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Courts: Costs

Volume 691: debated on Wednesday 2 May 2007

rose to ask Her Majesty’s Government why civil justice costs must be recovered in their entirety from those who become suitors before the court.

The noble Lord said: My Lords, this Question was first tabled by the learned Lord Ackner, who was a brave and consistent champion of the cause of justice in this House. When he died a year ago, I tabled it in my own name to draw attention to the Government’s regressive policy on civil justice costs. Alas, I cannot match Lord Ackner's sarcastic wit or his legal authority. He might have recalled the Irish judge, Sir James Matthew, who said:

“In England, justice is open to all—like the Ritz hotel”.

The debate is timely. The Government’s botched plan to create a Ministry of Justice has given rise to well founded concerns on these Benches and within the senior judiciary about its financial, constitutional and management implications. As Lord Justice Thomas told the Constitution Committee yesterday, more safeguards are needed to ensure that the courts are properly funded and administered.

The current DCA consultation on civil court fees provides a sharp focus for this debate. The Civil Justice Council has repeatedly criticised the Government’s policy in this area. It has pointed out that:

“Constant increases in court fees seriously threaten access to justice for those on low or modest incomes who do not qualify for fee exemption or remission, or for legal aid. This should not be seen as simply a book balancing exercise, but is a serious access to justice issue”.

In response to the last consultation in 2004, the council explained that the policy of full costs recovery is,

“fundamentally at odds with the aim of securing access to justice”.

The right of access to justice is a fundamental constitutional right. Section 92 of the Courts Act 2003 empowers the Lord Chancellor to prescribe civil court fees, with the consent of the Treasury. In doing so, it requires the Lord Chancellor to,

“have regard to the principle that access to the courts must not be denied”.

But that is too limited a safeguard and must be read and given effect in accordance with the broader common law and convention right of access to justice.

What is objectionable is not the principle of levying reasonable court fees. The objection is to a levy that is disproportionate and which impairs the effective enjoyment of the right of access to civil justice. The DCA’s consultation paper was made in the Treasury and written by government accountants, using the language of the marketplace. In today’s Whitehall, the citizen becomes a “customer”, as though the litigant or “stakeholder” was merely seeking to buy butter or go to the cinema. The Civil Justice Council is rightly concerned at the short time allowed for the current consultation and that the consultation is too limited.

As in 2004, the consultation paper takes it as axiomatic—which I think means beyond dispute or argument—first, that the civil courts will continue to charge fees for the entire cost of running the civil and family courts, because a free service would require the newborn justice ministry’s expenditure to be increased by some £400 million; and, secondly, that general government fees and charging policy will continue to apply. It explains that this means that,

“all services must have a financial objective agreed with the Treasury. The norm is full-cost recovery. But different objectives may be agreed where there is a wider policy justification. Fee remissions and exemptions (Remex) are an example of such a ‘social subsidy’”.

It is characteristic of the Treasury’s market-driven mind-set that it regards fee remissions and exemptions as a social subsidy, given by way of concession. It is a subsidy only in the sense that the taxpayer rather than the court user pays. The paper explains that the calculation of full cost on which fees are based,

“takes account ... of all resources needed to run the system. This includes the salaries of relevant HMCS staff and judiciary, general administrative costs including the cost of supporting IT systems, accommodation and an appropriate share of other HMCS overheads. It also includes the cost consequences of previous capital investment”.

Court fees are worth about £550 million and cover nearly 88 per cent of the full cost of running the civil and family courts. Currently, family court fees and magistrates’ courts civil fees do not meet the full cost of fee exemptions and remissions. The DCA therefore proposes to increase fees accordingly. It explains that otherwise, to comply with the Treasury fees and charges guide, it would have to reduce spending, for example,

“by closing courts or reducing staff numbers”.

That is a measure of the priorities of the Treasury in forcing the DCA to choose between closing courts and requiring suitors to pay for the full cost of running them, of paying judicial pensions, accommodating judges in heritage buildings and Victorian lodgings, court modernisation, and the burgeoning costs of investment in new technology.

It is as inappropriate to charge the user for the entirety of these costs as it is to charge the patient for the costs of running the NHS. The core services of the state, whether policing, healthcare, the prison and immigration service, or the Courts Service should be mainly funded from general taxation. In the words of the Civil Justice Council, the policy,

“fails to recognise the significant element of collective benefit in the administration of ... justice”.

We are told in the DCA paper that,

“the requirement to fund most of the business from users’ fees creates a strong onus to maximise efficiency”.

I hope that the Minister will explain to whose efficiency this refers and how a policy of charging users rather than taxpayers will create a strong onus on the part of the DCA and related public authorities to maximise efficiency. I should have thought the reverse to be the case. Why is it is fair and equitable for a claimant of moderate means to be required to pay court fees so as to “subsidise” the cost of judicial pensions and salaries, and maintain the judges’ lodgings and heritage buildings?

I have given notice to the DCA of four key questions that will, I hope, be answered in the Minister’s reply. First, as a matter of principle, is it in the interests of justice to charge those seeking access to the courts the entire cost of running the courts, or, except for commercial and similar cases, should most of those costs be borne by general taxation in funding the Courts Service? Secondly, what has been the practical impact of the charging policy and its effect in impairing the effective enjoyment of the right of access to courts, especially taking into account the chilling effect of the costs rules, the impact of changes in civil legal aid and the decline in litigation? Thirdly, is the charging policy indirectly discriminatory in its adverse impact on vulnerable groups? Fourthly, would the Government’s proposals to modify the charging scheme be sufficient to avoid arbitrary, discriminatory and unnecessary financial barriers impeding or deterring effective access to justice in civil cases?

Significant levels of court fees risk deterring the citizen from using the civil justice system. Socially excluded groups are particularly vulnerable. The consultation paper fails to explain how it is objectively justifiable to maintain a policy that has a disproportionate adverse impact on vulnerable groups. Three years ago the Civil Justice Council called for a fundamental review of the exemption and remission provisions. That recommendation has not been accepted. Regrettably, it may once again be left to the courts to conduct a judicial review to secure an adequate guarantee of access to justice.

I said that the debate was timely, but of course it is untimely, coming on the eve of the local government elections, which I fear explains why the Chamber is not crowded. Finally, I should say that I wrote to the Lord Chancellor urging him to reply to this debate since it concerns the DCA’s consultation on a matter of constitutional importance, particularly affecting England and Wales. I have great respect for the Scottish legal system and for its law officers, including the Scottish Advocate-General. But I have to say that I find it a great curiosity that it should be left to the Scottish Advocate-General to have responsibility for replying to this debate.

My Lords, I, too, lament the absence of Lord Ackner from this debate. I am quite sure he would have had some excoriating observations to make about the Government’s policy.

Like the noble Lord, Lord Lester of Herne Hill, I, too, am curious as to what prompted the Government to invite the Advocate-General to respond to this debate, bearing in mind the responsibilities that I understand he has. By saying that, I do not wish in any way to say that I am not delighted to see him on those Benches.

As usual, the noble Lord, Lord Lester, has made a number of apposite observations and posed some demanding questions to the Government. I am simply going to continue in his slipstream. First, I want to ask the Government about the £34 million surplus that was a consequence of the recovery of charges levied on users of the civil courts by the Courts Service in the year ending 31 March 2006. This was the subject of a Written Question by the noble Lord, Lord Lester, which received a Written Answer on Tuesday, 9 January 2007. I hope your Lordships will forgive me if I read out the Answer from the noble Baroness, Lady Ashton of Upholland. It is plain from her Answer that she accepts that it is undesirable that the system should generate a surplus.

“The Treasury has agreed that the over-recovery of £34 million can be phased out over the Comprehensive Spending Review 2007 period. Therefore, Her Majesty’s Courts Service proposes to use the increased income generated to fund: progressive reductions in the civil over-recovery; the additional cost of the proposed reforms in the remission and exemption policy; and any planned increases in resource spending on IT modernisation. Within civil proceedings, we are proposing to introduce hearing fees in the High Court and county court and other changes so that fees better match cost drivers. We are also proposing to make the appropriate reductions to offset extra income from hearing fees and to eliminate the over-recovery. This would be targeted on issue fees and weighted towards the fees for using e-channels (County Court Bulk Centre, Money Claim OnLine and Possession Claim OnLine), reflecting the lower cost compared with paper issue and the objective of promoting their greater use as part of the Her Majesty's Courts Service’s business strategy”.—[Official Report, 9/1/07; cols. WA 67-68.]

Quite frankly, I have some difficulty in understanding exactly what the noble Baroness means. Will the Minister be kind enough to interpret this Answer in a way that makes it clear what measures will contribute to the phasing out of the surplus, and what relative contributions each one will make to the total?

My second question concerns the Government’s policy to recover in total, as I understand it, the cost of providing court services. What do they think it appropriate to include in defining “cost”? We have already heard the noble Lord, Lord Lester, make some important observations about capital costs. To what extent do the Government think it appropriate to charge capital costs on the sort of capital expenditure to which the noble Lord referred?

My third question concerns the important contribution the Civil Justice Council is making to this debate. What weight do the Government give to principles that compete with the principle of recovering the total cost of the provision of court services? Recently the Civil Justice Council made the following observation:

“The Council considers that the policy of recovering almost the full cost of running the civil justice system from litigants is wrong in principle in that it fails to recognise the significant element of collective benefit in the administration of civil justice, not least for those who do not become involved in proceedings. It is in the collective interest that an efficient and authoritative means for resolving dispute should exist, that the law should be clarified and developed, that the power of the executive should be checked, and that human rights should be safeguarded”.

My final question is to endorse and amplify the point the noble Lord, Lord Lester, made about access to justice. This ought to be a crucial component of the Government’s approach to this issue. Have the Government undertaken an analysis of the impact of their approach on access to justice? Furthermore, has a view been taken about the combined impact of the approach together with recent changes in legal aid rules? I emphasise a further point made by the noble Lord, Lord Lester, because I regard it as very important: what impact has the Government’s policy had on socially excluded groups? I underline what a debt the House owes to the noble Lord, Lord Lester of Herne Hill, for bringing this matter to its attention. We are all fortunate that he keeps his eye on a whole range of issues connected with access to justice, of which this is just one.

My Lords, I am grateful to the noble Lord, Lord Lester of Herne Hill, for raising this debate, although I think I detect that he disagrees with the policy of full-cost recovery. This is an issue with a long history, as he knows better than many. True it is that, were Lord Ackner present today, I would no doubt be on the receiving end of two fairly acerbic observations. To some extent I am relieved I am not, but I regret that he is not with us because he was a very considerable legal figure.

The primary benefit of civil litigation is usually that the parties involved are those who receive the benefit, and that is perhaps the critical area of distinction between the approaches to the principle here. The Government believe it is right that those who take the primary benefit bear the costs of using the civil courts. The general policy of recovering most of the cost through fees enables better targeting of scarce public resources.

There are essentially three options for funding the civil court system. The first is to maintain the concept of setting fees to reflect cost, so those who have sufficient means to pay the full costs of litigation do so while the taxpayer’s contribution is focused on those qualifying for remission or exemption. The second is to subsidise the level of court fees generally by increasing taxes or taking money from, say, the legal aid budget in order to reduce court fees. It should be borne in mind that a wholly free court service would cost some £550 million. That figure has already been alluded to. Inevitably, the third option is to cut costs and therefore fees by slashing court services, closing courts and sacking staff, which, of course, no one would want.

Court fees have to comply with the general policy principles that apply to all services where the Government charge fees authorised by Parliament. The most important is that fees should not exceed the total cost of providing the service. Fees cannot be set to make a profit. All fee-charging services must have a financial objective agreed with the Treasury. For civil court fees, the objective is to recover the total cost, not counting the cost of providing fee exemptions and remissions. In other words, although the term is often used, the target is not full-cost recovery. A better way of describing the policy is full-cost pricing. This means that fees should generally be set at levels which, on average, if charged in every case rather than waived, would recover the full cost of providing the service.

Full-cost pricing, together with a system of concessions to protect the least well-off, is the better way of targeting the taxpayer’s contribution at where it is most needed. Furthermore, many fees in family proceedings are currently set at levels well below full cost. These include, in particular, the fees for domestic violence, adoption and public law childcare cases. So the taxpayer makes, and will continue to make, a significant contribution to the cost of running the civil and family courts. In 2005-06, court fees represented 79 per cent of the total cost.

The part of cost not covered by fees is met by the general taxpayer as part of the resource budget of the Department for Constitutional Affairs. The taxpayer’s contribution is made up of two elements: potential fee income forgone under the system of remissions and exemptions; and fees set below full-cost levels—that is, they would not cover the total cost even if none was remitted. This is currently the case with many fees for family proceedings generally and for civil proceedings in the magistrates’ courts.

In 2005-06, the latter subsidy was partly offset by the fact that civil fees in the county courts and above recorded significantly more than the cost of these proceedings. As the noble Lord, Lord Kingsland, observed, the over-recovery for that year came to some £34 million. That arose partly from the difference between forecasts made in June 2005 and the actual outturn and partly as a result of the new costing model identifying a more accurate allocation of cost between services. The Treasury agreed that the over-recovery can be phased out over the spending review period of 2007.

I was asked how the figures in the fees-and-charges approach will be dealt with. As I understand it, these figures are based on actual income and expenditure with shared and overhead costs allocated between services on the basis of the new model. The allocation would be through civil, family and probate. The recent fee increases were based on forecast income and expenditure using the old model. These figures showed a substantial over-recovery using full cost for civil and probate but lower recovery rates than intended on the other services. Civil fee income in the higher courts exceeded full cost by 15 per cent of an excess net income worth around £34 million. The probate recovery was 30 per cent—an excess of almost £4 million. The equivalent surpluses in 2006-07 are likely to be rather larger because of the full-year effect of the recent fee increases and the impact on civil and probate costs of the expenditure cuts. The recent increases are not the principal reason for the over-recovery; they were set to raise about £4 million in 2005-06—about 11 per cent of the process.

We have developed a package of fee measures for implementation in August 2007, which, among other things, addresses the recovery issue. In other words, reductions in civil and probate should be offset by increases elsewhere so that we avoid over-recovery and have a neutral or better impact on the net departmental expenditure limit. We envisage that the August 2007 package will also include changes arising from the exemption and remission and fee structure reviews mentioned above. The former is likely to increase the loss of income that will have to be recovered through the departmental budget.

I should say something in this context regarding access to justice via exemption and the remission process. Approximately 5 million people are in receipt of specified means-tested benefits or tax credits who are eligible for automatic exemption from court fees. Thus anyone not qualifying for exemption but who would suffer financial hardship if required to pay fees whether in full or in part may be granted remission in full or in part. The current test for remission is based on both income and expenditure and takes full account of all a person’s commitments and liabilities, not just how much money they have or receive. Setting fees generally at levels lower than a full-cost price would mean that corporations and other wealthy litigants would benefit from the taxpayer’s contribution, increasing its cost and in turn putting pressure on other budgets such as legal aid. These are public expenditure decisions for the Government; what the state provides free or at a charge is essentially a matter of policy for government. The issue of determining priorities in the allocation of scarce public resources inevitably arises. We recognise, of course, that citizens in a democracy under the rule of law have a constitutional right of access to a court system, but—this is the critical point—it is not a constitutional right to free access, provided those who cannot pay are protected.

The noble Lord, Lord Lester of Herne Hill, raised the question of the practical impact of the charging policy. The department has no evidence to suggest that charging court fees is affecting the number of cases coming to court. One should bear in mind that court fees represent a much smaller proportion of the cost of civil litigation than legal fees. One must note that legal aid, together with a system of concessions, exists to protect access to justice for the less well-off.

Current statistics show that the number of specified debt claims has steadily increased by 28 per cent since 2002, which suggests that there is no chilling effect on litigation proceeding in this area. However, as part of the long-term fee strategy, the department has commissioned a detailed piece of research to identify the consequences of fee charging. This may provide an answer to the question—I believe that it was his fourth—asked by the noble Lord, Lord Kingsland. The research hopes to identify what the impact of fee changes might be on users and to identify any users who may be prevented from accessing the courts due to increases. The outcome of the research will be formally published in July 2007.

My Lords, I am listening with great care. Is the noble and learned Lord or his department aware of any other country in the Commonwealth, Europe or elsewhere which seeks to recover the full cost of the Courts Service, or anything like it, in the way that we do in this country?

My Lords, with that last rider, the question becomes rather more difficult. There are a number of jurisdictions that seek to recover fees one way or another, possibly through the income tax system, and there are various other processes by which they seek to make that recovery.

My Lords, I cannot give an answer specifically running through these jurisdictions. I know that there are other jurisdictions, and I will endeavour to have that researched for the noble Lord, if he will accept that.

In relation to the third question, we do not believe that there is an adverse impact on vulnerable groups. The system of concessions that is available across all civil and family jurisdictions protects access to justice for all groups in society, including the vulnerable. Research should establish whether that belief is correct. As regards the general point of access to justice and whether the system is capable of improvement, the answer is yes; it would be foolish to suggest otherwise. The proposals in the consultation paper Civil Court Fees begin at this stage the continuing process of making the system fairer between the different categories of court user.

The longer term is important to Her Majesty’s Courts Service, and we will continue to review and reform that service. The consultation process, which has already been alluded to, seeks to identify, after the two major reviews during 2006-07, a set of proposals set out in the recently published civil fee consultation paper. That consultation will end on 25 June, and it is an opportunity for those who consider this matter strongly to make their views clear. In conclusion, I confirm that the department’s plans, as set out in the fee strategy and more recently in the fee consultation paper, are concerned, as we all are, with the fairness of the issue, while considering the financial obligation of the Government.

My Lords, I beg to move that the House do now adjourn during pleasure until 8.28 pm.

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

[The Sitting was suspended from 8.02 to 8.28 pm.]