Civil legal aid: sustainability research
To help the UK government understand the financial realities facing civil legal aid providers, and ensure it takes fee levels into account in its review of civil legal aid, we commissioned an in-depth study from Frontier Economics.
Frontier has worked with family and housing legal providers across the market to understand their operating model and financial situation.
How much are civil legal providers losing?
Housing
For a typical housing legal aid provider, a fee earner is only able to recover half of their full costs.
In most cases (77%), they were not even able to recover the cost of their own salaries.
This leaves a significant shortfall of around £40,000 per fee earner.
The median provider in the sample reported a total loss of £126k per year from providing housing legal aid. Providers in the bottom 25th percentile of profitability reported losses of more than £181k per year.
Median providers in the sample are losing £33,000 for each full-time equivalent (FTE) fee earner providing housing legal aid.
Family
In family legal aid, the average fee earner in the sample recovered 94% of the cost of provision.
Meaning that, the median family legal aid provider in the sample only reached their break-even point and were not able to make any profit.
Providers in the bottom 25th percentile of profitability reported losses of more than £55,000 per year, translating to a loss of almost £13,000 per FTE fee earner.
Why are civil legal aid providers making a loss?
The research found that – generally – the reason for providers making a loss is twofold: low incomes and high cost burden.
Low income
Legal aid fees have not increased since 1996, and in 2011 were cut by 10%.
Conversely, according to inflation data, typical costs have increased 90% since 1996, and by 40% since 2011.
To illustrate, current housing legal aid work is compensated at hourly rates of £46 to £72, whereas recent guideline hourly rates published by Civil Justice Council range from £134 to £546.
Our own campaigning on legal aid fees has led the government to undertake their review of civil legal aid.
High cost burden
The administrative burden of complying with legal aid requirements is significant and costly, and often higher than other types of legal work.
The time-cost of some of these compliance activities cannot be recovered from the Legal Aid Agency. These can include:
- screening clients in line with eligibility requirements
- working with complex clients
- managing legal aid contract requirements
Furthermore, current fee rate levels leave very little surplus with which legal aid firms can conduct other activities required to run their practice, such as training and recruitment.
There is also a time-lag between completing legal aid work and getting paid for it. This can take up to two to three years, which has significant implications on cashflow.
The impact of loss-making
As a result of loss-making, Frontier observed solicitors working longer than their contractual hours.
What this means for the public
There is a chronic lack of civil legal aid providers in the market, and this is getting increasingly worse.
Not only are some factors making providers exit the market, persistent high barriers to entry are disincentivising new providers.
This has created legal aid deserts. Our own research from last year showed that 42% of people in England and Wales did not have access to a local housing legal aid provider.
Our view
Our president Nick Emmerson said: “This research reveals an untenable situation where reductions in fee levels by successive governments mean fee-earning staff cannot even recover the costs of providing legal aid, let alone generate a profit to make the organisation sustainable.
“[Some] are taking the decision that legal aid work is simply no longer viable and exiting the market, leaving areas of the country with no legal aid provision at all.
‘’This is just not sustainable and is resulting in massive market exit, with advice deserts growing across the country.
"It is a significant concern when a city the size of Liverpool struggles to sustain housing provision and the family courts are flooded with litigants in person. These figures provide clear evidence of the reasons why.”
Nick Emmerson concluded: “This vital research cannot be ignored if the UK government is serious about meeting its obligations to provide legal aid services.
"With the Civil Legal Aid Review now in its final stages, this research provides a model for future analysis and setting of fee rates at a realistic and sustainable level that is fair to both providers and taxpayers.
“Moving money around within the existing fee structures or between areas of law will not work and will only make other parts of the system even less sustainable.
“The Law Society’s work with Frontier has created a framework that government can use going forward to analyse the costs of providing a civil legal aid contract and the associated profits (or losses) from this work.
“Without a recommendation for a significant fee increase in all areas, the Review will not have been fit for purpose.”
What happens next?
As part of a phased approach to communicating the results of their review, the MoJ intends to the publish the following:
- May 2024: the economic analysis report (produced by PA Consulting), a user research package, and two publications from the data publications workstream: an overview report and advocacy research
- July 2024: an overarching final report summarising the findings of RoCLA’s evidence building phase, a green paper consultation, and the government’s response to the call for evidence
We will continue to monitor MoJ's action on civil legal aid, and update our members at each stage.