Analysing the economic justification for the reforms to social welfare and family law legal aid

Abstract

The Ministry of Justice plans on saving £450 million per annum from the legal aid budget through reforms contained in the Legal Aid, Sentencing and Punishment of Offenders Act 2012.Over 60% of these savings will be found by removing whole areas of law and types of problem from the scope of legal aid support. One of the principal justifications for these reforms is the economic imperative; reducing legal aid expenditure is necessary to meet the Government's fiscal targets. This article examined whether these reforms will generate the substantial savings identified in the Government's impact assessment, or whether these costs will be passed on to other areas of government. Data from the Civil and Social Justice Survey were used to model the behavioural responses of people no longer eligible for legal aid under the scope changes. Economic costs were estimated for these responses where they will be incurred by the state, although many of these costs are likely to be underestimates. Many costs could not be estimated including, inter alia, the cost of increased criminality where people seek redress outside of the justice system. The analysis focused on family and social welfare law, which together represent 82% of the proposed savings from the scope reforms. Based upon this analysis, the Government is unlikely to save more than 40% of its prediction. At the same time, these minimal savings could generate inequality of access to justice and overburden an already struggling alternative advice sector. A significant uptake in funded mediation within family law is predicted.

Keywords:

• legal aid reform
• costs
• knock-on
• unintended
• economic

Acknowledgements

The analysis from which this article is prepared was originally funded by the Law Society of England & Wales and reported in Cookson, G. (2011) Unintended Consequences: the costs of the government's legal aid reforms: a report for the Law Society of England & Wales, King's College London, London: UK. The views expressed in this article are those of the author and not necessarily the Law Society. The author would also like to acknowledge the excellent research assistance of Mr Duncan McMillan. The usual disclaimers apply.

Notes

 1. The £450 million savings are expected to come from scope changes (£270 million), fee reform (£160 million including £100 million from criminal, £50 million from civil/family and £10 million from expert fees), £10 million from eligibility changes, £7 million from the Supplementary Legal Aid Scheme, and £1–2 million from the new telephone advice service.

 2. Social welfare law is expected to generate £58 million of savings across debt (£20 million), welfare (£25 million) and housing (£13 million) areas, and family law is expected to generate £170 million (less £10 million expected increase in mediation costs).

 3. Margin of error is calculated as a 95% confidence interval for the proportion which is approximated by ± 2 x [p(1-p)/n-1].

 4. As the sample size decreases in each of the subsamples considered, consequently the standard error and therefore the margin of error increases.

 5. According to the 2010–11 annual report, Shelter spent £20.7 million on providing housing services and serviced 159,000 clients including 94,000 face-to-face, 60,000 over the telephone and 5000 via email. In addition, 1.1 million people visited their ‘Get Advice’ web pages. However based upon evidence from the Financial Inclusion Fund, providing face-to-face advice can cost five times as much as telephone-based advice.

 6. The average cost is the total project cost divided by the number of people helped, while the average cost range for the 16 organisations delivering the advice was £201 to £377 per person. However, there were two phases to the project and average costs were £370 and £265 in each of the two phases.

 7. Gift Aid is a matching system where charities are able to claim tax relief (at the base rate of 20%) on every donation from net (i.e. taxed) income. This equates to 25 pence in every £1.

 8. It is also worth noting that higher rate taxpayers are entitled to claim back the difference between their tax rate and the base rate (as used in the Gift Aid programme) on the gross donation. For example, donating £100 will actually be a gross donation of £125 (at the 20% base rate) to the charity. A 40 (50)% taxpayer can then claim back tax relief of 20 (30)% on this £125 gross donation, or £25 i.e. 25 pence in every £1.

 9. Although the Impact Assessment and related policy documents make no mention of mediation assessments, it is assumed that these will continue to be funded at the current rate of £87 (plus VAT) for one person and £130 (plus VAT) if the couple attend together.

10. This £1,200 cost was calculated by taking the £10 million identified as the additional cost of mediation in the Impact Assessment plus the £2 million saved from not performing 60,000 willingness tests, and dividing by 10,000 new cases. The Impact Assessment reported a range of 6–10,000. If we used 6000 as the number of additional cases, the per mediation cost would increase to £2167 (£500+£1667).

11. Assuming that the legal aid fund will not provide the £150 of legal advice to the ineligible party and that the legal aid scheme pays the £200 to produce an order on the mediated agreement.

12. Rule 16.4 of the Family Procedure Rules 2010 available from: http://www.legislation.gov.uk/uksi/2010/2955/article/16.4/made

13. Published family court statistics are not useful for determining the average case cost. Cases involving adults are reported by the number of applications, while cases involving children are reported by the total number of children. To collapse the data into the number of cases all applications involving children will be divided by 1.9 – the average number of children per household. While this generates a crude measure of the total number of cases it does not help provide a very accurate measure of average cost as the court cost is usually determined by the length and complexity of case. For example, many applications for ancillary relief are uncontested and should take very little court time. Using the Family Matters statistics the estimated number of family law cases in 2009–10 was 310,529. Ministry of Justice. Family Matters – Annual Court Statistics, 2010.

14. According to the Family Justice Review the private family law courts cost £170 million per annum to run Family Justice Review. Final Report – November 2011. London: Ministry of Justice, 2011. Again, this is an estimate they calculated based upon the average case length and volume for public and private family law cases and the total family court costs. Together with the estimated total number of cases, this generates an average cost of £547 per case. A 50% knock-on cost would result in a £273.50 per person cost.

15. £120 million saving for family law/£150 million total legal representation saving.

16. Owing exclusively to housing cases.

17. Total family law expenditure reductions were calculated using the Ministry of Justice (MoJ Impact Assessment expenditure cuts restated in Table 4 as follows: (i) Total 2009–10 family expenditure: £609m = £50m/78%+£120m/22%, and (ii) Overall reduction: 28% = (£170m/ £609m)*100.

18. Current LSC approved costs for a single client is £87 plus VAT. LSC 2010c.

19. Based upon an average client cost of £909 derived. This is the gross cost of the substantive mediations but the knock-on or net cost of these is £15.6 million as the Government has already made a provision of £26 million to fund 24,500 mediations – 14,500 already being funded plus a further 10,000 post reform.

20. One counterargument is that court fees could be increased to cover this additional expense. However, the recoverability of family court fees is notoriously low, circa 40%. Further, being legal aid eligible originally these clients are likely to be exempt from court fees.

21. Of these predicted 5290 people who ‘give up’ when legal aid is unavailable, the estimated knock-on cost of welfare benefits problems is £43.50 per person, for housing problems £144 and for debt problems £40. This generates a weighted average cost of £45 per person. The methodology applied in previous sections to calculate these costs has been repeated.

22. The IFS calculated that the sharp rise in inflation to 5.2% (CPI at September 2011) would add £1.8 billion to the welfare benefits budget in comparison to previous forecasts (CPI at September 2011). They estimated that freezing benefits would save £10 billion, increasing them in line with the average wage increase (of 2.5%) would save £5 billion, and using a six-month average CPI figure would save £1.4 billion (CPI at September 2011). This is not to suggest that this is a good policy nor that the Government is even considering this policy, but it provides a comparison that demonstrates that the savings generated by changing the scope of legal aid are relatively small. Further, the savings generated by averaging over the previous six months inflation figures is particularly large given the recent dramatic rise in the inflation rate. However, the substantial annual saving realised by switching from RPI to CPI is large and persistent.