less rigorous than those under Part 5.

This approach is wholly consistent with our view, shared by Sir David Clementi, that the ABS arrangements should be introduced incrementally. These follow on from the previous set of amendments. In our submission, they contain the necessary guarantees that the Government are seeking and ought to be accepted. I beg to move.

I strongly agree with my noble friend. This subject exercised the Joint Committee on the draft Legal Services Bill. In our report, at paragraph 291 on page 84, we urged the Government to use less haste and more care, and on page 85 we referred to table 5 and the staging of the introduction of ABS firms. My noble friend’s amendment would comply with stage one, which we described as LDPs involving existing recognised bodies. That, of course, falls very neatly with what my noble friend has said.

I declare an interest as a partner in a national commercial firm of solicitors, Beachcroft LLP. I am a subscriber to the Gazette, whose front page features a very attractive picture of the noble and learned Lord the Lord Chancellor, Lord Falconer, with his mouth wide open, saying:

“LDPs to be set up in mid-2007”.

That has come as very good news to everyone. The article stated:

“Lord Falconer said legal disciplinary partnerships (LDPs)—with no non-lawyer managers or owners—will not be alternative business structures (ABSs) envisaged by the legislation and so need not wait for the legal services board (LSB) and the ABS licensing system to be set up. Instead, LDPs will be available once the Act is enacted, which could be in summer 2007”.

The article continued:

“Lord Falconer said ‘the fact that we are allowing [LDPs] to emerge in advance of alternative business structures answers a key recommendation’ from the joint parliamentary committee which examined the draft Bill”.

Three cheers for that. We heard that at Second Reading and we now want to hear what the Minister proposes. This amendment gives her the opportunity to put LDPs into action straight away. In many firms a comparatively small number of people who deserve to become partners are not at present permitted to do so. The Law Society has well known procedures; in fact, it refers to the operation of legal disciplinary practices as “legal practice plus”. The society has been involved in this type of regulation for a number of years.

So, step by step, can we please entice the Minister to say, “Yes, I accept these amendments”?

The noble Lord, Lord Hunt, loves to entice me to do things. I try very hard, as he knows, to resist his enticements, though occasionally I succumb. I do not plan to succumb today on this amendment, but I shall say a little about the approach I have sought to adopt in this part of the Bill.

One of the critical concerns when considering regulation and how to make alternative business structures work has been consistency. Consistency is very important in how Part 5 will work. I had the privilege of meeting the trademark attorneys yesterday and talking to them about their concerns regarding some organisations.

I do not dispute for a minute that there are different types of alternative business structure firms, and that some will involve lower or higher risks. We have already had some conversations on the third day in Committee, and no doubt we will have more today, about those issues. However, I do not accept the principle that, even where a majority of lawyers control the firm, there is less influence or less potential for influence from non-lawyers. Noble Lords will know that, in the legal profession as much as elsewhere, even one individual can have a huge impact on any kind of company.

In the financial services market, control beyond 10 per cent is treated as significant. I do not see why we have to consider legal firms differently in that context. In Part 5 we have provided that any person or body who controls 10 per cent or more has to be individually approved by the licensing authority. We have given flexibility to low-risk bodies—those whose total control by non-lawyers is less than 10 per cent—but we do not exempt them from the regulations in Part 5.

It is also important to remind ourselves that in Part 5, whatever the level of influence or control of non-lawyer managers or owners, they can personally be held liable for breaches of professional rules. They are accountable to regulators in the same way as lawyers and, equally, may be disciplined for misconduct. That is an important safeguard in the context of some of the concerns raised in your Lordships’ House and beyond.

Above all, we want to ensure consistency—the classic “level playing field”—and appropriate regulation, hence the “low risk” status of companies whose total control by non-lawyers is less than 10 per cent and a clear regulatory framework for those whose non-lawyer control is above 10 per cent. As I recall saying during the passage of the Compensation Act, regulation need not be heavy-handed or seen in a negative way. Quite the opposite; this is a very positive measure, which we hope organisations will embrace. I accept that we need to think carefully about how regulation works and ensure that firms feel able to participate in ensuring its effectiveness. The Law Society and others will be critical players in that, but I do not accept that we should make exemptions or have differences in how it is done. That is not to say that I do not think that the Law Society would make good rules, I hasten to add.

I am listening with great interest to the Minister. These amendments would still mean that these firms would be regulated. I pay tribute to the Minister for her work in bringing forward the Compensation Act 2006; her light touch is legendary. But given that we have the Law Society with its existing regulatory requirements, why cannot we allow LDPs to continue under that particular regulator and regulatory regime rather than wait for a much more onerous and difficult-to-understand regime, which no doubt we shall discuss under later amendments?

It is not onerous and difficult to understand—far from it. I am grateful for the noble Lord’s comments about my light touch. We have talked a lot about the partnership between the front-line regulators and the Legal Services Board; we have had some very interesting and satisfactory debates about how that might work. It is important that we continue with that theme, but we are not minded to have different sets of regulatory framework. It is much better to be consistent. With no discredit at all to the work of the Law Society or its abilities in this regard, we believe that it is better to do this as we have set it out in the Bill, to be clear about the role that Part 5 plays and to be clear with all those involved in alternative business structures about their responsibilities and their liabilities. But we hope that we will allay some of those concerns in the way in which the system is set up and taken forward—and I am sure that we shall return to that particular point at length and between stages of the Bill.

I am of course most grateful to the Minister for her reply. I can only conclude from her responses that she disagrees with the judgment of Sir David Clementi—and I must say that I share the surprise of my noble friend Lord Hunt of Wirral.

The provisions under Part 5 will not come into effect for some considerable time; by contrast, once this Bill gains Royal Assent, it will be possible to start immediately with legal disciplinary practices under the aegis of regulation by the Law Society. There is no reason why the Government should not look very carefully at the system of regulation applied by the Law Society to see whether it meets the kind of criteria that they would like to see met under Part 5 generally. The Government would have three years to make this assessment.

Given that we all seemed to agree during the previous day in Committee that an incremental approach to alternative business structures was highly desirable, here is a golden opportunity for the Government to put that philosophy into practice. Where is the danger? The Minister can always intervene and say to the Law Society that its regulatory system is not up to scratch and that they want something tougher and more penetrating. But it would provide the Government with a marvellous opportunity for a dry run for what they hope to achieve in future with the provision of external finance and multidisciplinary practices.

The Minister is nodding but demonstrating no inclination to rise again to her feet.

I am always happy to rise to my feet, but I did not want to interrupt the noble Lord.

I do not see anything in the Bill being at odds with what Sir David Clementi said. As I understand it, he said that we need to have certain safeguards for all types of alternative business structures. Those are built into the approach we have taken. We think that it is better to have the consistency of regulation; it is just a different point of view.

I was nodding as I was thinking of our desire to approach noble Lords’ concerns about alternative business structures with an open mind on how they develop and with a recognition that we shall take time to get this right, which is important. The noble Lord, Lord Kingsland, has some interesting ideas on other things that we might consider in that regard when we discuss later amendments. I was nodding at all that, but I believe that the way we have set out the measure is better and reflects a consistent approach. I say that with no disrespect to the Law Society.

In the light of what the noble Baroness has said, I do not think that I can take this amendment much further today. Therefore, with a degree of regret, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 71 agreed to.

108A: After Clause 71 , insert the following new Clause—

“Patent and Trade Mark Agents

A body—

(a) existing at the date this Act comes into force and entitled to use the description “Registered Trade Mark Agents” or “Registered Patent Agents”; and (b) which through the operation of section 71(1)(b) of this Act would otherwise be a licensable body, shall not be a licensable body unless it ceases to be entitled to use the said descriptions.”

The noble Lord said: This is another amendment which comes from the patent and trade mark agents. I was delighted to hear from the noble Baroness that she has met representatives of the trade mark and the patent bodies, as, indeed, she undertook to do on the previous Committee day. I am extremely grateful to her for taking that trouble.

This amendment relates to the ownership qualification for a licensable body, as set out in Clause 71(1)(b). It arises specifically out of the unusual position in which the patent and trade mark agents find themselves in comparison with other approved regulators. Patent and trade mark attorneys have never been restricted as to their ownership. As I understand it, a number of firms—at least one major firm and several smaller ones—have external owners, and have done so for a long time. I should emphasise that this situation is perfectly legal.

As far as I can discern, there has never been any suggestion of a risk to a consumer, nor indeed any risk of conflict of interest. To us it seems inequitable to regulate a business practice that has so far been perfectly legal and where no risks have been identified. If the Bill is passed as it stands, this would cause considerable cost and, indeed, disruption both to existing firms and to the regulatory authorities themselves, who would be compelled to become a licensing body for their members. I beg to move.

I am grateful to the noble Lord for his remarks about the meeting that I had yesterday with both organisations. It was a very good meeting. I plan to correspond with them and to put copies of the correspondence in your Lordships’ House. There were misunderstandings on a number of issues that I was very pleased to clear up and which I shall set down in writing. We discussed the issue that the noble Lord has brought forward in this amendment.

I do not think that it will come as any surprise that I shall not accept the amendment but I am mindful of three points which I discussed with the organisations yesterday and which are worth commenting on. The first concerns the issue that I believe we have already touched on; that is, making sure that regulation is simple and straightforward to enable the firms which, as the noble Lord rightly says, are perfectly legal and are doing a fine job, to be regulated without feeling that it is a burdensome or additional pressure.

The second issue that we discussed was cost. We will continue to talk about our desire to make sure that it is not in any way a prohibitive feature of what we put in place. The Bill is deliberately flexible to allow that. The third issue that they were concerned about was the transitional time. Again, I am very keen to hear their thoughts and views on what that might be, so that we can have a discussion on how to approach that. I am not minded to allow an exemption, not surprisingly, because the way in which the amendment works would mean that it would be a widespread exemption. I know what the noble Lord is seeking to achieve. We know that a number of the firms concerned would, under Clause 106, fit in the low-risk, 10 per cent status. Those will have rules modified to suit the lower risk that they present. As I have indicated, we are in discussion with them about their concerns about how it would work in practice.

I am not minded to exempt, but I am very clear that we want to make sure that this works effectively for them, that it is not burdensome, that we deal with issues of cost, and that the transitional period is appropriate. I hope that we will be able to allay their fears in that way, which may get us not quite to the same point, but at least to the point where they will be content.

I am most grateful to the noble Baroness for her reply. I am disappointed that she is not prepared to accept my amendment, but I gain some solace from what she said about a transition period. Much will depend on the length of that transition period. For that to be a satisfactory alternative to what is proposed in the amendment, it would need to be, as the Americans say, a meaningful length of time and not something that is merely derisory. I gain a certain amount of optimism from observing the noble Baroness nodding. Therefore, I make haste to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clauses 72 to 80 agreed to.

Clause 81 [Licensing rules]:

108AA: Clause 81 , page 47, line 3, leave out subsection (1)

The noble Lord said: This amendment would remove the obligation on the Legal Services Board to make rules in its capacity as a licensing authority. The principle in the Bill for the regulation of alternative business structures is that front-line regulation should be carried out by the approved regulators once they have received authorisation to act as a licensing authority. I emphasise that only approved regulators can seek to become licensing authorities; it would not be open to any other regulatory body to fulfil that role.

The principle that only approved regulators can seek to become licensing authorities in itself provides an important protection. It is right that the same consumer protections are in place in respect of alternative business structures as apply to ordinary law firms. It is also right to ensure a level playing field, so that the regulatory requirements applying to alternative business structures are equivalent to those that apply to ordinary law firms.

That is best achieved, we submit, by ensuring that, as the Bill clearly intends, the same regulators are responsible both for ordinary law firms and for alternative business structures. However, that principle is undermined by the provisions that would enable the Legal Services Board itself to act as a licensing authority. It is understandable that there should be a power for the Legal Services Board to act as a licensing authority in an emergency. For example, it may be necessary for a variety of reasons to cancel the designation of an approved authority. In that case, to avoid a licensing vacuum, the Legal Services Board would have to step in; but it would be wholly inappropriate for the board to act as a licensor in the absence of an emergency of that type.

I am much obliged to the noble Lord for giving way. If you have to define an emergency, are you not opening up the situation? How do you define an emergency? It is very difficult to achieve. It would be much better, as the Bill proposes, to have a direct and simple way of achieving it. The noble Lord is adding complexity to a situation which should not be there.

I am most grateful to the noble Lord, who makes a good point; but the Bill does set out the circumstances in which an emergency can arise and how the Legal Services Board should act. The philosophy that lies behind the amendment, and many other amendments that the Opposition, other noble Lords and noble and learned Lords have tabled, is to make it clear that the task of the Legal Services Board is supervisory—that it should step in only if one or other of the approved regulators falters. All the amendment seeks to do is to ensure that in normal circumstances the approved regulators are the licensors and that the power of the Legal Services Board is narrowed so as to take that power on to its shoulders only when an approved regulator is clearly delinquent.

The noble Lord’s point is still valid because the question of whether something is an emergency must, in the end, allow for a degree of discretion. It may well be, in the light of the noble Lord’s intervention, that I shall have to look again at that aspect of Part 5; but my point is to ensure that the Legal Services Board is not able to trespass into an area which is rightly that of the approved regulator. I am most grateful to the noble Lord for his intervention.

The argument has been advanced that provisions of this sort would be necessary if the approved regulators were unwilling to become licensing authorities; but that is not a sustainable argument. Why should an approved regulator be unwilling to become a licensing authority or to license a particular form of alternative business structure unless it considers that such a licence could not safely be granted—bearing in mind that it would have to act in accordance with regulatory objectives? Given all of the approved regulator’s experience of regulating different sorts of law firm, if it feels that it cannot safely regulate a proposed form of alternative business structure, it would be foolish for it to be directed to do so.

In the past, there may have been a concern that the professional bodies would decline to permit alternative business structure firms to operate—not on regulatory grounds, but out of a wish to protect their members from competition. However, that argument no longer applies, if, indeed, it ever did. The Law Society, for example, made it clear that, provided the necessary consumer protections are in place, it has no objection whatever to the provision of alternative business structures.

I suggest that your Lordships also bear in mind that the Bill ensures that, in future, decision-making on regulatory issues will be independent of any representational role which an approved regulator may have. So there is no risk of approved regulators’ decisions about alternative business structures being taken on protectionist grounds. I beg to move.

I apologise for having been unable to be here earlier. I have very little to say but this is an important amendment. Whether it is in the right form is not the point; put simply, the issue to which we have returned, is: should the LSB intervene unless there is reasonable cause to do so? We look at this matter in different ways and it is expressed in different ways in the form of some amendment. It was said in another way today, but the drafting is not terribly important; it is the principle to do that for which I contend.

I am having a little difficulty in understanding Clause 81. Perhaps I can explain my difficulties so that the noble Baroness can set them at rest. The first line of the clause states:

“The Board (acting in its capacity as a licensing authority)”.

According to the ordinary rules of grammar, you would think that that would apply to the rest of the provision but that is not the case. Subsection (1)(b) says that the board,

“may make or modify its licensing rules only with the approval of the Board (acting otherwise than in its capacity as a licensing authority or as an approved regulator)”.

So far as I understand the provisions—that may be quite a restriction—the board acting as a licensing authority is the same as the board acting not as a licensing authority in its construction. Therefore, the board has to make the rules acting, under subsection (1)(a), in its capacity as a licensing authority and approve those same rules not acting in its capacity as a licensing authority. That seems a somewhat unnecessary complication. How it is supposed to add to the business, I do not know.

Assuming that one gets over these slight grammatical difficulties, do the rules that the board makes in its capacity as a licensing authority apply to other licensing authorities? Clause 81(3) states:

“Licensing rules of a licensing authority are rules as to”.

Therefore, for example, in so far as the Law Society might be a licensing authority, its licensing rules are not the rules of the board, so to whom do the board’s licensing rules apply, particularly if they are not intended to apply generally but simply in some kind of overarching emergency? I find this whole provision a little difficult but I have no doubt that the noble Baroness will be able to explain it in a way that even I will be able to understand.

While we all enjoyed the spectre of the ship of state of government being holed below the water-line by my noble and learned friend Lord Mackay of Clashfern, and as no doubt some degree of repair is about to be carried out, I just think that the answer is to leave out subsection (1), which is exactly what the amendment seeks to do. Only approved regulators can seek to become licensing authorities. Surely that is the main point, as well as being the main point behind the amendment. Why are we putting this obligation on the board, acting in whatever capacity, to make licensing rules, which it has to do before the end of 12 months?

I agree with my noble and learned friend Lord Mackay of Clashfern that it is difficult to understand how this will operate and to whom these rules will apply. Although I recognise the validity of the point made by the noble Lord, Lord Clinton-Davis, we are trying to introduce a simple regime. Provided we still stick to the principle that only approved regulators can seek to become licensing authorities—for example, the Financial Services Authority cannot apply to become a licensing authority—why do we need this additional obligation on the board, particularly when we cannot work out to whom the rules will apply? I and my noble friend, who served so valiantly on the Joint Committee, are anxious to ensure that it is as easy to understand as possible. We have a dilemma, particularly if the Minister runs true to form and rejects this amendment as well. Surely, the answer is for her to accept it.

I am afraid I am running true to form for the time being. It is not that I feel holed below the water-line but perhaps I need to resolve a little drip. I say to the noble and learned Lord, Lord Mackay, that I am not so foolish as to try to do other than to listen very carefully to what he says about the drafting of the clause. I shall look at the drafting, which is important. I am grateful to him because if he finds the drafting difficult, it is worth looking at it again to ensure that it is as clear as possible.

On the licensing rules applying to others, they apply only to bodies that authorise the licences and the Legal Services Board rules apply only to bodies that it licenses and not to other licensing authorities. I am not sure whether that makes it any clearer and I shall try to give him further details. I am certainly happy to look at the issues that he has raised.

I have a lot of sympathy with the intentions behind the amendments so I want to set out how we have dealt with the concerns raised. I completely take the point that one of the themes running through the Committee stage of the Bill is ensuring that the supervisory role of the LSB—the noble Lords, Lord Kingsland and Lord Hunt, certainly referred to this—is important and that the board intervenes only where it needs to. I accept that. Earlier today and on other Committee days we have spoken about the partnership approach. We think we have set this out to prevent the board acting prematurely as a licensing authority.

Schedule 12 is important in that context. We have three sets of circumstances in which bodies can approach the board for licences: first, where there are no competent licensing authorities for the service that a body wants to provide and none is applying to be designated, so there is a gap in the market, if I can put it that way; secondly, where there are competent authorities, but they have determined that they do not have suitable regulatory arrangements, and none is planning to make such arrangements; and, thirdly, where there are non-commercial bodies, such as not-for-profit bodies, where licensing authorities have suitable arrangements but none is offering terms that are appropriate for those bodies. In addition, the board is not obliged to grant licences when any of those conditions are met. It still has to consider the merits and it may turn down the body.

I completely accept the need to deal with the concern that the board should not be able to license bodies where other licensing authorities have said that they do not consider they can do so safely. There are two different interpretations of what we might mean by “safe” or “unsafe” in this context. It may be that for individual bodies rejection generally does not allow them to approach the board. Schedule 12 is constructed to avoid that. It applies only where the general circumstances do not allow bodies to be licensed—not where bodies have had unfavourable decisions. The only exception is non-commercial bodies, such as not-for-profit agencies, for which special provision is made in order to maintain the health of the not-for-profit sector.

The other meaning one could put on this is that licensing authorities do not feel able or competent to license and regulate those bodies because of how they are structured. That is covered by the second ground in Schedule 12; it is what “suitable regulatory arrangements” means, although it may also be that licensing authorities want to build up experience in more unusual forms of alternative business structure firms. They may not have suitable arrangements for two broad reasons; the authorities may not have prepared licensing rules for the services in question, either because they are not an authority’s intended market or because they are unfamiliar; or they may be a combination of services that authorities feel cannot be safely licensed.

The intention behind the amendment is that the board should not be able to license bodies either. It sounds fine in principle, but licensing authorities will be experts and if, having considered the situation, they conclude that licensing is not safe, I would expect the board to respect that. I remind the Committee again that the board is not obliged to issue licences. It may not have suitable licensing rules and may conclude that none can be devised. It is important to consider the possibility that licensing authorities have not created regulatory arrangements for a full range of services. I have indicated that it is particularly important for providers such as not-for-profit bodies. It is unlikely that they would not be catered for, but we must ensure within the Bill that we have thought of the possibility that that could happen.

We agree with the thrust of wanting the board to step in only as a last resort, and Schedule 12 is designed for that purpose. I hope that, on reflection, the noble Lord will agree that we have got that right and will feel able to withdraw the amendment.

I am grateful to the Minister for setting out her philosophy, which I find partially reassuring. The difficulty is that, in our judgment, it is not set out in the Bill in a way guaranteeing that, once these provisions are in operation, the Legal Services Board will exercise a degree of self-restraint consistent with what the noble Baroness has said. That is the issue.

The Minister did not go on to follow the logic of the principle she adumbrated to the Committee by saying that she would amend the Bill to make it absolutely clear that that is the situation. That is what we wanted to hear from her.

As with all amendments, I will, of course, reflect on it. We think that we have captured it within Schedule 12, which is why I wanted to put our approach on the record; there is a lot of agreement on principle between us. I am always happy to look again to ensure that we have captured it; I have already undertaken to look at whether the grammar works as I hope it will.

I thank the Minister for agreeing to look at the matter further. Irrespective of her reaction to what other noble Lords have said, I suggest that the particular points of my noble and learned friend Lord Mackay merit her urgent consideration. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 108B not moved.]

108C: Clause 81 , page 47, line 25, at end insert—

“( ) appropriate provision requiring the licensing authority to consider the likely impact of a proposed application on access to justice when determining the application,”

The noble Lord said: The amendment raises an issue rightly debated at considerable length during the clause stand part debate initiated by the noble Lords, Lord Thomas of Gresford and Lord Maclennan of Rogart. It concerns the desirability of having a specific access to justice provision in Part 5. Clause 1(1) contains an access to justice provision as one of the seven objectives that the Legal Services Board and other authorities designated under the Bill have to take into account. However, it is only one of seven; and in the balancing exercise by a regulatory authority, it might not carry the weight that we believe it ought to carry when designing an alternative business structure under Part 5.

I apologise to noble Lords for rehearsing some of the arguments that have already been raised; but this amendment inserts a specific access to justice requirement at page 47, line 25. It makes clear that, in itself, access to justice should be a crucial component in the design of any alternative business structure. I make no apologies for quoting the Law Society’s response to the Government’s consultation paper In the Public Interest:

“New entrants into the market may bring about some benefits. However, there is a risk that there may be long-term structural effects that destroy service provision and the fabric of small communities. Put bluntly, new entrants might cherry pick more profitable and less complex areas of work, driving down the profitability of established local firms who offer a full range of services at the heart of their communities. If that happened, where would consumers go for advice on complex matters?

The Law Society’s conclusion is that whilst the regulatory issues concerning new service providers can be dealt with … there are very serious risks to access to justice from the uncontrolled admission of new entrants. Existing practitioners report that in many areas, a number of existing firms serving small localities would be in jeopardy if large institutions entered the market for legal services. We believe that the Government needs to carry out much greater research into the likely impact of liberalisation before taking … decisions on the way forward”.

The Joint Committee of both Houses that examined the draft Bill under the chairmanship of my noble friend Lord Hunt of Wirral also drew attention to this issue. It stated that it was,

“persuaded by some of the evidence suggesting that some of the reforms may reduce geographical availability. We consider that ABSs may reduce the number of access points for legal services and we see this as a potential problem. There is clearly an issue here and the only conclusion we are able to draw is that we cannot be sure how it will work out. We recognise that there may be a trade-off between the quality and accessibility of advice—for example, a small, high street solicitor in a rural area may not be able to provide the specialist advice a client requires. We recommend that the Government amends the draft Bill to ensure that the impact of ABSs on access to justice, particularly in rural areas, informs the decision-making process for licensing an ABS firm”.

Our amendment does not assume that the consideration of the impact on access to justice would be fatal to an application for a licence; it is simply intended to ensure that the licensing authority considers that aspect when an issue seems likely to arise and gives it full weight in determining its application. I beg to move.

This Bill applies largely to England and Wales, but it is possible that a firm could have a branch in, say, Scotland or another jurisdiction, even in Europe. Access to justice could therefore be affected in a local area in Scotland. Is that possible? It would be very interesting to know that.

I support my noble friend’s amendment. I invite the noble Baroness to explain fully—as she always does—government thinking on this important matter and to consider teasing out a little further between now and Third Reading whether we have this right. The idea of alternative business structures coming in could well be beneficial. The liberalisation of the conveyancing market some years ago was generally beneficial and did not—at least it was not my impression—cut down access to other forms of justice and services; in fact the whole market became a good deal more liberalised.

On the other hand, there is a genuine risk here that large businesses coming in looking for volume may cream off some of the more standard work and consequently remove the legitimate earning power of those who provide a wider service. The amendment concerns that aspect. I have racked my brains to provide a specific example; I do not think that we are in specific-example country here. It is a question of whether there will be enough small to medium-sized genuine firms of solicitors providing a good general service to those who literally need access to justice, as opposed to needing the more mass-produced services that can be provided. I much look forward to hearing what the noble Baroness has to say.

I too support the amendment. Your Lordships may recall that I was a member of the Joint Committee serving under the noble Lord, Lord Hunt. One aspect in the evidence that worried us a lot was that the provision of legal services in a new way and by new entrants, as it were, could damage existing firms.

I was not able to be here on the last occasion we discussed this, but the noble Lord, Lord Thomas of Gresford, spoke about his experience and his knowledge of practice, particularly in Wales and no doubt elsewhere. He gives an account of some firms of solicitors working in quite beleaguered circumstances. In other words, there is a very narrow margin that keeps them going. I reached a conclusion on the committee that the Government had not been sufficiently concerned about the impact on local solicitors. I support this provision because it would require that consideration was specifically given to the threat to other practitioners in the area.

I have already made the point in previous contributions, but I would like to underline it again. In a small solicitors’ firm there are various types of practice and different partners take on different responsibilities. One part of the firm may make a lot of money and the other part may make a loss.

Perhaps I may give one or two examples, as the noble and learned Lord, Lord Lyell, mentioned that he was unable to. Making a will is a loss-leader. There is not much profit to be made out of making wills. Wills are made and kept in the solicitor’s office because probate can be a financially profitable business. In due course, the family come to the solicitor, the will is produced and, naturally, probate is undertaken by those solicitors.

Conveyancing used to be a particularly profitable part of the work, especially when there were fixed fees. The noble and learned Lord, Lord Lyell, referred to liberalisation. Conveyancing bodies were set up that completely undercut that market. I am too far removed from practice to say whether conveyancing is as profitable today as it used to be.

The Government are concerned about the consumer, so: “A cheaper conveyance, great. A free will, that is all right”. But in fact, on the profitable sides of the business depended much of the community work that a solicitor did. He got and still gets his work by providing a community service, so that he is known in a locality; he is a friend of people and to families over a wide range of matters. Through that, the profitable and the unprofitable come together.

Nothing in the Bill suggests that a large firm coming in—an insurance company, shall we say, the AA or a supermarket; the sort of institutions that we have been talking about—will be in the least interested in providing that comprehensive service. They are not interested in the community; they are not interested in getting work in through their connections, through building clients in the locality over years—the word of mouth from one client to another—and so on. That is not how big business operates. It operates on the market.

I started my remarks on Second Reading by saying that the market has taken over and that perhaps that is not a good thing. It does not follow that it is in the public interest—that driving down cost to the client will produce a better service. If we put into the balance the fact that solicitors in small towns—such as the small town in which I practised—have to make a living and have a reasonable standard of living for all the qualifications that they have obtained and the money that they have invested to reach their position, the weakening of the community service that large organisations are likely to bring is undesirable.

The amendment is to be wholeheartedly supported, because at least it proposes a consideration of the wider community in the authorising of ABS services. In parts of north and mid-Wales that I know well, if the supermarkets, which tend to dominate on the outskirts of towns, take over the profitable parts and leave the rest, that will be against the public interest. The public interest is a matter that the regulatory body must take into consideration when it comes to alternative business structures.

I wholly support the amendment and, in particular, the reasons just given by the noble Lord, Lord Thomas of Gresford. It takes me back to my early days when I worked the western circuit. It is so long since I was in practice, but I cannot believe that those solicitors are not still there to serve their communities. They were small solicitors, highly efficient, but they had good work which enabled them to do the poorly paid work. It is very important that whoever deals with this should understand the practicalities as they have been extremely well put by the noble Lord, Lord Thomas of Gresford.

This is such an important amendment that it is probably the most important one that we are discussing today. I am very grateful for the points that have been made by so many noble Lords already, but I recall that it was the noble and learned Lord, Lord Woolf, who warned that alternative business structures could have—I believe that I am quoting him correctly—“a devastating effect on access to justice”. There was a sense of chill when he used the word “devastating”, because those of us who support alternative business structures in no way want that to happen. We want very much the opposite; we want alternative business structures to extend the opportunities for the public to have access to the advice that they need. Several of my colleagues who have already spoken contributed very positively to that debate. In the Joint Committee, witness after witness expressed their concern that the ABS provisions may have an adverse impact on access to justice. The Master of the Rolls told us:

“It is very difficult to see how this suggestion is going to improve access to justice for those who cannot really afford it because … anybody who is going to invest money into it is going to be looking for a return, quite unsurprisingly”.

Since we had all that evidence, many of the bodies have continued to be in touch and say that they are still looking to the Government for some reassurance on access to justice. The Legal Aid Practitioners Group, which faces problems on a number of fronts, particularly since the Carter recommendations, highlights two areas that very much follow the points already made in this debate. Richard Miller, the director of that group, said:

“As a representative body for legal aid firms and agencies, we are particularly concerned about the likely impact on the current range of services provided by high street solicitors. Commercial providers will be attracted by the areas that can be commoditised, computerised and provide a reliable margin of profit. These services often subsidise legal aid work, and without them high street firms may not be financially viable. ABSs will cherry-pick only the profitable work, such as conveyancing, wills and telephone helplines”.

The noble Lord, Lord Thomas of Gresford, has just made the same point. Richard Miller went on to quote from one of the contenders for alternative business structures who has actually said as much.

Much more serious, however—I mention this particularly to the Minister—is the threat that claims farmers now have plans to own law firms. The Gazette of 4 January, which I quoted from a little earlier, highlighted a number of claims farmers who have already expressed an intention to do so. After the recent high-level collapses of the Accident Group and Claims Direct, both of which left many people worse off and caused losses to a whole range of individuals, this seems a highly undesirable development, and at the moment there is nothing in the Bill to stop it.

I do not believe that the Government have ever responded adequately to the Joint Committee’s concerns. As my noble friend has already pointed out, we in that committee highlighted the enormous concern that we all had about access to justice. In one of our recommendations, we said:

“We consider that ABSs may reduce the number of access points for legal services … There is clearly an issue here and the only conclusion we are able to draw is that no-one can be sure how it will work out”.

The Government need to rethink this area. I believe that my noble friend has given them an important amendment.

The Minister may refer to the fact that one of the regulatory objectives, under Clause 1(1)(b), is “improving access to justice”, which is good as far as it goes. My noble friend, under Clause 81, would make sure that there will always be adequate,

“provision requiring the licensing authority to consider the likely impact of a proposed application on access to justice”,

right at the outset when the application is being determined. What could be more sensible than that? I am not sure that it will alleviate all the concerns, but it will go some considerable way towards doing so.

Perhaps the quotation that the noble Lord had in mind from my noble and learned friend Lord Woolf is:

“There is no doubt that large businesses could provide legal services in a novel and interesting way. But that could—unintentionally, perhaps—have a devastating effect on those who have traditionally provided services in rural areas in particular. Great care has to be exercised to see that damage does not occur”.—[Official Report, 23/1/07; col. 1057.]

Is that the passage?

I underline and endorse what the two previous noble Lords had to say about rural areas, particularly what is said in paragraph 324 of the House of Commons and House of Lords report on the draft Legal Services Bill, to which the noble Lord, Lord Hunt, referred. I spend quite a lot of my time in the West Country, which is a rather less well off area of England where the absence of legal aid is hitting quite hard. The effect of the ABS firm may be quite dramatic in an area such as that. For the licensing authority to have the requirement of access for justice immediately in front of it, in that section of the Act, would be a very useful reminder. I strongly support this amendment.

Perhaps I may, having served as a Member of Parliament for a rural area for a number of years, add my support to this amendment and, indeed, echo the words of my noble friend Lord Thomas of Gresford and others about the importance of having something like this amendment in statutory form to ensure that rural areas have proper legal services.

My experience over 14 years as a Member of Parliament for a rural Welsh seat until 1997 included the observation of a contraction in the service provided by firms of solicitors. One reason for that contraction was the advent of franchising and similar arrangements in civil cases. I am not sure that this is right now, but until very recently only one solicitor in the whole of north Wales and mid-Wales was franchised to carry out litigation for claimants in clinical negligence cases. That made it very difficult for those of us who were trying to help people to obtain good-quality legal advice without travelling very large distances to do so. It became a significant problem. One of the effects of the Carter proposals will inevitably be a contraction in the number of firms carrying out criminal work, in particular in rural areas such as mid-Wales where the critical mass of work is small and cross-subsidies have always kept firms going.

Another observation that I made during my years as a Member of the other place, which I understand is borne out today, is that large organisations, claims farming firms and others that are interested in doing work on a very large scale have no incentive to work in rural areas. It is extremely expensive for them to advise people in rural areas. The result for potential litigants is that the best that they can hope for is litigation through questionnaires and occasional telephone calls, which are often from people who are business oriented and not qualified to advise them on the legal issues concerned.

There is a great deal of nervousness in rural areas—the situation in north Wales and mid-Wales is replicated in North Yorkshire, Cumbria and many rural parts of the country—about the effect of liberalisation of the market. One is not against liberalisation in itself, but some protection for rural areas is as justified in this sphere as in any other.

An average member of the public listening to this discussion might feel that it is about protecting the incomes of lawyers, as indeed it is. All noble Lords who have taken part are legally qualified, and when the Minister gets up to respond, she will be the first person after me who is not. We know that the public are a bit suspicious of the money that lawyers make, but, in an area with a relatively low population, people depend on competition between small legal firms. As a consumer of the law in such an area, I know that. Moreover, lawyers often compare notes about what is going to happen, who is going to do what and, I suspect, the fees that people will charge, although I do not know that.

This may be a terrible thing to say, but the public depend on this kind of competition. If a large alternative business structure arrives in an area—one might even arrive in my area if there is a branch in Scotland—it might wreck the system. In simple terms, that is what many of the high-powered lawyers whom we are lucky to have in this House are saying. The Government should consider the amendment carefully, or at any rate its spirit, because we do not want access to justice through competition among lawyers in less populated areas to be wrecked by the Bill.

The odd thing about this debate is that I agree with much of what has been said, and I do not want to have a chilling effect. I am concerned to ensure that we allow only proper and appropriate organisations to be alternative business structures. I hear what the noble Lord, Lord Hunt, says about those who are galloping in that direction, and we will need to be clear about that. I agree, too, with the eloquent words of the noble Lord, Lord Thomas, in our discussion on the last occasion and, in part, in what he said today about rural issues, and with the words of the noble Lord, Lord Carlile. I accept what was said last time by the noble and learned Lord, Lord Woolf. Indeed, he and I have discussed his concerns, which I am sure the Committee would expect me to do. I accept, too, the observations made by the noble and learned Baroness.

I am not a lawyer, but I now have an honorary law degree given to me by the noble Lord, Lord Rix, so that is something. However, there is very little between us. What we are arguing about is how best to express any concerns within the regulatory functions contained in the Bill. I have received a letter from Antony Townsend, chief executive of the Solicitors Regulation Authority, stating that,

“the amendment is worthy of debate, but we would be concerned at one of the statutory regulatory objectives appearing to hold dominance over the others … Access to justice is important and we would want to reflect that in a licensing scheme, but not in priority to other important regulatory objectives”.

I raise this only because it is important that other voices are heard in the debate. I am sure that Mr Townsend would be more than happy to talk to noble Lords further about his concerns.

We need to remind ourselves first that we do make access to justice a critical feature of the regulatory framework. There is no difference between us on that. The negotiation concerns whether it should dominate over other factors. The difficulties, which I have sought to outline, are in making sure that there are no unintended consequences that might prevent the proposals from working as effectively as they might.

I have mentioned before that the arrival of an alternative business structure would enable higher-quality and possibly less expensive legal services to be provided, but for various reasons a small element of what had been available before would have to be provided by the next village or town. If you have access to justice as the overriding feature, that structure might not come into being. This could be detrimental to a huge number of people when what was being proposed to tackle the issue for the remaining few people was quite satisfactory. We have to be careful that we do not accidentally create difficulties, which I think is what the Solicitors Regulation Authority is concerned about.

We have made it clear that you can put conditions on allowing an alternative business structure to come into being. Those conditions could and would deal with some of the issues about which noble Lords are quite rightly concerned. For example, a firm of solicitors may be required to provide the kind of specialist services in a rural community that would be lost if they were allowed to disappear. It is quite possible for the licensing authority to be very clear and say, “Yes, you can have an alternative business structure but you must continue to provide these services”, either because it is a straightforward access to justice issue or because it is a part of its overview of how best to provide services more generally. I do not disagree that we have to be careful and mindful to ensure that—in rural communities especially, but not exclusively so—these structures come into being properly.

It is a fundamental principle that we provide opportunities for the legal world to expand, develop and grow, thereby providing opportunities for those who consume such services to obtain high-quality services—perhaps better services in some cases and services that were not available before in others. Access to justice is a very important factor within that. There is absolutely nothing between us. As I have said, I endorse all the comments that have been made about that. My difficulty is that there may be unintended problems if we say access to justice is the overarching objective. Between now and Report, perhaps the Solicitors Regulation Authority will raise its concerns with other noble Lords. It is the only difference between us, but it is a difference.

As always, I shall reflect on what has been said, with an understanding that there is no difference between us in what we are trying to achieve but with the proviso that it should not have the consequences that have been raised in Committee today and on previous occasions. I am not accepting the amendment but I am very mindful that in making the system work we must ensure that it does not have the consequences that noble Lords fear.

Before the Minister sits down, her first argument was directed at the idea that it would be wrong to make access to justice an overarching principle. But this amendment does not do that; it only adds one particular consideration among others. It is an old device of an advocate who has nothing much to say to raise as their opponent’s argument an argument that is easy to demolish. This is not an overarching provision; it is one factor to be considered among a number of factors. Indeed, from what she said, the Minister seems to agree that it is an important factor. It seems to me that her stance supports the amendment.

My noble and learned friend has, in effect, taken a part of the point—and far better than I—that I was going to make: that is, the decision of the board must be a balanced decision. This point was argued by my noble friend Lord Kingsland on the previous occasion and the one before that. I am worried that no one knows or can foresee whether what will happen will be for the good or the bad, or whether or not it will appear to be within the balance of the regulatory obligations. What provision is made for representation to the board before it makes a decision? I cannot find that in the Bill.

In reply to the remarks of the noble and learned Lord, Lord Mackay of Clashfern, I was not trying to be disingenuous in what I was saying. The difficulty with the amendment as it is framed is that it would invite access to justice to be the priority above the other regulatory objectives. The noble and learned Lord may disagree with me, but I think that that would be a potential consequence. I would not try to use a false argument and I hope that the noble and learned Lord accepts that. I am not suggesting that we should not consider how we might reinforce the duties of the licensing authorities. I have no difficulty with that, either.

I wonder whether the Minister might consider between now and Third Reading the possibility of the words “access to justice”, but in a slightly different form.

I do not mean a different form of access to justice. I respectfully agree with the noble and learned Lord, Lord Mackay of Clashfern, that it did not seem at all to be an overarching phrase, but, if the Minister sees it as such, there are other ways of using the same words that would get what we are all asking for without necessarily offending the relevant government department.

I agree, and I accept that “overarching” was the wrong word for me to use. I meant that it would be a priority. I say to the noble and learned Baroness that—I hate to say this, because your Lordships know far more about legislation than I do, but I have done quite a lot of legislation thus far in my career—the minute one puts something on the face of legislation, one singles it out and it creates a circumstance where one could see it as a priority. That is all that I am seeking to say.

I acknowledge what noble Lords wish to achieve. I understand completely the concerns that they have raised, for different reasons and from different experiences, and I have no difficulty with that. We do not wish to see unintended effects from alternative business structures that prevent people from getting access to justice, or indeed from getting the best from services that could be provided competitively, and so on. There is no difference between us on that.

I am happy to consider reinforcing the language. My issue was that if you pick out one consideration, that might create some difficulties. As ever, though, the purpose of Committee is for me to listen and to take these issues and look at them with greater care. I emphasise again, and I hope that the Committee will accept, that there is nothing between us on what we are trying to do. The question is how best to achieve it. I will look at the wording with regard to what the licensing authority does, which may help us get to where we need to get to.

On the question of how best to achieve it, would the Minister consider the problem that there is no means of representation to the board? How will the board make these decisions of great importance, which might work and might not? I would like some sort of undertaking, not a detailed commitment, that at least the question of representation to the board before a decision is made will be considered. That is all.

I will look at that. The noble Lord, Lord Campbell of Alloway, is right; it is important that the board is able to take account of that in its work. I will need to think about where that fits in with regard to legislation, good practice, rules or whatever, but I would expect there to be the opportunity for those who feel strongly in all directions to be able to put forward their views. With regard to the regulatory objectives, there would have to be the opportunity to look at that in the right and appropriate way.

I am committed to making sure that this is reinforced. I apologise if I used the wrong word. It was not meant to imply anything. There is an issue of priority, though, which would be the effect of the amendment. We need to think about that carefully.

Will the Minister say whether the body might have a branch in an area other than England and Wales? The effect could be more widespread than that which we are discussing.

The minute I see the noble Baroness, Lady Carnegy of Lour, I always think: Scotland. Then I check whether I have information about it. The way that the alternative business structures will be established means that they will cover England and Wales only, so it is difficult to see how they could impact on access to justice in Scotland, other than on what can already happen. A firm could decide that it wished to put more resources into England, Wales or Scotland. That would happen as a matter of course. They are entitled to provide only the reserved legal services through entities that they establish in England and Wales. To provide services from Scotland they need to be authorised or permitted by the Law Society of Scotland or the Faculty of Advocates. So there is no direct impact on access to justice other than what would happen when any firm decided to do something for business reasons and changed how it worked.

The Minister has expressed complete understanding of what lies behind the amendment and, on earlier occasions, a recognition of the potential impact of establishing alternative business structures on legal services provision in rural areas. It appears that she is not at odds with the Committee in seeking to minimise that possibility, but she departs from that broad consensus in thinking that specific language to take account of the problem is not required in the Bill. Her doubts about the language chosen by the Law Society and very ably advanced initially by the noble Lord, Lord Kingsland, are hard to comprehend when she knows that the Law Society is not setting its face against alternative business structures and has drawn attention to how they might amplify consumer choice.

The Minister does not draw attention, as she should, to the use of the word “appropriate” in the amendment, which sets at nought the anxiety that, by referring to a particular objective, it will blot out the other objectives in Clause 1. It is clearly implicit that in drafting the rules the licensing authority can do only what is appropriate in the context of the rest of the Bill. This is not the first time that we have addressed these questions, so the fact that they will be reconsidered again does not reassure me, when the committee over which the noble Lord, Lord Hunt, presided recommended that explicit language was needed—not just a ministerial assurance about broad objectives, not something encompassed in the broad objectives spelt out in Clause 1, but specific language dealing with this clear and present risk.

I should like to hear before this debate concludes that some effort is being made by inventive aides to the Minister to tackle this problem by legislation.

I should be more than happy to give the assurance that I have very inventive aides who are looking at a number of issues raised in Committee. As I said at the beginning of this stage, for me as a Minister Committee is in many ways the most important stage, because it enables me to hear about areas of concern and to think about those that we can address. I am trying to say, although clearly not very well, that on this question I can see entirely what motivates noble Lords throughout the Committee who feel strongly that in what we say and do we must be very mindful of the potential detrimental impact or chilling effect—whatever language noble Lords choose to use.

Noble Lords have mentioned rural communities and the issue of high street companies versus big companies that move in. I am very mindful of all those issues, which the noble and learned Lord, Lord Woolf, has discussed separately with me. I am perfectly committed to look at the language in the legislation, as the noble Lord asks. In the regulatory objectives we must ensure that there will be no unintended consequences, but I am happy to look at what more we can do, in the context of what the noble Lord, Lord Kingsland, seeks to achieve in his amendment. Noble Lords will find out what I have achieved by the next stage and make their decisions accordingly. I am trying to build up a picture of the areas of concern, precisely because those issues get raised again.

The noble Lord may be irritated with me because we keep returning to the same issues, but unless I have the chance to look across the Bill to see what noble Lords seek to do, it will be very difficult to come back with solid proposals at the next stage, which is what I want to do.

I am most grateful to all Members of the Committee who have intervened in the debate and to the Minister who replied. I start off by asking the Minister whether she would like, between now and Report, to think a little further about how the Government define “consumer”. We have heard in the course of the Committee that the Government are in many ways driven by the consumer interest and their desire to ensure that the consumer gets good value for money, but what do they mean by “consumer”? Do they mean someone living in a remote rural area, the kind of consumer to whom, for example, the noble Lords, Lord Thomas of Gresford and Lord Carlile, referred? Does the Minister mean the kind of consumer who, if not impoverished, is rather short of money and needs to know about really quite complex legal issues, perhaps associated with social security? Or does she mean the kind of consumer who drives around in a nice motor car and frequents supermarkets and such places where they can purchase really quite desirable and expensive products?

If the Bill is to achieve the Government’s stated objective, all the interests of all those consumers must be taken into account. It is simply not possible to talk about the consumer interest in general. One has to break down what one means by consumer in a particular set of circumstances, and, from the way in which the legislation is set out, I see no evidence whatever that the Government have even begun to think about that.

I agree completely with the noble Lord about the need to be clear about the different kinds of consumers. From my own experience in other walks of life, I believe that it is crucial that we think about the poor and the elderly as two groups who find it difficult to access all kinds of services. The provision of good, high-quality, low-cost food, for example, has been an issue on housing estates where people have poor diets, and so on. It is an absolutely classic issue for me.

I do not agree with the noble Lord’s assertion that the Government have not thought about that matter, but I know that I have some work to do before Report in convincing noble Lords that we have thought through the issues for all those different consumers, precisely for the reasons that the noble Lord gave.

I am most grateful to the Minister. I would only suggest that if, in the tranquil days that she will enjoy after today’s proceedings, she were to look at this debate, it would strike her most forcefully that the Government must address the definition of the consumer in considering what to do about this amendment.

My noble and learned friend Lord Mackay of Clashfern, in a characteristically apposite intervention, put it to the Minister that the amendment was a long way away from imposing an overarching obligation on the licensing authority. I invite the noble Baroness to look again at the wording of the amendment, which requires,

“the licensing authority to consider the likely impact of a proposed application on access to justice”.

That is all. It requires the licensing authority to take account of the effect that a proposed ABS would have on access to justice. It in no way seeks to undermine or displace the regulatory objectives under Clause 1(1). Access to justice is one of those regulatory objectives, but once this analysis has been carried out it will be placed in the context of all the other six. In my submission the notion that the amendment in some way imposes an overarching obligation is misplaced.

Is the noble Baroness really suggesting that there are circumstances in which access to justice would not be part of an analysis by a licensing authority when considering the establishment of the ABS? Is the noble Baroness seriously considering that a licensing authority might not take access to justice into account and not do an appropriate analysis of the impact on access to justice if it was faced with an application for an ABS? I see that the noble Baroness shakes her head.

No, I am not. I have already apologised for using the word “overarching”, which was clearly not right. I was trying to indicate the difficulties of prioritisation. I have already said that I shall consider whether this part of the Bill is properly worded to ensure that the concerns outlined are dealt with properly.

I am most grateful to the noble Baroness but this amendment is not about prioritisation. It is simply about requiring the licensing authority to take it into account by doing an analysis to determine the impact of the proposed ABS on access to justice. Those discoveries would then be set in the context of the objectives of Clause 1(1). That is all the amendment does.

I understand exactly what the noble Lord seeks to achieve in his amendment. However, I am advised that there is an issue about whether the amendment would present that issue as a priority, which is the point I was trying to make. The noble Lord says that he seeks to achieve something slightly different. This is incredibly helpful because, when considering how we address the concerns that were raised, I will have at the forefront of my mind what the noble Lord seeks to achieve. I am very grateful to him for that.

If I may respectfully submit, it is not just what I am seeking to achieve, it is what the amendment says. All the amendment requires is that an impact assessment is made by the licensing authority, which can then go back to Clause 1 and make of that impact assessment what it may.

I am very struck by my recollections of debates during the passage of the Access to Justice Act 1999. The then Lord Chancellor was at pains to emphasise the importance of the principle of local justice locally delivered. He emphasised it in the context of magistrates, other local courts and criminal defence. Indeed, that was the basis on which the Government established the Criminal Defence Service in that Act. It must follow that the principle of local justice locally delivered should apply equally to legal advice. Legal advice locally delivered must complement the principles of the public provision of courts and defence services. Over a very long period that principle has run through government thinking about the law and the way it should be made accessible to the public.

The Government are often accused of changing their principles or, indeed, on some occasions, abandoning them. Here is an opportunity for the noble Baroness to stick to a declared principle of the Government that, as I understand it, has run through what successive Lord Chancellors since 1997 have sought to achieve. I put it to her that rejecting this amendment would be an open invitation to licensing authorities to ignore analysis of the access to justice impact of any proposed ABS.

I wonder whether the noble Lord shares my growing suspicion that one of the reasons for the objection to his amendment is that if large commercial organisations are to be granted a franchise, as it were, to open up legal services at all their branches, the Government might think it too much of an imposition to require them to assess the impact in every area where they have a branch.

Certainly, we would have to think about how to do it and discuss this point with those who are considering becoming licensing authorities. As the noble Lord says, if you are going to do an impact assessment, it is important to do it properly. We would need to consider all those factors, as I said.

I am not moving away from any of the principles of local provision; however, people get services in lots of different ways. They do not get them just through local services on the high street, important though that is. People get their services by telephone, the internet and in lots of different ways. The critical issue is to provide a range of opportunities for people to get high-quality services, including those in their locality, for all the reasons that we discussed.

On the previous Committee day I asked how the Government would assess the impact on rural and disparate areas. Will the Minister indicate how they will approach the matter, even if she does so in writing?

I should be more than happy to do that. The noble Lord, Lord Kingsland, has tabled amendments on issues to do with monitoring and so on. If I may, I shall leave some of my remarks until we discuss those amendments. I accept that this is a very important issue.

It is plain that the noble Baroness is not going to accept the amendment today. She said that she wanted to reflect on all the points raised in the debate. It is only fair that she is given the opportunity to do so. However, I hope that she will not mind my saying that I have not yet heard a convincing argument from the government Benches that the amendment in any way undermines the Bill’s regulatory objectives; on the contrary, it would assist the Government to achieve its objectives. I hope that the noble Baroness will accept the amendment on Report. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

108D: Clause 81 , page 47, line 25, at end insert—

“( ) a provision requiring a body licensed by a licensing authority to comply with the law, professional rules and statutory and non-statutory provisions applicable in any jurisdiction outside England and Wales where the body may intend to conduct business,”

The noble Lord said: Although Part 5 applies to England and Wales only, there will be an impact on Scotland arising from the creation of alternative business structures. I am therefore obliged to the Law Society of Scotland for having assisted me in drafting a series of amendments which are designed to probe the extent to which alternative business structures will comply with the law of the jurisdiction within which they operate. A later amendment provides for a monitoring and research programme.

This is a probing amendment, designed to explore the extent to which licensed bodies will be obliged to comply with the law, the professional rules and the statutory and non-statutory provisions that apply outside England and Wales. There are many provisions, whether in statute or common law, that could apply to licensed bodies if they conduct business outside England and Wales. I hope that this provision will highlight the bodies’ obligations under the law as it applies in other jurisdictions. I beg to move.

Perhaps I could say something about the amendment. As my noble friend rightly says, Part 5 applies only to England and Wales, but it is inconceivable that it will not have an effect on other jurisdictions, most notably and immediately Scotland. As he says, the amendments are designed to explore the impact of the ABS on other jurisdictions.

Amendment No. 108D would compel the licensing rules for alternative business structures to include a provision relevant for those cases where the new business structure is intent on conducting business outside England and Wales. The amendment is probing what steps the Government will take to oblige licensed bodies to comply with the law, professional rules and other provisions in the jurisdiction where the body intends to conduct business. There are very many statutory or common law provisions that could apply to licensed bodies if they extend their reach outside England and Wales, as it is likely that many of them will seek to do, whether to explore a commercial opportunity, or because, for example, a former solicitor’s firm has existing ties outside the jurisdiction. This provision will enunciate the licensed bodies’ obligations under the law as it applies in other jurisdictions.

Amendments Nos. 108E and 108F involve the duties of non-authorised persons. Clause 88 provides that a non-authorised person who is an employee or manager of an ABS must not cause or substantially contribute to a breach of duties by either a licensed body or an authorised person who is an employee or manager of that body. This pair of amendments would extend that provision. In some circumstances, a non-authorised person may have authority over an employee who is subject to the professional regulation of either the Law Society of Scotland or that of Northern Ireland, or alternatively the Faculty of Advocates or the General Council of the Bar of Northern Ireland. It would be important that the non-authorised person does not act in such a way as to cause professional difficulty for such employees, who will be subject to their own conduct rules.

Amendment No. 108G is necessary because in some circumstances non-English lawyers may be able to form ABS firms with English lawyers. Clause 107 is an extra-territorial clause and should be amended accordingly to read “outside England and Wales”. The amendment would allow the Secretary of State to modify Part 5 to take account of where non-English lawyers come from, no matter what regime they are subject to, including Scotland and Northern Ireland.

I apologise. I was operating from a list that emerged last night, and I am afraid that I have muddled it up with the most contemporary list. I apologise for confusing the noble Baroness and my noble friend Lord Hunt of Wirral, who no doubt would have said more or less everything that I said, but at a later stage of the proceedings.

The noble Lord is very generous; I thought he was just keeping me on my toes. I can respond to all the amendments. I do not know whether the noble Lord, Lord Hunt, wants to come back and talk a bit more about the others, and I can cover all three groups together if that would be of assistance.

I believe my noble friend has said all that needs to be said, so I await the Minister’s response on all the amendments. Let us take them together.

I shall certainly try; it may sound a bit more disjointed than it would otherwise, but perhaps Members of the Committee will bear with me. I am grateful to the Law Society of Scotland for suggesting these probing amendments, because it is helpful to be able to talk through them and put them on the record.

I shall start with Amendment No. 108D. Licensed bodies will be obliged as a matter of course to comply with the rules of the jurisdictions in which they operate. That has always been true, as noble Lords will know, for lawyers or authorised firms conducting business abroad, and the same automatic obligations will apply to licensed bodies. The actual monitoring and enforcement of compliance with foreign laws, on the other hand, should rest with foreign regulators. While the board, approved regulators, and licensing authorities may be interested if there were breaches of foreign rules by the persons that they regulate, it would be difficult to place them under a specific statutory duty to ensure that none of those rules was breached. That would be disproportionately burdensome and inappropriate. Any failure to comply with any specific statutory duty to this effect could leave those bodies open to judicial review.

The way in which the Bill is framed makes the primary function of approved regulators, including where they act as licensing authorities under this part, to regulate the carrying out of reserved legal activities in England and Wales. To subject licensing authorities to a duty to be aware of and monitor ABS firms’ compliance with a potentially endless range of foreign laws and rules would go far beyond this purpose and could even detract from it. Local standards are best enforced by local regulators. That is how it has worked before, and it should continue in these new forms of practice.

I am aware, and we have already discussed in your Lordships’ House, that concerns have been raised that elements of our proposed ABS firms may not be acceptable to regulators overseas or elsewhere in the United Kingdom. I emphasise that that is no reason to deny a greater choice of opportunities for those providers and consumers who are in a position to benefit. The provisions are facilitative. This Bill is not for one moment seeking to encourage the legal sector to attempt to establish structures in those foreign jurisdictions where the regulatory framework does not allow it. I hope that will deal with that point for the record.

Amendments Nos. 108E and 108F, spoken to by the noble Lord, Lord Kingsland, seek to extend the scope of the duties of non-authorised persons to provide that duties of Scottish and Northern Irish solicitors and barristers are treated as equivalent, for the purpose of this clause, to duties of authorised persons under this Bill. The duty that the existing Clause 88 imposes is important. It ensures that in the new forms of practice that Part 5 makes possible, non-lawyers will have to refrain from causing or substantially contributing to breaches of lawyers’ professional conduct obligations.

Non-lawyers can play a greater role in the management and ownership of legal practices, but they will not be able to act in a way that jeopardises the professional obligations of authorised persons. It is an important part of our safeguards, and it is deliberately focused on the professional conduct obligations and other rules of approved regulators and licensing authorities under this Bill. I have no doubt that the spirit behind the amendment is in keeping with the spirit of these safeguards, and that the noble Lord is seeking to preserve the highest standards of ethics and quality.

It should not, however, be the function of Clause 88 to extend this duty to laws and legal professional rules from other jurisdictions. That would create duties for alternative business structure employees and managers to be aware of and respect laws and rules outside the sphere of regulatory arrangements, at the risk of significant penalties; and it would put licensing authorities under the increased regulatory burden of monitoring compliance with laws and rules from other jurisdictions.

Perhaps I may explain further. Unlike registered European lawyers, Scottish and Northern Irish lawyers may not conduct reserved legal activities in England and Wales simply by using the qualifications they have earned in their home jurisdiction and registering with a regulator here. They must become specifically authorised by a regulator here, as lawyers in England and Wales must, which typically means becoming qualified as a barrister or solicitor in England and Wales. In other words, Scottish and Northern Irish lawyers must become authorised persons in order to carry out reserved legal activities, and they will therefore be regulated under the Bill as authorised persons and subject to the professional conduct rules and other regulatory arrangements of approved regulators.

It is true of course that Scottish and Northern Irish lawyers will be able to work in alternative business structure firms and draw on their training and experience in providing non-reserved legal services. The same would be true of other non-registered foreign lawyers, chartered tax advisers and academic lawyers, to give but a few examples. But that does not mean that any duties to which lawyers from other jurisdictions may be subject should be treated in the same way as the duties of authorised persons.

The amendment would place licensing authorities under an obligation to recognise law and legal professional duties and ensure that non-lawyers within ABS firms refrain from causing breaches of these. This goes well beyond current practice. As noble Lords will know, no such statutory duty applies to existing legal services regulators or providers. This duty would present a number of difficulties—it would increase the regulatory burdens for licensing authorities and apply sanctions to employees and managers who cause or substantially contribute to non-compliance with these duties. It would increase the burden upon non-lawyers in ABS firms, who will need to be familiar with these duties in order to ensure that they do not contribute to breaches. The amendment would be onerous, burdensome and inappropriate, especially in light of the current position.

Amendment No. 108G would extend the scope of the provision at Clause 107 to apply not only to bodies formed outside UK law or relevant statutory provisions affecting those bodies, but to bodies formed outside England and Wales. Clause 107 allows for Part 5 to be adapted to differences in company structures and other foreign entities, such as differences in management and ownership structures. Since business associations are generally reserved to Westminster, this clause was drafted with only the differences in foreign law in mind.

However, we are looking into whether there could be any material differences in laws deriving from devolved matters or otherwise and I would like to take that amendment away and investigate the issue further. I would be grateful if the noble Lord would withdraw the amendment, so that we can return to it when we have carried out those investigations.

I am very grateful to the Minister for what she said on all these amendments and I am particularly grateful to my noble friend for speaking to the remaining amendments in what perhaps should have been the group before us. Obviously, I would like to reflect on what the Minister has said and to seek the advice of the Law Society of Scotland. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

108DA: Clause 81 , page 47, line 36, at end insert—

“( ) section (Low risk body exemptions) (which exempts low risk bodies defined by section 106(2)(b) from certain provisions), and”

The noble Lord said: In speaking to the amendment, I shall touch also on Amendments Nos. 108FA, 108FB, 108FC, 108FD and 108FE in the group.

They are probing amendments designed to ask the Government two questions. The first is completely innocent: why should trade unions have the exemption from certain requirements under Schedule 11, given to them by Clause 103? That is a request for information.

Secondly, if trade unions have exemptions of that sort, why should those exemptions not be granted also to other low-risk bodies? Amendment No. 108FA would allow low-risk alternative business structures the same exemptions as those that are sought to be given to trade unions. We recognise the overall need for the safeguards put forward in this part of the Bill, but in these special circumstances, if the Government are already making exemptions, they might appropriately make another exemption here. Those bodies could utilise existing positions, as they would already have the equivalent of a head of legal practice and a head of finance and administration. Here the Bill is promoting unnecessary measures with regard to low-risk bodies.

Finally, Amendments Nos. 108FB, 108FC, 108FD and 108FE seek, shortly, to raise the number of non-lawyers that could allow an alternative business structure to qualify as low risk. The amendments reflect the belief that in assessing risk, it is not the number of lawyers that should be taken into account, but rather the professional and ethical standards of the individuals involved in ownership and management of the ABS. For example, professional accountants do not contribute any greater risk to the structure. I beg to move.

I support my noble friend Lord Kingsland in moving the amendment and I declare an interest as a fellow of the Institute of Chartered Accountants in England and Wales.

Amendment No. 108FA would give what the Bill calls “low risk” alternative business structures merely the same exemptions as those that are already offered by the Bill to trade unions. Like my noble friend, I cannot see the justification for a more heavy-handed approach with regard to low-risk bodies which would consist of a considerable majority of regulated professionals who would already hold positions of head of legal practice or head of finance. The crucial consideration must surely be that of the risk to the consumer.

To my mind, the most important amendments in the group are Amendments Nos. 108FB to 108FE, which would extend the definition of low-risk alternative business structures to allow them to include more non-lawyers. Again, I would ask that the decision be taken on the level of risk to the consumer. Risk does not come from the number of non-lawyers, but derives from the number of non-professionals. The real concern over alternative business structures is a potential lack of effective regulation and professional standards. The amendments would not reduce the number of highly qualified professionals needed to make a low-risk body and would not lower the number of strictly regulated individuals necessary.

Members of the Committee will appreciate that there is a significant difference between, on the one hand, highly qualified professionals, such as chartered accountants or chartered surveyors, collaborating, and, on the other, the “supermarket law” concept that is liberally raised in discussion of this issue. Furthermore, these professionals are not undertaking to provide legal services themselves. I sympathise with concerns voiced at earlier stages by noble Lords on all sides of the House in those respects.

Finally, why should alternative business structures involving other regulated, properly trained professionals be made to wait significantly longer under the new regime than legal disciplinary practices involving solicitors and barristers?

I am grateful to both noble Lords who have spoken. Perhaps I may begin by talking about the role of trade unions under Clause 103.

We do not think that the requirements relating to Clause 103 would be appropriate. First, there is the issue of ownership: trade unions are not owned except by their members, and so different issues apply. They also generally provide services only to their members and ex-members and sometimes to members’ families. They are regulated under specific industrial relations legislation and their lawyers are regulated by individual regulators such as the Law Society. In some cases, they are highly dispersed organisations. They rely heavily on non-lawyer advisers in the workplace to carry on the front-line role of advising their members. We believe that all those features make some of the licensing provisions unnecessary or unworkable.

Clause 103 removes the Part 5 requirement to designate a head of legal practice and a head of finance and administration, and it removes the ownership requirement—the fitness-to-own test—set out in Schedule 13. That is why trade unions are treated differently in this context. I should be very happy to get further information from my colleagues if that would be of benefit to noble Lords.

I turn to the specific issues raised with regard to what we could describe as the second potential category of low-risk bodies. As we have made clear—noble Lords have discussed this today and on previous occasions—a body must have less than 10 per cent management and ownership by non-lawyers if it is to qualify as a low-risk body. The amendment would effectively raise that level to 25 per cent where the non-lawyer managers and owners were members of a recognised professional body. That would include professionals such as chartered surveyors and accountants, as well as professional firms regulated by the relevant institutes. So, in the context of the amendment, a partnership with a quarter of partners who were other professionals, or indeed a legal practice that was 24 per cent owned by an accounting firm, would be a low-risk body.

We do not think that this change would be appropriate. Practices within this category are a type of multi-disciplinary practice, albeit a majority lawyer-controlled one, and perhaps should not be so readily judged “low-risk” as practices with genuinely de minimis levels of non-lawyer control. We would move away from risk-based regulation into the possibility of regulatory loopholes. I wholeheartedly endorse the potential for lawyers to form practices with other professionals, with the benefits that that might bring for them and for the consumers whom they serve. But we need effective safeguards to ensure that legal professional principles and ethical practices are maintained. The head of legal practice and the head of finance and administration and the tests that Part 5 creates for external owners are key to this. Taking practices with significant levels of non-lawyer control outside the scope of those safeguards would go against the recommendations of Sir David Clementi and could leave them open to the types of risk that Part 5 seeks carefully to mitigate.

I understand the basis on which the noble Lord moved the amendment and the basis on which it has been supported, but we think that there are differences in the de minimis risk of 10 per cent and below, moving up to a much higher level of ownership. An important point is that we do not want this regulation to be heavy-handed. That would not be the basis on which we would operate. Therefore, noble Lords need to think of this issue in the context of ensuring that we act effectively and properly to safeguard not only the consumer but especially the legal practitioners. Therefore, I hope that the noble Lord will withdraw his amendment.

I am most grateful to the noble Baroness. I found her response extremely well argued but quite unconvincing. I shall go away and read it and consider whether to bring this matter back on Report. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 81 agreed to.

Schedule 11 [Licensing rules]:

108DAA: Schedule 11, page 173, line 8, at end insert—

“( ) Licensing rules may provide for fees to cover the whole cost of the licensing authority dealing with the application, whether the application is granted or not.”

The noble Lord said: This amendment is intended to ensure that the licensing rules can put the whole cost of dealing with an application on to the applicant, rather than leaving a part to be borne by others regulated by the licensing authority concerned.

It is an important principle that the costs of regulation should be borne by those whose activities give rise to the cost rather than by the regulated sector as a whole. This is vital in the case of alternative business structures, where some applications could give rise to extremely complex issues.

It follows that it would be quite unsatisfactory for a single flat fee to be applied to all applications, whether from an applicant filling a modest and localised gap in legal services or from a supermarket seeking to set up a substantial new service. If a single fee were set so as to meet all the costs of dealing with ABS applications, the result would be grossly unfair to the small applicant. On the other hand, a single fee at the level appropriate for the small applicant would involve an unacceptable cross-subsidy from the rest of the regulated sector. In any event, if licensing authorities were unable to match the fee to the cost of dealing with the application, they might be inhibited from investigating applications as thoroughly as they should, particularly where access-to-justice considerations arise.

Amendment No. 108DAB, which is also in this group, is designed to ensure that the onus of demonstrating fitness to own rests on the applicant, rather than the licensing authority having to approve them unless it can demonstrate that they are not fit or proper persons. The effectiveness of the fitness-to-own provisions is a critical element of the public protections that need to be in place before alternative business structures involving external ownership can be safely permitted. The Bill provides for licensing authorities to consider whether those who hold more than a small interest in a prospective alternative business structure firm are fit and proper persons.

In paragraph 14 of Schedule 13, under which a licensing authority may require non-authorised persons to provide it with such documents and information as it may require, it appears to be the intention of the Bill that the applicant should demonstrate fitness to own, rather than that the applicant should be entitled to be approved unless the licensing authority can demonstrate that it is not fit to own. However, merely demonstrating an absence of criminal convictions should not be sufficient to entitle an applicant to become an approved person. For example, the possession of unexplained wealth could give rise to reasonable suspicions about the integrity of an applicant. It is important that the licensing authority should be able to refuse approval in those circumstances, unless it received a convincing explanation of the source of the wealth. The amendment is intended to put beyond doubt the fact that the onus of proof on these issues should rest with the applicant. I beg to move.

The noble Lord continues to keep me on my toes: I thought that these two amendments appeared separately on the groupings list but I shall deal with them together. That is not a problem as they follow each other on the Marshalled List and it makes complete sense to put them together.

I do not think that Amendment No. 108DAA is necessary but I entirely agree with the sentiments behind it. It is reasonable to expect a licensing authority to be able to charge the full cost of processing licence applications. That extends to charging the full cost of each individual application, whether successful or not. Applications will generate varying amounts of work depending on the nature of the applying body, the nature of the services that it intends to offer and the size of the operation that it plans. For example, a large firm intending to open in a number of locations will need more consideration than a small firm intending to open in only one. It would be difficult for application fees to be refunded if unsuccessful. That would increase pressure on the licensing authorities to grant applications where they should not really do so. Non-refundable application fees are common and I cannot see licensing authorities differing from what I would describe as usual practice.

We do not want one firm to end up subsidising another if the full cost is not charged in each case. That would create problems and it would make the authority unattractive to firms if fees for them were disproportionately high. I assure noble Lords that fee levels and their effects on legal services markets can be monitored. Fees form part of the licensing rules. Rules may specify that costs have to be recovered in full from fees or may set individual fees based on the amount of work individual applications are estimated to need. Rules have to be acceptable to the board before it will put a body forward for designation as a licensing authority. If there are concerns about effects on smaller firms or on competition, they can require changes. I hope that that reassures the noble Lord.

I turn to Amendment No. 108DAB. I agree entirely with the principle of this amendment. It is right and proper that, in allowing non-lawyers to invest in law firms, we ensure that the onus is on those people to prove that they meet the standards of regulators. A licensing authority will be under no obligation to approve the holding of any particular interest merely because it has no evidence that the person is somehow not fit and proper.

Instead, licensing authorities will have to be satisfied that the applicant in question has actively demonstrated that he meets the approval requirements set out in paragraph 6 of Schedule 13, but I am confident that we have achieved in the schedule what the noble Lord is seeking to do. The test for approval of an interest is set out under paragraph 6 of the schedule. In the case of every applicant, the licensing authority must be satisfied that the proposed interest will not compromise either the regulatory objectives or the ability of ABS firms and the individuals within them to comply with regulatory arrangements. In addition, the licensing authority must be satisfied that the individual or firm is fit and proper to hold the interest, having particular regard to the applicant’s probity and financial position, any associates, whether the applicant has been previously disqualified from involvement in an ABS firm or indeed any other relevant matter.

Under paragraph 14 of the schedule, licensing authorities may require further information from non-lawyer investors, and under paragraph 19 they may object to the holding of the interest in question if they are not satisfied that the approval requirements are met. Licensing authorities are therefore required to consider a wide range of matters, but the burden of proof in satisfying each individual requirement rests with the individual applicant. I would in no way wish to provide for a situation where licensing authorities were somehow bound to give approval to investors about whom they had doubts because they did not have sufficient evidence to prove those doubts, but as I have stated, that is not the effect of the provisions.

If the information which the applicant provides is not sufficient to satisfy the licensing authority under each and every head of the test, the licensing authority may refuse its approval. I would argue that the noble Lord’s amendment is unnecessary as the provision already achieves the desired outcome in this regard. I hope that answers the noble Lord’s questions.

In saying how strongly I support these amendments and all that my noble friend has already said, I respectfully point out that the latest Marshalled List that I have shows my noble friend to be in the clear in that Amendment No. 108DAA is to be taken with Amendment No. 108DAB.

I hope Hansard will put those words in block capitals. However, there is a doubt. As the noble Baroness has made it clear that she believes that Amendment No. 108DAB is unnecessary, will she give a little thought to why there is a doubt? Perhaps we can explore ways of putting the matter beyond doubt other than in this proposed amendment. I hope she will agree to look at that.

I am always happy to look. As I have indicated, at the end of Committee stage, I shall be checking things. I want to put on record why we think it works, in the hope that between Committee stage and the next stage we will have had a conversation about whether Members are satisfied that we have that right. If not, I want to be able to get more advice from either parliamentary counsel or legal advisers on why it works, so that we come to an agreement. We are really in the same place, but we think we have achieved it. If there is doubt, of course, I shall look at it again because we want to achieve the same thing.

I was extremely happy to hear that the noble Baroness entirely accepts the logic behind both amendments. If there is a difference between us it is whether the text of the Bill satisfactorily expresses what we both wish it to express. The noble Baroness feels that it does, but we have some doubt about that. As we are agreed on the objectives, I hope that the noble Baroness will consider between now and Report whether she is absolutely right in thinking that the Bill covers all the eventualities that we fear might be provoked if the Bill is not absolutely clear. I see the noble Baroness nodding, so she plainly will so act. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 11 agreed to.

Clause 82 agreed to.

Schedule 12 agreed to.

Clauses 83 to 87 agreed to.

Schedule 13 [Ownership of licensed bodies]:

[Amendment No. 108DAB not moved.]

Schedule 13 agreed to.

Clause 88 [Duties of non-authorised persons]:

108DB: Clause 88, page 50, line 9, leave out “an employee or” and insert “a”

The noble Lord said: This amendment was rightly provoked by the City of London Law Society. Its purpose is to avoid imposing professional duties, which are statutory, on non-professional members of staff. Briefly, Clause 88 imposes an obligation on non-authorised employees of an ABS to refrain from doing anything that contributes to a breach of professional duties of an authorised person. So, for example, a secretary who types and sends correspondence on the wrong letterhead could be directly and personally liable for a breach of professional rules even though he or she had not had the benefit of professional training and nor would he or she hold a professional qualification. Therefore, there is a justifiable perception that that is unfair. Professional duties should not be extended on a statutory basis to non-professional members of staff. It is also perhaps unnecessary, to the extent that solicitors are already responsible for breaches of professional duty caused by their members of staff. I beg to move.

I am grateful to the noble Lord. I shall reiterate the duties in Part 5 designed to protect lawyers’ professional obligations. Clause 88 protects Clause 169, in that Clause 169 places a duty on regulated persons to comply with regulatory arrangements applying to them, including practice rules and rules of professional conduct, many designed for client protection. For licensed bodies, regulatory arrangements will include licensing rules and all the safeguards that they contain. Regulated persons are authorised persons, and managers and employees of authorised bodies.

Clause 88 deals with non-authorised employees, and managers must do nothing that causes or substantially contributes to a breach by a body or authorised person of the Clause 169 duty, the point referred to by the noble Lord, Lord Kingsland. We have made it clear that compliance with Clause 88 is one of the main responsibilities of the head of legal practice. Those who breach Clause 88 duties can be disqualified under Clause 97 from employment in any licensed body.

These are important protections. They ensure that authorised persons’ professional obligations and alternative business structures’ safeguards are protected from undue influence within the firm. They answer concerns about allowing non-lawyers to be involved in the management and ownership of law firms. I would be nervous of supporting an amendment that could create a huge loophole in that.

I understand the desire to remove obligations on non-professional members of staff and perhaps to replicate the position of solicitors’ firms, where employees are under no specific obligations and managers are all authorised persons. However, these firms will be different and the provision is not applicable to them. There will be new mixes of authorised and non-authorised persons. Traditional structures will not be universal, and we must recognise potential new risks in the safeguards we create.

Removing employees would remove a key safeguard that the Bill places on them to ensure that they do not cause or contribute to breaches of firms’ and lawyers’ professional conduct obligations. We are not obliging employees to ensure that lawyers respect their professional conduct rules; that is one of the head of legal practice’s responsibilities. Clause 88 only puts them under a duty to refrain from exercising adverse influence or otherwise causing, or substantially contributing to, breaches of rules.

The noble Lord may think that is unnecessary because many employees are not in a position to influence the firm’s performance of its obligations. That may be so, but some employees will be. Some will be in decision-making positions and other positions with considerable direction or supervision. If an employee’s job would not allow him or her to contribute to a breach of Clause 169 there should be no problem, but we cannot assume that all employees will be in that position. The Clause 88 duty should, in practice, catch only those who are in a position to exert influence or otherwise substantially contribute to breaches. It would also remove an important element of licensing authorities’ direct regulatory control over non-authorised employees. Where they did cause or contribute to a breach of Clause 169, direct action could not be taken against them but there would have to be action against the firm instead. That could be unfair and disproportionate, especially if the employee acted outside the firm’s control.

Most importantly, perhaps, the amendment makes it easier for non-authorised employees to interfere improperly in the licensed bodies’ operation. That goes against our view of the safeguards, and the need for them as expressed in your Lordships’ House. I hope that answers the noble Lord’s question of why the provision is written in that way, and that he feels able to withdraw his amendment.

I am grateful to the Minister for her response, and can see that Clause 88 is, in practice, intended only to comprehend those who exert real influence over a firm’s decision-making. In the normal course of activities, that would exclude the example I gave in my opening remarks.

Once again, however, that is not clear in the Bill. It therefore seems that there is discretion under the Bill for somebody who does not exert such influence to be caught by Clause 88 nevertheless. I find it difficult to see how, for example, in a judicial review, a court would conclude that targeting such a person was, in the wording and context of Clause 88, irrational. That is the City of London Law Society’s concern. I respectfully suggest that the Minister add this to the long list of matters she already has to reflect upon between Committee and Report. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 108E and 108F not moved.]

Clauses 88 to 100 agreed to.

Schedule 14 agreed to.

Clauses 101 to 103 agreed to.

[Amendment No. 108FA not moved.]

Clauses 104 and 105 agreed to.

Clause 106 [“Low risk body”]:

[Amendments Nos. 108FB to 108FE not moved.]

Clause 106 agreed to.

Clause 107 [Foreign bodies]:

[Amendment No. 108G not moved.]

Clause 107 agreed to.

108H: After Clause 107, insert the following new Clause—

“Miscellaneous Pilot scheme

(1) The Secretary of State shall by order establish a pilot scheme for the provisions of this Part.

(2) In establishing a pilot scheme the Secretary of State shall take into consideration—

(a) the demography of the area, and (b) the size of the area. (3) The Secretary of State shall lay a report before Parliament on the pilot scheme.

(4) In producing a report under subsection (3) the Secretary of State shall consult—

(a) such persons or bodies he considers represent the interests of consumers; (b) such persons or bodies he considers represent the interests of approved regulators; (c) such other persons or bodies as he considers appropriate. (5) An order under subsection (1) shall be laid before, and approved by a resolution of, both Houses of Parliament.”

The noble Lord said: As we reach the end of our consideration of Part 5, I propose a new clause intended to probe how the Government envisage the rolling out of the alternative business structures. It is also intended to let us consider the possibility that, notwithstanding the Government’s commitment to the liberalisation of the provision of legal services and all the uncertainties inherent therein, they may be willing to apply, on the ground, the proper test of how it would work in practice.

When replying to the Government’s consultation paper In the Public Interest?, the Law Society said that,

“there is a risk that there may be long-term structural effects that destroy service provision and the fabric of small communities … there are very serious risks to access to justice from the uncontrolled admission of new entrants … We believe that the Government needs to carry out much greater research into the likely impact of liberalisation before taking final decisions on the way forward”.

It is very difficult to carry out research without a pilot scheme. The theoretical response to the liberalisation of the market cannot be wholly successful in answering the great uncertainties to which everyone who has looked at this issue has drawn attention. The Joint Committee that examined the draft Bill drew attention to the possibility—which we debated earlier, at some length, so I shall not rehearse those arguments—that some of the reforms may reduce geographical availability. Its report stated:

“We recommend that the Government amends the draft Bill to ensure that the impact of ABSs on access to justice, particularly in rural areas, informs the decision-making process for licensing an ABS firm”.

The practicalities of establishing a pilot scheme may seem formidably difficult, and I look forward to hearing what the Minister has to say about them. However, in view of the potential consequences of the implementation of Part 5, it is reasonable to proceed by bringing forward the fruits of a pilot scheme to be considered by Parliament. Those who are satisfied that the project is worth embracing in the interests of the consumer will be fortified if a pilot scheme demonstrates that the fears are unjustified. There is no hurry to reach a conclusion. If one takes the advice of the progenitor of this development, Sir David Clementi, it seems that caution is the characteristic that should govern how we proceed.

That is a matter for consideration. I have not attempted to prescribe how long it would be. It should be considered by the Government in consultation with representatives of consumers, the legal profession and those who are interested in providing the service. A pilot scheme would not be conclusive if it was too short, but it would not go on indefinitely. It should cover an area of the country that is broad enough to be representative of a number of different circumstances and contains urban and rural areas, so that it would represent the country as a whole.

I tabled this amendment at least as much in the hope that the Government will indicate how they propose to roll out the establishment of alternative business structures as to promote the merits of my suggestion, which are, none the less, worthy of consideration. I beg to move.

The noble Lord, Lord Maclennan of Rogart, has reasonably and legitimately voiced a number of concerns about alternative business structures. Indeed, the debate on this part of the Bill—which we are nearing the final clauses of—has demonstrated a number of concerns, including access to justice and the availability of legal services in rural areas. The difficulty with the amendment is that there are so many possible varieties of alternative business structures ranging from narrower structures that are combinations of different types of lawyers—barristers, solicitors and others—to the other extreme of alternative business structure where a substantial retail business tacks legal services on to its existing services. In between, there must be a huge variety of structures. I am interested to see various kinds of alternative business structures develop positively to provide services that are not readily available now or to offer them in a way that is of higher quality, better value and more use to communities than the present way in which legal services are offered. One can only speculate about what the structure might be, but I am sure that there will be a huge variety of alternative business structures in different parts of the country, and so be it.

The part of the Bill that we have just been considering in such detail has a host of restrictions, controls and safeguards to ensure that the things about which the noble Lord, Lord Maclennan, is rightly concerned will be observed in the course of licensing and so on. What would be the value of a pilot scheme involving one kind of alternative business structure when so many other structures would be so different that it would not tell very much? I am all in favour of pilot schemes in principle, but only if we can draw sensible and helpful lessons from them. I do not see that in the noble Lord’s proposal.

I endorse the remarks of my noble friend. I wholly embrace the issues, but there ought to be a time limit. I am unconvinced by the noble Lord’s arguments. If we are to have any sort of pilot scheme—which I do not approve of anyway—it ought to have a limited life, and he refused to endorse that.

With respect, I did not refuse to endorse it; I merely suggested that others might be in a better position to prescribe it.

We are extremely sympathetic to the concerns that the noble Lord, Lord Maclennan of Rogart, expressed, which led him to propose a pilot scheme. Those concerns need to be addressed. However, I share some of the reservations about the appropriateness of a pilot scheme. We prefer the proposal made by my noble friend Lord Hunt, which forms part of the next amendment, for a sunset clause, but I believe that the reasons he proposes a sunset clause do not differ from the reasons that the noble Lord, Lord Maclennan of Rogart, wishes to have a pilot scheme.

Serious hesitations have been expressed from all parts of the Committee about Part 5. Noble Lords have by no means been, in principle, hostile to ABS; but those concerns are sufficient, in my submission, to require the Government to go slowly, marking every step with clear research about the impact of these structures. The noble Baroness will be familiar with the hesitations we have expressed, perhaps most generally the importance of restricting the Legal Services Board to its supervisory role, our clear preoccupations with the lack of any express provision to reflect access to justice—

Would it not be possible to invigilate what is happening in any event, without endorsing this particular procedure? It would be possible to ask questions and to stimulate debates. There are several ways in which this issue can be embraced.

I am most grateful to the noble Lord for his intervention. That is precisely, as I understand it, the rationale for my noble friend’s amendment. The limitation of the pilot scheme, as the noble Lord, Lord Borrie, has pointed out so clearly, is that it would be just one structure in a system which may have many different examples. I apologise for speaking before my noble friend Lord Hunt has had a chance to speak, which I know he will do when the next amendment is called, but the logic behind his amendment is that there should be a period of a number of years during which a whole range of structures might emerge. There could be comprehensive monitoring of all those structures.

If it transpires that the system is not working as the Government hoped, after five years there will be a cut-off date by which they will, either voluntarily or having been compelled, adjust the system to accord with the monitoring results. That is the strength of the sunset clause as opposed to the pilot project. However, I do not wish to take away anything from what the noble Lord, Lord Maclennan of Rogart, seeks to do. His concerns are plainly our concerns; indeed, they are the concerns as so far expressed on all sides of the Committee.

I understand fully what the noble Lord, Lord Maclennan of Rogart, has in mind and the difficulties that the noble Lord, Lord Borrie, envisages in a pilot scheme. It occurred to me as these observations were being made that, if a novel type of organisation or business structure was proposed, it might be licensed for a given time to see what effect, if any, it would have, if it were not possible to be definite about that in advance. Looking at the licensing provisions, I am not certain that a licence for a fixed term is clearly within the powers of the licensing authorities. No doubt, however, if it were thought desirable, that could be made clear.

I can understand that those applying for a licence might not be anxious to set up an organisation for too short a time. If they were confident that it would be all right, they might be rather put off by the idea that it was for a limited term. On the other hand, if you are not sure what will happen, it is wise to have some way to put something right that, it emerges, does not seem to be going right. That occurred to me as a possible approach—I do not put it more strongly than that—where a particularly novel type of business structure is proposed.

When listening to the noble Lord, Lord Kingsland, I had in mind the words festina lente, and he then used that expression. It is for the Government to take their time—hasten slowly. A number of possibilities have now been put forward. I think that a blanket sunset clause has its problems, although I shall listen to what the noble Lord, Lord Hunt, says in due course. Obviously there must be investment, which after five years could be considerable in terms of money, buildings, people and careers, so a blanket approach is not so attractive.

On the other hand, the suggestion of the noble and learned Lord, Lord Mackay, has considerable attractions: a specific type of unusual organisation should be limited in its period. A company or individual who wished to adopt that approach would then at least know how much money and so on to put into that organisation to see whether it worked. At the end of the day, I come down in favour of my noble friend’s amendment, which contains the possibilities of more than one experiment. A pilot scheme does not necessarily have to consist of one type of organisation in one place. Proposed subsection (2) suggests:

“In establishing a pilot scheme the Secretary of State shall take into consideration … the demography of the area, and … the size of the area”.

It occurs to me that a sensible way of hastening slowly would be to permit one organisation to operate, for example, in a rural area, another in a town area and another to deal with commercial law or whatever. The approach could be either geographical or functional, but there should be a series of experiments taking into account the criticisms of the noble Lord, Lord Borrie, who suggested that it is impossible to say that there must be one type of organisation. The answer is a series of pilot schemes or the alternative proposed by the noble and learned Lord, Lord Mackay.

I am very grateful. I shall not stray into the territory of the next amendment, tempting though it is, because in one sense these issues fit together. However, as the noble Lord wishes to move the amendment separately, I will not do so.

I understand the concerns behind the amendment, but the difficulties of organising a pilot scheme have been addressed extremely well by my noble friend Lord Borrie. The Joint Committee looked at this possibility, certainly in a geographical area, and found it unworkable. It is very hard to police boundaries because of how services are now provided. Noble Lords will know that telephone or internet services, for example, might apply only to consumers from one area, but it is difficult to prevent them going elsewhere for services and to ensure that services stay within the boundaries of an area.

Conveyancing, litigation and other services can all have aspects that might not be restricted to defined physical areas. One might limit pilot providers to one area, but it is hard to prevent them offering services to consumers elsewhere.

In summary, any approach that we think of puts serious constraints on the providers, the consumers or both. Freedom of choice for consumers is limited; providers' freedom over what service to offer and to whom would be limited. Anyone outside the pilot area would be denied the benefits of the alternative business structure. There would be possible anti-competitive results as well.

The Office of Fair Trading pointed out that the,

“pilot scheme to test ABSs appears very difficult to implement in any meaningful way and would deliver questionable benefits”.

Obviously, it would delay the implementation of the alternative business structure and the benefits that we hope that it will bring to providers and consumers. The Joint Committee concluded that those problems cannot be overcome and we agreed with that.

The noble Lord, Lord Maclennan, was keen that we set out as much as we can about the timetable to which the Government are working, and I will endeavour to do so. I will write a note to the noble Lord and others who have spoken and place a copy in the Library.

From Royal Assent onwards, the Law Society can start to regulate lawyer-controlled legal disciplinary practices. Smaller regulatory bodies—for example; the Council for Licensed Conveyancers, the Chartered Institute of Patent Agents and the Institute of Trade Mark Attorneys—already allow LDPs to operate but will be granted enhanced powers.

Professional bodies intending to regulate alternative business structures can start to develop their licensing rules. Legal services providers and investors can investigate options for alternative business structure status and develop business plans for change. Certain existing ABS firms—for example, as we discussed earlier, some conveyancing and patent trade-mark practices—can continue under transitional arrangements and adapt themselves to prepare for licensing. As the noble Lord, Lord Kingsland, rightly said, there is an issue to be resolved about the length of the transitional arrangements.

Between February 2008 and November 2009, the LSB chair would be appointed, followed by the LSB board members and the interim chief executive. The LSB would work with approved regulators, helping them to prepare for designation as licensing authorities. In 2010-11, the LSB can process applications from regulators for designation as licensing authorities. As the Committee will know, professional bodies can become authorised to license ABS firms, but only where the rules are fit for purpose. From 2011 onwards, ABS licences can be granted in accordance with licensing rules and the statutory safeguards that we have set out. I hope that that gives a sense of the time frame to which we are working.

Licensing for a fixed time for unusual ABSs could happen in theory. The Committee will be aware of the difficulties of that for investors, who would have to think about whether it was worth it. In practice, I do not know whether it would be an option. It would be for the licensing body to consider that.

I hope that that gives a sense of why we could not accept—

The Minister talked about investors. We had some discussion about who will want to put their money into an experiment that will last, say, five years. That is a real consideration. Are we losing sight of the consumer? We have heard from the noble Lord, Lord Thomas, and others that one factor in the relationship between a client and his or her solicitor is that it is continuing. It would be very odd to go into one of these pilot schemes and say, “I want you to draw up my will, and we very much hope that, if there is a death, you will take on the administration of the estate”, and get the answer: “Well, I cannot really tell you whether we will be here in more than five years. We are on an experimental scheme”.

I am not trying to sabotage what the noble Baroness is talking about, but we need to think not only of the investors and those setting up experimental firms but of the clientele.

The noble Lord is absolutely right; that is another reason why we do not think that a pilot scheme would work. It also has implications for the sunset clause, to which we will come, but I promised that I would not go into that now.

I hope that what I said gives a better indication of how the timetable will work. As I said, I shall ensure that it is available in hard copy.

I am extremely grateful to all noble Lords who have spoken on the proposal. I am gratified by the range of responses. It indicates awareness that we are taking a leap in the dark and that we should be as inventive and as cautious as may be to prevent untoward consequences flowing from our well intentioned urge to improve the provision of a range of legal services to the consumer.

It is clear from what the noble Baroness has said that, although the final implementation of the establishment of the alternative business structures is to be postponed until 2011, we will, once we enact the measure, be on a firm course. Although this will proceed in stages, there is no provision that I can see for checking it in the light of second thoughts or other considerations that may become a little clearer than they are now. I realised that, if I proposed the new clause at this stage of the Bill’s progress, there was some prospect that the issues of practicality, some of which were addressed by the noble Lord, Lord Borrie, and others, would be likely to be raised. I welcome that, because it enables one to consider further whether there is a more practical way of proceeding that would embody what, I think, is a reasonable objective: to diminish the fear that consumers could be seriously disadvantaged in some parts of our country by the establishment of alternative business structures.

Having heard the Minister and other contributors to the debate, I will, at this stage, beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

108J: After Clause 107, insert the following new Clause—

“Monitoring and research

(1) The Secretary of State shall, in accordance with the provisions of this section, provide for the carrying out of a study into the operation of this Part.

(2) The Secretary of State shall make such preparations for the study to begin as soon as regulations bringing this Part into force; and such preparations may relate to the instruction of a research team and formation of a research advisor group to assist in the direction of the study.

(3) Within three years of the date on which this Part comes into force, the Secretary of State shall lay before Parliament a report on the results of the study.

(4) This Part shall cease to have effect five years after the date on which this section of this Act comes into effect.”

The noble Lord said: We are greatly indebted to the noble Lord, Lord Maclennan of Rogart, for having initiated an interesting debate on the question of pilot schemes. I would now like to try a different approach.

In the Joint Committee, we spent some time working out how we could foresee some of the problems and difficulties that might arise with alternative business structures. We agreed with the sentiment expressed by the noble Lord, Lord Borrie, that it is difficult to envisage pilot schemes that could adequately test the various structures that might come forward under this part of the Bill. However, we were left with what the noble Lord, Lord Maclennan of Rogart, I think, called a shot in the dark; we were left with the impression that no one was quite sure what would happen. Although, as has just been pointed out, we came to the conclusion that we could not see that a pilot scheme would be suitable for the introduction of ABS licences, we were still very worried about the level of uncertainty that existed about the impact of ABS provisions. That is why, in our recommendations, we urged the Government to use less haste and more care and to follow the approach of the Clementi report, which gave rise to Table 5 on page 85 of our report.

I am indebted again to the Law Society of Scotland, whose Michael P Clancy, director of law reform, came down and spent some time trying to think through the best way forward. The whole question of alternative business structures has already been considered in Scotland. A research working group on the legal services market in Scotland was established by the Scottish Executive, and I have the benefit of its report, which it submitted last year. That report concluded that the case for alternative business structures in Scotland and the suitability of regulatory arrangements such as those proposed for England and Wales were a matter for further policy development by the Scottish Executive in consultation with interested parties. The report will serve as a basic source of evidence for future consideration of the case for alternative business structures in Scotland.

Accordingly, Mr Clancy and his colleagues in the Law Society of Scotland concluded that it is vital that proper research of the English provisions is undertaken in order to inform policy development not only in Scotland but in other jurisdictions. I am grateful to him and his colleagues for drafting the amendment, which would provide for a monitoring and research programme into the effectiveness of the mechanism for the regulation of alternative business structures, subject to a sunset provision. When we are as unsure as we are at the moment about what will happen with ABSs, it is right for a properly structured study to be undertaken so that we can examine what effect the ABSs are having.

The study needs a proper structure. The noble Lord, Lord Clinton-Davis, said that we could consider the matter from time to time and raise it in debates, but there would be nothing as good as a properly structured study, led by the Government in consultation with all interested parties, just to see exactly what was going on and how the whole procedure was developing. That is why in the amendment, which is headed “Monitoring and research”, we ask the noble and learned Lord the Lord Chancellor to,

“provide for the carrying out of a study”.

The obligation is therefore on the Government to carry out a study. The Minister may say that they are going to do that anyway, but I know from my experience in government that all sorts of priorities come across ministerial desks from time to time and take their place in the queue. I would like this House to put this study right at the top of the list.

The amendment proceeds to suggest that the noble and learned Lord the Lord Chancellor should,

“make such preparations for the study to begin as soon as regulations bringing this Part into force; and such preparations”—

these are only suggestions—

“may relate to the instruction of a research team and formation of a research advisor group to assist in the direction of the study”.

Then, of course, the Government must report to Parliament. There is provision for a report to be laid before Parliament within three years of this part of the Bill coming into force.

Why can it not stop there? It is always possible, if the situation demands it, for the Opposition of the day to say, “This scheme is not working”. It is a little unreal to assume that five years would be appropriate, is it not?

The noble Lord makes an important point, and one that I have discussed with those who drafted the amendment. Do you have a sunset clause at all? If you have one, after what period can you decide that whatever new provisions you have introduced are either working or not working? I agree that it is a key part of all this, but again in many ways we are probing all the time. I would compare this with the conditional fee arrangements, which came in against a background of general acceptance by everyone concerned that we had to try to find a way of making access to justice work, given that the civil legal aid fund would no longer have the necessary resources to allow the old system to continue. We therefore had to find a way of ensuring access to justice.

I pay tribute to the previous Lord Chancellor, the noble and learned Lord, Lord Irvine of Lairg, for trying to find a route whereby we could introduce access to justice under conditional fee arrangements. As I pointed out at the time, however, there was no real research into how those CFAs were going to operate, and there was no constant monitoring. Much of the information technology that was necessary did not come in in time. In fact, although the judges wanted to direct some of the cases under the new civil law procedures themselves, they had to go outside and use public telephone boxes because telephones had not been installed. The thing started to go wrong, but there was no constant monitoring to highlight what was going wrong and put it right, with the result that we are now constantly trying to revise CFAs.

As we saw with the Compensation Act, CFAs have resulted in the growth of claims management companies, which should have been avoided. I do not think that anyone realised how many people would suffer as a result of TAG and then Claims Direct going into liquidation, but that was an aspect of CFAs. I do not think that we really anticipated that. Had there been a study and an advisory group as well as the constant need for a report to be given to the House, we may well have avoided many of those situations. At the very least, they would have been flagged up at an earlier stage so that we could have done something about them.

When we have this sense of uncertainty about what exactly will happen, particularly with the effect on access to justice, I hope that my amendment—again, I am grateful to the Law Society of Scotland for drafting it—gives the Committee cause to reflect on the best way forward to ensure that we do not fall into the sort of traps that we have seen before, when uncertainty has ruled the day and events have taken place that have militated against the whole purpose of this new legislation. I beg to move.

The noble Lord’s case has been much enhanced by the amendment’s heading, “Monitoring and research”. Those words are up there with apple pie and motherhood, as who can be against monitoring and research? However, I rather doubt whether monitoring and research require the detail of the proposed new clause and the requirement as to what happens to the results, and so on. In fact, the novelty and the great variety—I referred to those in an earlier amendment—of the likely business structures that will develop probably require continuous monitoring and research. That would be most helpful, but I am not sure that that is what the proposed new clause says. I am particularly concerned about the bull point towards the end of it, which says:

“This Part”—

that is, the whole of Part 5—

“shall cease to have effect five years after the date on which this section of the Act comes into effect”.

We all said when we discussed the previous amendment how often alternative business structures will require a great deal of investment and capital. If the amendment were passed, we would stifle the development, and even the creation, of alternative business structures practically from the start. Either alternative business structures, with all the safeguards of licensing and so on that we talked about earlier in the day, are a good thing—as they are for giving new varieties of provision for the consumer and communities around the country—or you do not like them. The amendment would damage the possibility of this creative development in the Bill right from the word go, and I am wholly against it.

I am concerned whether, if we start a scheme such as alternative business structures, it will be realistic to be able to bring it to an end. I do not see how one could start something like this. We had the example of the CFO; no one has really suggested that that should come to an end. I wonder whether it is realistic, either by having a pilot scheme or the admirable suggestion of monitoring and research. Perhaps I may respectfully agree with the noble Lord, Lord Borrie. It will be very important to have monitoring and research in order to deal with certain alternative business structures that will become unsatisfactory or are unsatisfactory. It will be important to bring such structures to an end. But once we have opened Pandora’s box—if I may put it like that—is it ever possible to shut it?

I declare an interest in apple pie and motherhood, and in monitoring and research, which are obviously essential to see how the various schemes work. But monitoring and research require something at the end of the process: if the monitoring and research into a scheme say that it does not work, what happens then? I am not attracted by a sunset clause, as I indicated in the previous debate. Perhaps the Minister could assure us that, under Clause 84, the power of the licensing authority to,

“modify the terms of a licence granted by it”,

and, under subsection (1)(b),

“in such other circumstances as may be specified in its licensing rules”,

could cover the modification of a class of alternative business structures that were proving to be particularly unsatisfactory as monitoring and research demonstrated. Something along those lines might be a way forward. I am not sure that that was the intention behind Clause 84(1)(b), but the ability to alter a licence significantly to get rid of, for example, cherry-picking in a particular class of alternative business structures would be very desirable. I invite the Minister to consider the proposal along those lines.

I entirely agree with noble Lords who have argued against the idea of a sunset clause. My experience in this House has been that sunset clauses are invariably undesirable. That may not be the experience of everyone, but that is what I think. I have a profound suspicion, therefore, of what is envisaged here. I entirely agree with my noble friend Lord Borrie—not for the first time and, I am sure, not for the last time—who has put his finger on this issue. It is always possible for someone to move that a situation is not working properly, and I envisage that it will be possible in this case as well. So why do we have a sunset clause? The arguments that I have heard today in favour of this proposition have been singularly unconvincing. I would prefer that we should have monitoring and research, which we would always have in any event. Why do we have this provision at all?

I understand very well the reason for monitoring and research. Like the noble Lord, Lord Borrie, I would very much be in favour of that when fitted to the circumstances of the particular matter being tested. But, like other noble Lords—possibly it is because of approaching sunset in any event—I am not at all in favour of the sunset clause, which is a kind of confession in advance that you are rather doubtful whether the thing will work. There may be doubts about whether the thing will work, but I do not think that we should put the statute on the statute book under such an impression.

On conditional fee arrangements, perhaps my noble friend has forgotten that these were initiated by a Government of which he was a Member—they were greatly extended later—with the benefit of the Lord Chancellor’s advisory committee to express views about how they were going. Indeed, sometimes the views were adverse to what was being proposed, but we had the benefit of that sort of advice. I would be in favour of some form of provision for monitoring and research, but not the provision of the sunset clause.

I am a new boy here. Is the problem with this clause really subsection (4)? Without that, subsections (1), (2) and (3) make a lot of sense. I have always thought that liberalisation on the whole is a good thing. Monitoring and research into alternative business structures would give assurance to consumers and tell people who are starting them that they will be monitored and researched. I would have thought that that would help.

I speak only as someone who worked on the Stephen Lawrence inquiry. It was interesting that the Home Secretary said that he would lay before Parliament his action plan on how the recommendations were working. That actually meant that the police were carrying out what was required. Because it was to be laid before Parliament, progress was that much better. I would have thought that this would save people from acting in haste but repenting at leisure. They would know that they were to be monitored, studied and researched, as required under the Act.

In addition, in terms of consumers, how will you cure the unintended consequences? Being a new boy, I would go for subsections (1), (2) and (3) of the proposed new clause and remove subsection (4). But I do not know how this House works. In the house called the General Synod of the Church of England, it would be possible to remove it.

The most reverend Primate may be a new boy, but he is spot on in his analysis of the Government’s position. The great joy of your Lordships’ House is that we can do whatever we like.

I am reminded by the Chairman that that would be within reason, and of course we are always reasonable.

I thank Members of the Committee for the way in which we have talked around this very important amendment. I agree with the sentiments expressed by the noble Lord, Lord Hunt, and other Members of the Committee that it is very important, because it is new, that we know what happens while it develops. Not only should the board know, but Parliament should know. I agree that it would be very valuable to view how things are working out and allow a chance to consider whether further refinements are needed.

The noble and learned Baroness, Lady Butler-Sloss, and the noble Lord, Lord Thomas of Gresford, talked specifically about whether we could stop alternative business structures and whether we could deal with particular classes of ABS. The answer to both is yes. If a firm’s existence is contrary to the regulatory objectives, the licence can be withdrawn. If all ABSs were working contrary to the regulatory objectives, all licensing authorities could be shut down under this legislation. The licensing authorities’ power to modify licences applies to any or all within their reach, so if general problems arise general modifications can be made in a specific class or in the generality as a whole.

I am happy to consider the study and report as proposed in subsections (1) to (3). We may need to make some refinements, so I hope that the noble Lord will allow me to take these subsections away to consider them. I listened carefully to what was said about a sunset clause. Noble Lords spoke of the chilling effect and the difficulties for consumers as well as for investors, and I agree with those arguments. It is difficult to envisage how this would work, particularly given that, after five years, ABS firms could be unlawful. That would greatly inhibit the possibility of their even being set up, let alone being able to develop. However, I realise that part of the intention is to ensure that the Government come back to Parliament to justify what has happened.

The amendment requires a report after three years, leaving two years with no obligation to do so, and I shall want to look at that. Further, there is nothing to prevent Parliament from conducting its own investigations. My thinking is that perhaps we should have a report after five years, and I am happy to talk to the noble Lord, Lord Hunt of Wirral, about how to structure that. If necessary, legislative changes could then be proposed. While I would not wish to see a sunset clause in the Bill, there should be an opportunity to make changes if they are thought necessary. That is better for the long-term planning of ABS structures and gives greater certainty while dealing with the point that Parliament should be given a chance to review how the development is working. On that basis, I hope that the noble Lord will agree to my proposal.

I am happy to agree. I thank all noble Lords who have participated in the debate, particularly the most reverend Primate, who has given me 75 per cent of what I am seeking. In fact, I have virtually 100 per cent because the Minister has pointed out that the whole thing could be shut down anyway and therefore would not need a sunset clause. Therefore, I think that this has been a valuable debate. I am grateful to the Minister for what she has said. I will reflect on her words and look forward to working with her in order to bring forward something more meaningful on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clauses 108 and 109 agreed to.

I beg to move that the House do now resume. In moving the Motion, I suggest that the Committee begin again not before 8.35 pm.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.