Written evidence submitted by the Law Society of England and Wales (PEG0134)

Introduction

1. The Law Society of England and Wales is the independent professional body that works globally to support and represent 200,000 solicitors, promoting the highest professional standards and the rule of law. The solicitor profession feels a strong sense of responsibility to help keep the wheels of justice turning and to uphold the rule of law through these unprecedented times.

2. On 30 June 2020 the Law Society launched its Return, Restart, Recovery campaign, which aims to support the national recovery effort from coronavirus and reinforce the role solicitors and their firms will play. The campaign comprises three stages: supporting solicitors and firms to return to their offices safely; leveraging the legal service sector’s expertise to restart the economy; and empowering solicitors and law firms to drive the recovery after coronavirus.[1]

3. This submission will not seek to respond to every question raised by the call to evidence, but will instead focus on those issues which the Law Society believes to be of particular relevance and importance.

Summary of policy recommendations from the Law Society’s Return, Restart, Recovery campaign

4. To support solicitor firms that are returning to the office, The Law Society recommends that the UK Government:

• Create a 50% business rate relief scheme for small firms in England. This measure would give thousands of law firms access to relief that will increase their chance of surviving the crisis and enable them to play a role in national recovery and town centre regeneration.

• Allow self-employed solicitors whose profits exceeded £50,000, or who take their income in dividends rather than salary, to benefit from existing Treasury support schemes for the self-employed.

• Pursue a Nightingale-style intervention to boost capacity in our courts system by using public buildings to handle the backlog in cases without compromising on the quality of justice or the rule of law.

• Restore legal aid for early advice from a solicitor to help clear the backlog in the courts. Increasing the availability of early advice will help solve many cases before they reach court, and will speed up those cases that do proceed to trial by ensuring litigants are better prepared, informed and represented.

5. To help solicitor firms restart local, national and international economies, we ask that the UK Government:

• Provide support for the legal aid sector to ensure firms have a sustainable long-term future. Specifically, we are calling for:

• Maintenance of the standard monthly payments on which legal aid providers rely, at their current levels even as work levels drop due to the lockdown.

• The reinstatement of criminal legal aid fees at their pre-2014 level, before they were reduced by 8.75%.

• Ensure employment tribunals are properly and sustainably funded in a way that protects the rights of workers and employers to access the tribunal. Proposals to fund tribunals through applicant or claimant fees should not be considered, as they were ruled unlawful by the Supreme Court in 2017.

• Prioritise the rollout of broadband and 5G across those regions which currently have very limited coverage, to ensure firms and consumers are able to take advantage of the technology that will help businesses to restart in the current environment.

• Empower law firms to create the new jobs that will provide the backbone of the sector in the long-term, by giving them the flexibility to spend apprenticeship levy money on:

• LawTech seats and training in LawTech skills.

• Training in secondary specialisations which will enable people to re-train in other practice areas.

• Training contracts to maintain the jobs pipeline for students about to complete the LPC.

• Supporting other organisations (In England, including in the third sector) by funding joint roles. This would enable firms to deliver pro bono work in partnership with legal charities, helping to meet the likely rise in demand for such services and provide more efficient access to legal advice.

• Target tax incentives to support employment and stimulate activity in key domestic markets. These could include:

• A temporary reduction in the VAT standard rate from 20% to boost consumer demand and support suppliers of standard rated goods and services across a wide range of sectors including the legal sector.

• A temporary relief for employers’ National Insurance contributions to help incentivise staff retention and recruitment as the job retention scheme comes to an end.

• Write off the deferred VAT payment for legal aid firms and treat it as a grant to provide much needed cashflow support for legal aid firms.

• An extension to the VAT and income tax deferral schemes to April 2021 to help firms with their cash flow. A longer repayment schedule would help to prevent a crunch point for many businesses early next year.

6. To help drive the UK’s economic and social recovery from coronavirus, we propose that the UK Government:

• Promote England and Wales as a global legal centre wherever possible, to emphasise the reliability of our courts and ensure that English law remains the preferred choice for contracts. This should involve:

• Treating legal services as an important element in negotiations for new free trade agreements.

• A long-term commitment to investing to maintain the world class quality of our justice system, as our reputation as a global legal centre rests on this.

• Invest now in driving the adoption of technologies that will build the resilience of local economies and provide the bedrock of our future prosperity. This should include:

• Providing tax incentives for law firms, legal services providers and LawTech start-ups that develop and adopt LawTech, such as research and development tax credits and allowances (similar to capital allowances).

• Extending the eligibility of the Future Fund to LawTech start-ups in England by relaxing the requirement of a minimum level of £250,000 of seed capital.

• Embracing the data revolution by establishing a legal data trust to improve accessibility of data for those seeking to innovate in the legal services sector.

• Investing in upskilling the judiciary to ensure the business and property courts are able to deal efficiently with intellectual property claims arising from LawTech, and task the Intellectual Property Office with educating firms and LawTech developers on how to ensure their LawTech IP is protected.

• Build resilience in our communities by ensuring access to justice for all. Specifically, we call on the UK Government to:

• Commit to ending legal aid deserts,[2] to ensure everyone in England and Wales is able to access legal advice when they need and ensure they are equipped to help rebuild their local communities after coronavirus.

• Restart the review of the legal aid means test, which has been paused by the Ministry of Justice. Law Society research has revealed that the legal aid means test leaves many people, including some who are living well below the Minimum Income Standard, ineligible for legal aid, with many trapped between being in a position to afford legal support and being eligible for legal aid.[3] The means test review must result in a widening of the numbers of those eligible for legal aid.

• Restart the criminal legal aid review as a matter of urgency. In the past year five large criminal defence practices have become insolvent and there is a real risk among the profession that unless there is urgent intervention the entire system could be at risk.  The need for action on criminal legal aid has only been heightened by the impact of coronavirus.

What core/guiding principles should the Government adopt/prioritise in its recovery package, and why?

7. The long-term recovery from coronavirus will not be achieved before firms and sectors have been helped to return to work and restart local and national economies. That is why the Law Society has adopted Return, Restart, Recovery as the framework for its work to support the legal services sector at this time. The UK Government’s recovery package must recognise the importance of each of these three stages and ensure that it provides support to help firms through each stage in turn.

8. The Law Society is also keen to support the UK Government in delivering its recovery programme. For example, the Law Society is pleased to have been able to partner with the Department for Business, Energy and Industrial Strategy and Enterprise Nation to offer free advice to small firms to assist them in the recovery from coronavirus, as part of the Recovery Advice for Business Scheme.

How can the Government borrow and/or invest to help the UK deliver on these principles?

9. Through the Return, Restart, Recovery campaign the Law Society has outlined what a holistic programme of investment to support the legal sector through each of these three stages looks like. The full list of recommended measures can be found in paragraphs 6 to 8 of this submission.

What measures and support will businesses need to rebuild consumer confidence and stimulate growth that is sustainable, both economically and environmentally?

10. Sustainability is a key issue for firms in many areas of the legal services sector, but is most particularly an issue for legal aid firms, which provide vital free legal advice to those most in need. These are firms that are delivering a public service to help the poorest in society exercise their legal rights. Without the support of legal aid firms plenty of people will find themselves unable to exercise their legal rights. The UK Government must take specific responsibility for ensuring the survival of legal aid firms and the continued availability of affordable legal advice to communities across England and Wales.

11. Prior to coronavirus, legal aid practitioners and firms were already losing faith in their ability to keep their practice running sustainably and reaching the conclusion that they would have to close down. Coronavirus has brought forward the decision-point that many firms face about whether they can afford to keep going. Indeed, for many firms the answer has already been that they cannot afford to keep their practices open: the latest figures from the UK Government show there are now just 1,147 firms now holding a criminal legal aid contract – 124 fewer than there were in 2019, a drop of 10%. This in turn is far fewer than the 1,861 firms that existed in 2010.[4]

12. For legal aid firm owners to choose to take the risk of keeping their firm going throughout this period, they will need to believe that there is a sustainable future, post-crisis. A significant step could be to reinstate criminal legal aid fees at their pre-2014 level, before they were cut by 8.75%. The Legal Aid Agency (LAA) should also change its rules so that the standard monthly payment does not go down as a result of the reduction of work caused by coronavirus.

13. Targeted tax incentives could also play an important role in stimulating consumer demand in key markets and reviving business confidence. The UK Government’s announcement of a temporary Stamp Duty Land Tax holiday was a positive step in this direction, as was the Welsh Government’s announcement of a similar holiday for Land Transaction Tax. The Law Society has recommended a number of further tax incentives that the UK Government could implement to help avoid a stuttering restart in key markets that could hold back the drive towards recovery. These could include:

• A temporary reduction in the VAT standard rate from 20% to boost consumer demand and support suppliers of standard rated goods and services across a wide range of sectors including the legal sector.

• A temporary relief for employers’ National Insurance contributions to help incentivise staff retention and recruitment as the job retention scheme comes to an end.

• Writing off the deferred VAT payment for legal aid firms and treating it as a grant to provide much needed cashflow support for legal aid firms.

• An extension to the VAT and income tax deferral schemes to help firms with their cash flow. A longer repayment schedule would help to prevent a crunch point for many businesses early next year.

14. In the long term, the legal services remains a key economic sector domestically and a key market for the UK internationally. To maintain this position, the UK Government must continue to maintain confidence in the English and Welsh jurisdiction by committing to maintaining a world class justice system in this country, and resisting any temptations in the current environment to compromise on the key foundations of our justice system, such as the availability of jury trials.

Whether the Government should prioritise certain sectors within its recovery package, and if so, what criteria should it use when making such decisions? What conditions, if any, should it attach to future support?

15. Legal services are a heavyweight economic sector which will play a central role in driving the UK’s economic recovery from coronavirus. The legal services sector supports the employment of 552,000 people in the UK, and the sector was worth almost £60bn (GVA) in 2018. The sector is also a net exporter, with exports worth £5bn in 2017, helping offset the UK’s balance of payment deficit. [5]

16. Law firms advise clients on transactions that take place right across the economy, and so have a direct impact on economic output across all sectors of the economy. Law Society research has demonstrated that 8,000 new jobs are created and £379 million is added to the economy when the UK legal services sector grows by 1%; meanwhile in 2018 legal services contributed a total of nearly £60bn in gross value added to the whole UK economy.[6]

17. Legal services will therefore be a crucial part of the UK’s long-term recovery from the effects of coronavirus. The UK Government’s recovery package should therefore look to enable the legal services sector to drive economic growth and productivity at a crucial time.

18. While the legal services sector is a heavyweight economic sector, it is also very diverse in its makeup. The sector includes over 7,400 small firms (sole practices or firms with four or fewer partners or directors) which collectively employ approximately 26,500 solicitors and make up 87% of private practice in England and Wales. These small firms are fixtures of local high streets and important contributors to local economies across all parts of the country. They also include a large number of legal aid firms, who deliver a vital public service by providing affordable legal advice to those in the greatest need while operating on a very slim profit margin. By prioritising support for small firms such as these the Government would not only be empowering the bedrock of the legal services sector as a whole, but will also be helping to ensure that the recovery reaches into every corner of the country and every high street, and that those firms that are most firmly embedded in their local communities and which provide the most vital services to people are included in that recovery.

How can the Government best retain key skills and reskill and upskill the UK workforce to support the recovery and sustainable growth?

19. Coronavirus has inevitably resulted in a change in the number and type of jobs available across all sectors of the economy. In the legal services sector many staff will need to retrain in new areas of law in order to meet clients’ immediate needs, while there is concern that junior lawyers and those currently graduating the Legal Practice Course (LPC) will be particularly badly affected by lower levels of recruitment in the sector.

20. To help mitigate this, the UK Government should urgently make changes to the apprenticeship levy to allow firms the flexibility to spend levy funds on retraining schemes for existing staff and training contracts for new entrants to the profession. This will enable law firms to create the new jobs that will provide the backbone of the sector in the long-term, without needing an additional injection of public money.

21. Specifically, firms should be given the flexibility to spend apprenticeship levy money on:

• LawTech seats and training in LawTech skills.

• Training in secondary specialisations which will enable people to re-train in other practice areas.

• Training contracts to maintain the jobs pipeline for students about to complete the LPC.

• Supporting other organisations (in England, including in the third sector) by funding joint roles. This would enable firms to deliver pro bono work in partnership with legal charities, helping to meet the likely rise in demand for such services and provide more efficient access to legal advice.

What lessons should the Government learn from the pandemic about actions required to improve the UK’s resilience to future external shocks (including – but not limited to – health, financial, domestic and global supply chains and climate crises)?

22. One of the main lessons from the pandemic is that our communities are most resilient when they can rely on high levels of social capital. As we come out of the coronavirus crisis the UK Government should therefore look at ways in can proactively foster the social capital that can help society withstand future shocks.

23. One of the ways this can be achieved is by addressing gaps in access to justice, and ensuring that everyone in this country has access to high quality legal advice from a solicitor to support them when they face a serious legal problem. Access to legal advice is essential in helping people to address and resolve the complex legal issues that inevitably arise out of societal crises such as pandemics – issues such as how to deal with the threat of eviction, or how to access essential care in the community.

24. At present many people who find themselves in need of affordable legal advice are unable to access it. Currently over a third (37%) of the population lives in local authorities which do not have a single housing legal aid provider. Meanwhile more than 37 million people in England and Wales live in a local authority area without a single community care legal aid provider, including over 7.5 million people aged 65 and over. Such a situation is not sustainable, and can present particular risks to vulnerable people when a major international crisis, such as a pandemic, strikes. Addressing and ending these legal aid deserts should be a key priority for the UK Government as we emerge from the pandemic.

25. Similarly, ensuring the availability of legal aid for those individuals seeking early legal advice on an issue they are facing would help to resolve more cases quickly and efficiently before they reach court. The lack of legal aid available for early advice at present runs the risk of minor problems escalating into serious ones with significant costs to the individuals at the centre of the issue, the courts that are required to help resolve the issue, and the state which may be called upon to provide support to individuals where these issues result in, for example, an eviction. Avoiding such unnecessary escalation of legal problems is especially important during times of crisis.

26. Savings made in the legal aid budget ignore the knock-on financial costs that could offset these savings. Parliamentary committees and other organisations have highlighted concerns about the wider financial costs to local authorities and other essential services, including the NHS, that have been caused by the cuts to legal aid. [7]

27. Specifically, the UK Government should seek to deliver access to justice to all by:

• Committing to ending legal aid deserts, to ensure everyone in this country is able to access legal advice when they need and ensure they are equipped to help rebuild their local communities after coronavirus.

• Restarting the review of the legal aid means test, which has been paused by the Ministry of Justice. Law Society research has revealed that the legal aid means test leaves many people, including some who are living well below the Minimum Income Standard, ineligible for legal aid, with many trapped between being in a position to afford legal support and being eligible for legal aid. The means test review must result in a widening of the numbers of those eligible for legal aid.

• Restarting the criminal legal aid review as a matter of urgency. In the past year five large criminal defence practices have become insolvent and there is real fear among the profession that unless there is urgent intervention the entire system could be at risk. The need for action on criminal legal aid has only been heightened by the impact of coronavirus.

• Restoring legal aid for early advice from a solicitor to help clear the backlog in the courts. Increasing the availability of early advice will help solve many cases before they reach court, and will speed up those cases that do proceed to trial by ensuring litigants are better prepared, informed and represented.

28. Another key lesson from this pandemic has been the importance of technology in allowing businesses and communities to function as close to normal as possible when traditional ways of working and interacting are disrupted. Videoconferencing technologies, virtual collaboration tools and electronic signature platforms have provided a lifeline for law firms during the lockdown, enabling many to continue servicing clients and keep the wheels of justice turning throughout the crisis. The UK Government should look to seize upon the present opportunity to drive technological adoption in the legal services sector by:

• Providing tax incentives for law firms, legal services providers and LawTech start-ups that develop and adopt LawTech, such as research and development tax credits and allowances (similar to capital allowances).

• Extending the eligibility of the Future Fund to LawTech start-ups in England by relaxing the requirement of a minimum level of £250,000 of seed capital.

• Embracing the data revolution by establishing a legal data trust to improve accessibility of data for those seeking to innovate in the legal services sector.

• Investing in upskilling the judiciary to ensure the business and property courts are able to deal efficiently with intellectual property claims arising from LawTech, and task the Intellectual Property Office with educating firms and LawTech developers on how to ensure their LawTech IP is protected.

29. Technological adoption will only serve its purpose if firms are able to use them; yet for many firms in rural areas poor internet connectivity deprives them of the ability to take advantage of the benefits of these technologies. The UK Government must therefore prioritise the rollout of broadband and 5G across those regions which currently have very limited coverage. Doing so will also represent a crucial step towards realising the Government’s ambition of “levelling up”.

What opportunities does this provide to reset the economy to drive forward progress on broader Government priorities, including (but not limited to) Net Zero, the UK outside of the EU and the ‘levelling up’ agenda? What should the Government do to ensure that delivering on these priorities does not exacerbate the vulnerability of businesses, consumers and communities/workers that have been impacted by COVID-19?

30. The current situation provides a particular opportunity to use technology to level up the UK. As noted above, technology has provided a lifeline for communities and businesses throughout the pandemic. Going forward, the use of technology in this pandemic has demonstrated that location need not be a barrier to the delivery of high quality services. Driving the widescale adoption of new technologies by firms of all shapes and sizes, and rolling out the digital infrastructure necessary to allow firms in all parts of the country to take full advantage of these technologies, will therefore provide a unique opportunity to unlock the potential of businesses outside of the traditional economic hubs and drive more inclusive growth that can level up every region of the UK.

What opportunities exist for the UK economy post Brexit and the pandemic for export growth?

31. Legal services are already an important export market for the UK, with net exports of £4.29 billion in 2017.[8] The size of this contribution to the UK’s balance of trade depends in large part on England and Wales’ position as a global legal centre. The UK Government can and should take advantage of this unique strength to help drive our recovery, by continuing to promote our jurisdiction internationally, emphasise the reliability of our courts and ensure that English law remains the preferred choice for contracts.

32. In addition, the UK Government should treat legal services as a priority in negotiations for new free trade agreements. Doing so would allow the Government to lean on its strengths in such negotiations, as well as boosting trade in one it’s most valuable economic sectors.

33. LawTech also has the potential to be a valuable export for the UK economy to other markets with established and emerging legal services sectors. The UK is currently a global leader in LawTech, but analysis published by the Law Society in December 2019 that shows that its position could come under threat from competitor jurisdictions whose governments are providing significant support for their domestic LawTech sectors.[9] For this reason investing in driving development and adoption of LawTech in the UK will be all the more important in the years to come as we emerge from the pandemic.

34. Research also shows that there is significant unmet demand for legal services amongst small and medium-sized businesses, which could represent a significant growth opportunity in the months to come. Research published in 2018 by the Legal Services Board (LSB) found that around a third of SMEs had experienced a legal problem in the preceding 12 months, with around half saying this problem had had a negative impact on their business. The report also estimated that legal problems cost small businesses around £40bn a year.[10] The coronavirus pandemic will likely only have increased the number and costliness of such legal problems for SMEs. Addressing this demand, and ensuring that SMEs are signposted towards the right legal advice when they need it, will help support SMEs to grow and flourish, and will also create new business relationships for the legal services sector. The Law Society is pleased therefore to have been able to partner with the Department for Business, Energy and Industrial Strategy and Enterprise Nation to offer free advice to small firms to assist them in the recovery from coronavirus, as part of the Recovery Advice for Business Scheme.

July 2020