Members of the public who receive civil legal aid for a money or property dispute, and who succeed in obtaining a financial benefit from their case, are required to repay their legal aid costs, so resources can be recycled to help others.
If someone is unable to repay their legal aid costs immediately, these can be postponed as a statutory charge on their property. Where charges are postponed against property, persons are not obliged to make any repayments, or to repay the charge in full until their financial circumstances change, or the property changes hands. However, in order to encourage clients to repay their postponed charge where they can, the charge accrues 8 per cent simple interest. Although the interest rate on postponed legal aid charges is entirely separate from the bank rate, the Government have been considering whether the existing interest rate should be changed.
The Government have decided that the interest rate should remain at 8 per cent simple. The simple interest which accrues on the legal aid charge is entirely different from the compound interest charged by commercial institutions. For an average statutory charge which is repaid after seven years, 8 per cent simple interest is approximately equivalent to 5.3 per cent compound interest. We consider that this compares favourably with other commercial alternatives, particularly for the majority of clients who receive legal aid, who could be charged high compound interest rates by commercial lenders.
There is also no requirement to make regular repayments against the charge, unlike commercial products. Funded clients will also benefit from lower legal costs, as their lawyers will have been paid at controlled legal aid rates, which will significantly reduce their legal costs. Taking all of this into account, we consider that the charge should remain at 8 per cent simple interest to encourage those who can repay to do so. This is important because when legal aid charges are repaid, this money is recycled to provide legal help for others. For example, lowering the simple interest rate by half could deny civil advice to 30,000 people per year.