Practising Fees in

Transcription

1 Practising Fees in Consultation with solicitors Consultation begins: 19 June 2015 Consultation ends: 2 July 2015 The survey can be completed online here.

2 Introduction This consultation on practising fees is part of the Law Society Group (the Group) annual reporting and planning cycle. We explain our draft budget, otherwise known as our Net Funding Requirement (NFR) for 1 November 2015 to 31 October 2016 and ask for your views on: whether the practising fees represent value for money in terms of the services you receive if the split of spending across the group and Levies is reasonable if you think that the approach taken by the Law Society professional body to its usage of practising fees is reasonable whether you have any other comments Last year over 200 of you responded and we shared your views with the Law Society's Council before the budget was agreed. The Law Society's Council will see the results of this consultation before they discuss and agree the final budget proposal at their meeting on Wednesday 8 July Because the Law Society is meeting some of our funding needs by generating income and using reserves, because there has been a year-on-year reduction of 3m in the statutory levies we must pay, and because we are actively working more efficiently and effectively, we estimate that the practising certificate fee will remain at the same level of 320 in The contents of this paper are accurate as of 18 June However, the final budget may be subject to changes. 1. The Law Society Group The Group operates under Royal Charter and is the approved regulator for solicitors in England and Wales under the Legal Services Act Figure 1: Our legal and operating divisions 1. Encompasses the following associated entities which are equity accounted for - Six Clerks Insurance Services Limited and Riliance Software Limited. 2. Legal Practice Technologies Limited (LPT) is a subsidiary of the Law Society and is consolidated into the 2014 consolidated financial statements. 3. Encompasses the following entities which are consolidated - Solicitors Indemnity Fund, Solicitors Indemnity Fund Limited and Legal Indemnity Operations Limited. Page 2 of 10

3 The representative and regulatory arms of the Group exist separately and operate independently as the Solicitors Regulation Authority (SRA) and the Law Society professional body (TLS). Both are served by a shared services function, Corporate Solutions (CS). Collectively the SRA, TLS and CS form the Law Society Group (the Group). What we do In addition to funding most of Law Society Group s activities, practising fees are also required, by statute, to fund our contribution to the costs of the Legal Ombudsman (LeO), Legal Services Board (LSB) and the Solicitors Disciplinary Tribunal (SDT). Page 3 of 10

4 2. What we achieved for solicitors last year You can see a detailed analysis of how we spent the practising fees and what we achieved last year in our Annual Report. Some of the key achievements for TLS and the SRA are highlighted on the next 2 pages. You can also out more about benefits in our Law Society leaflet available from the TLS The Law Society achievements in numbers ( ) Page 4 of 10

5 The SRA achievements in numbers ( ) Page 5 of 10

6 3. How we are funded Most of the Group s funding comes from annual practising fees. The Group, as the approved regulator, charges an annual fee to individual solicitors, the practising certificate fee (PC fee). It also charges an annual fee to firms (recognised sole practitioners, recognised bodies, and licensed bodies) - the entity fee. These fees are mandatory and must be paid by individuals and firms to practise. The income from these fees can only be used for certain purposes: Regulatory activities (the total costs of the SRA including the shared service allocation from CS); Non-regulatory activities provided by TLS (including the shared service allocation from CS) which are permitted under the Legal Services Act (e.g. law reform activities); and Levies which are paid under the Legal Services Act: o part of the cost of the Legal Services Board (LSB); o part of the cost of the Legal Ombudsman (LEO); and o the full cost of the Solicitors Disciplinary Tribunal (SDT). Together, all of these costs make up the net funding requirement which needs to be met by regulated individuals and firms. 4. Our financial plans for What we expect to spend The cost of shared services provided by Corporate Solutions is allocated to TLS and the SRA. Corporate Solutions costs are not shown separately in the following charts and the TLS and SRA budgets are shown with their allocation of shared service costs included. We expect to spend a total m split across each part of the Group. Figure 2: Expenditure distribution in About 75 per cent of our group expenditure is met from the annual practicing fees. The rest of our Group expenditure is met from other sources. The SRA has income from other regulatory fees, from costs awarded and from the Solicitors Compensation Fund. TLS has commercial income. Some costs are met from Group reserves. Altogether, these other sources of income are planned to meet some 25 per cent of the Group s funding requirements in The balance will be met from the annual practising fees. Page 6 of 10

7 'million Figure 3: Funding of the Group expenditure m Total Expenditure Expenditure funded by: Commercial Income (TLS) Regulatory Income (SRA) Recoveries Other Income Net funding requirement Our net funding requirement The Group s total net funding requirement is m which is our total expenditure minus commercial income, regulatory income, recoveries and other income. We propose to meet part of this by using reserves. This leaves an amount we need to collect from practising fees of m an increase of 0.914m on , however, the increase in the number of solicitors means that the practising fee for individuals will remain the same as for at 320. Figure 4: Net funding requirements for SRA and TLS SRA Expenditure TLS Expenditure Levies Total 'm NFR Expenditure (including Shared Service allocation) Funding from Regulatory Income Recoveries Reserves Other Income Commercial Income Recharged to the Compensation Fund PC Fee requested PC Fee Income Figure 5: PC Fee to PC Fee Year Page 7 of 10

8 Figure 6: Practising fee distribution in Corporate Solutions allocates the costs of shared services, as well as income and recoveries, to the SRA and TLS using an agreed allocation methodology. These costs total m and are split with m (58 per cent) allocated to the SRA and m (42 per cent) allocated to TLS in Overall Group project expenditure for is expected to be m, a decrease of 0.255m compared to Project spend is split between TLS and the SRA directly. As explained above, practising fees also fund the levies which the Group must pay under the Legal Services Act. These levies fund the following: Part of the cost of the Legal Services Board (LSB); Part of the cost of the Legal Ombudsman (LeO); and The full cost of the Solicitors Disciplinary Tribunal (SDT). The final total of these levies will not be known until those organisations have finalised their budgets. However, the LSB and the LeO have indicated the likely sums in will be lower than the amount charged this year whilst the SDT expect their costs to be in line with costs for What is Section 51: permitted and non-permitted activities Section 51 of the Legal Services Act permits TLS to raise money through practising fees to support the legal profession's public interest work 1. Parliament has recognised that, like many other professional bodies, TLS has a valuable public role which goes beyond regulation and campaigning in its members interests. That role covers TLS work to: improve standards through practice notes and accreditation schemes; support the UK legal sector abroad by providing advice and lobbying on practice rights overseas; enable Government and others to take advantage of the technical knowledge and expertise that TLS possesses when developing legislation; and pro bono work, human rights and protecting fundamental freedoms. TLS's work in all these areas is recognised as contributing strongly to the standards of the profession and the quality of the public debate. The work demonstrates that solicitors, as professionals and officers of the court, have a duty to contribute the public interest. 1 Page 8 of 10

9 Each area of the Net Funding Requirement is considered separately to include: The amount of expenditure for permitted activities (which fall under Section 51 and for which practising fees may be used) The amount of expenditure for non-permitted activities (which are not covered by Section 51 and for which practising fees may not be used) TLS's activities can either be permitted or non-permitted 2. TLS carries out an annual review to determine the amount of time spent on each. This is used to calculate the direct cost of TLS permitted and non-permitted activities. In TLS expects m of expenditure will be on permitted activities, and 7.209m - will be non-permitted activities. Commercial income - new approach. This year TLS has decided to change its approach to commercial income, following a review of its approach to Section 51. TLS commercial income arises from both permitted and non-permitted activities. While it is all free from the Section 51 restriction on how it is used, TLS proposes for (and subsequently) to apply commercial income in the following order: 1) TLS will spend it on non-permitted activity (this means non-permitted activity is entirely funded by commercial income) 2) TLS may, in future years, take an amount into non-permitted reserves (we do not plan to do this in ) 3) TLS will apply the balance to the cost of permitted activities if it is needed to reduce practising fees (this balance in is budgeted to be 9.974m) Commercial income - previous approach. In previous years, a proportion of commercial income was used to offset the cost of the permitted activities that generated it, rather than applying the income first to non-permitted activity. In this resulted in a deficit on non-permitted activity which is being funded from non-permitted reserves. Commercial income impact of the change to the new approach. If the previous approach were taken in , the deficit on non-permitted activity would be 2.4m, which would be funded from non-permitted reserves. The new approach will result in a situation where the amount requested in practising fees for is 2.4m higher than if the previous approach were taken. This would equate to 7.11 on each practising certificate fee All activities carried out by the SRA are regulatory and therefore permitted in nature. 5. What is the proposed PC fee for ? If the number of practising certificates and regulated entities for is in line with latest actual numbers for 2015, the proposed PC fee will remain at 320. Figure 6: Proposed PC Fee in Fee Year PC Fee Change for The entity fees charged are based on turnover and are set in bands. Therefore it is not possible to provide a simple comparison figure for the likely levels compared to The permitted non-regulatory activities are set out in rules made by the Legal Services Board under Section 51 of the Legal Services Act They include, accreditation, education and training, raising professional standards, giving practical support and advice about practice management, participation in law reform, provision of free legal services to the public, promotion of the protection by law of human rights and fundamental freedoms, promotion of relations with national/international bodies, governments and legal professions of other jurisdictions, and increasing public understanding of citizens' legal rights. In addition it is expected the compensation fund fee will be levied at 32, resulting in a total fee of 352 no change from the fees levied in Page 9 of 10

10 6. Your views on our proposals We are asking for your views and we want to present these to The Law Society's Council before their meeting on Wednesday 8 July which will inform the discussion about the Net Funding Requirement. We would like you to answer the following questions: 1. Do you think the practising fees for represents value for money in terms of the benefits you gain as a solicitor? (The Law Society Group Annual report ) (a) Yes (b) No (c) Don t know Please comment further to explain your answer: 2. Do you think the split of spending across the Law Society Group between the Law Society professional body, the Solicitors Regulation Authority, Legal Ombudsman, Legal Services Board and Solicitors Disciplinary Tribunal is reasonable? (a) Yes (b) No Please comment further to explain your answer: 3. Do you think that the approach taken by the Law Society professional body to its usage of practising fees is reasonable? (a) Yes (b) No Please comment further to explain your answer: 4. Do you have any other comments? Please respond, by 5pm on Thursday 2 July, by filling in this online survey We know the profession is changing. We want you to tell us how we can best represent, support and promote your practice and the profession by getting involved in our Law Society 2020 discussion. These discussions and this consultation will feed in to the Law Society's new strategy which will be considered by the Law Society's Council in October. Page 10 of 10