Clause 108
Legal Services Bill [Lords]
2:00 pm
David Kidney (PPS (Rt Hon David Miliband, Secretary of State), Department for Environment, Food and Rural Affairs; Stafford, Labour)
Sir Nicholas, it is fortunate for Committee members that you have returned safely from the Falkland Islands and that consequently we are able to benefit from your firm and fair guidance as Chairman of our proceedings. I remind hon. Members of my registered interest as a non-practising solicitor. I am indebted to the Institute of Chartered Accounts in England and Wales, which from now on I shall refer to as the institute, for its assistance in drafting the amendments in the group and the new clause.
The clause defines a low-risk body. Under clause 106, which we approved a moment ago, the licensing authorities may in relation to low-risk bodies disapply some of their rules and disapply schedule 13, in whole or in part. That clause therefore recognises that the full panoply of regulation is unnecessary for some alternative business structures. Taken together, the amendments in the group would define as low-risk those multi-professional practices that consist of already highly regulated and trained professionals. The new clause would incorporate a get-out clause for the licensing authorities in some circumstances. Further, one of the amendments in the group would tighten the “10 per cent.” category of low-risk bodies in the clause, such that it would apply only to internal owners and with the full oversight of the regulator.
I believe that there is a growing willingness across the political parties, and certainly in the professions, that part 5 should facilitate alternative business structures but ensure that the right protections are in place to deal with risk to consumers. That is certainly the thrust of the Clementi report, and I know that a lot of people in business and the professions are keen for the Government to do what they say by accepting the Hampton principles of risk-based regulation. Although there will be opportunities for significant benefit for consumers and the economy, we need to ensure that in cases where there is a low risk the process can be enabled as easily as possible. The flexibility of a low-risk category is appropriate, but clause 108 defines low-risk bodies as those with up to 10 per cent. non-lawyer ownership and up to 10 per cent. non-lawyer management, irrespective of the training, professional standards and ethics of those owners and managers and whether they are external or internal owners. Licensing authorities can vary licensing conditions for those low-risk bodies.
The vast majority of likely combinations of well-regulated professionals and lawyers could conceivably be regarded as offering positive benefits for consumers but low risk to consumers. For example, there would need to be 10 lawyer partners to allow one equal partner to come on board for a body to be defined as low risk. That deprives smaller high street or rural practices of the opportunity to come together as low-risk bodies, and inhibits the benefit to consumers of such alternative business structures. Such multi-professional practices have the potential to support access to justice on the high street and in rural areas.
As my hon. Friend the Member for West Bromwich, West said this morning, it is wrong to think that allowing alternative business structures will impact only negatively on access to justice. By offering extra commercial opportunities to small legal practices, and a reduction of back-office and marketing costs, they might aid the survival of such firms in an increasingly competitive market. When different professions combine across different towns, access to justice could be increased.
The current approach of part 5 plunges that combination of small professional practices into the panoply of licensing conditions for alternative business structures of a much higher risk. In effect, it favours those alternative business structures developed by larger law firms and puts extra restrictions and costs on smaller law firms and firms of other professionals that would like to be ABS. Allowing multi-professional practices also offers sizeable benefits to business and consumers. Small enterprises have to go separately to both lawyers and accountants for general business advice. One-stop shops would increase competition, reduce costs and reduce the time taken to develop understanding of a business and its needs. The benefits for our enterprise economy could be significant, and allowing their lawyers and surveyors to come together could cut time and complexity for home buyers.
What is proposed is a recognition that for the vast majority of professionals, coming together with lawyers when they are both owners and managers of the practice will be low-risk. That will help to ensure opportunities for all sizes of legal practice while enhancing fair competition. The classification of recognised professionals uses a definition used in recent Home Office legislation on money laundering reporting obligations, but makes it tougher by referring to the chartered status of each institute. Furthermore, the additional safeguards that have been proposed would enable the authorised licensing body to challenge the presumption of low-risk and appropriate cases.
Approved regulators in the board can act in cases where it might be argued that certain professional organisations have regulatory systems that are unacceptable or where certain combinations of services require greater regulatory oversight. I want to pause for a moment to talk about that point. I have seen a lot of support for the institute’s position, most recently from the Federation of Small Businesses. It wrote to the Minister this week—I do not know whether she has seen this yet—to say that it supports the position. It said:
“Lawyers and accountants are the most common sources of small business advice and they can play a vital role in assisting entrepreneurs.
It went on:
“This is why the enablement of multi-professional practices, and greater competition and innovation in the professions, has so much potential for UK enterprise and the wider public interest.”
I note, too, that the institute’s position is supported by a number of other chartered institutes—the Chartered Institute of Patent Agents, the Institute of Trademark Attorneys and the Royal Institution of Chartered Surveyors. If I have one hesitation about the matter, it is that in much of what I have said about access to justice provided through such alternative business structures, I have referred to quite small businesses. However, there is nothing in the amendments to stop an extremely large law practice—or a large practice of chartered accountants, for that matter—from forming and claiming that it is a low-risk body.
That is why new clause 15 is important. It could be said that although the same principle still applies—they should all be highly regulated, well-motivated and honest professionals doing their jobs within their competencies—the very fact that large groups of people doing many different kinds of work come together adds a layer of complexity that would not be present in a much smaller firm. That is why the new clause would allow the licensing authority to say in some circumstances that they will not accept designation as a low-risk body or disapply any of the rules.
Amendment No. 271 is a means of introducing an alternative class of low-risk body related to professionals coming together who are all subject to supervision through a chartered institute. Of the grouped amendments, No. 272 introduces the tie that I mentioned between ownership and management, No. 273 is effectively a consequential amendment concerning professionals as owners, Nos. 274 and 275 are the definitions and, as I have explained, new clause 15 provides a get-out clause for the licensed authorities if it is seen that a particular combination ought not to be regarded as a low-risk body.