Martin Partington: Spotlight on the Justice System

On 24 January 2016 I noted here that the Competition and Market Authority was going to undertake a new survey of the Legal Services Market to see whether it was working as effectively as it should to deliver innovative, quality and cost-effective services, especially to individuals and small businesses. They promised an interim report on July 2016.

Well, the CMA has been as good as its word and an initial, interim report has just been published. This triggers a further period of consultation with a final report merging early in 2017.

The ‘nuclear option’ for the CMA is what is known as a full-scale investigation into the market under review. This can take a lot of time and be very disruptive for the industries affected. The Legal Services Market so far seems to have avoided this outcome – which I suspect comes as a considerable relief to practitioners and their representative bodies – the Bar and the Law Society.

But it is far from the case that the CMA has given the Legal Services Market a clean bill of health. On the contrary, it is very critical of the ways in which many legal services are delivered, which have failed to keep pace with developments in other service sectors.

The headline findings are:

1. the Competition and Markets Authority (CMA) has provisionally found that competition in legal services for individual and small business consumers is not working as well as it might. While there have been some positive developments, such as an increased use of fixed fees for more commoditised services, the CMA has found that upfront information on price and quality is often not available to consumers in order to allow them to compare offers and choose the one that most suits their needs.This is because few service providers (17%) publish their prices online.
2. It is also difficult for providers to signal quality in this sector and there are a lack of digital comparison tools to make comparisons easier for consumers.As a result only a minority of individual consumers (22% according to our survey) compare providers before choosing one.
3. This may reduce the incentives for providers of legal services to compete. This lack of competition may mean some providers are able to charge higher prices when substantially cheaper prices are available for comparable services.
4. The CMA has also considered whether legal services regulation has an adverse effect on competition. Its provisional view is that this regulation does not create significant barriers to entry or distort competition between regulated and unregulated providers of legal services.
5. However, the CMA thinks that the current regulatory regime does impose significant costs on providers that in some cases may be excessive relative to the benefits in consumer protection. While the CMA welcomes the liberalising steps that have already been taken by regulators to address these issues within the current regulatory framework, the CMA is open to more fundamental change of the regime. However, at this stage it believes that there is a risk that such change might lead to increased regulation and might involve significant transitional costs as well as regulatory uncertainty.
6. It has noted the complexity of the current regulatory framework with its multiplicity of regulators and questions around regulatory independence. In this context, the CMA notes that the government intends to examine the issue of regulatory independence.

The services covered by the market study include areas such as commercial law, employment law, family law, conveyancing, immigration, wills and probate and personal injury and represent an estimated annual turnover of around £11 to £12 billion. In carrying out its market study so far, the CMA has surveyed individual and small business customers, analysed existing data and research and heard from a wide range of interested parties.

What is clear is that pressures on legal service providers to adopt different and more transparent working practices are still very much in evidence and that failure to take heed of these recommendations could ultimately result in more draconian measures being adopted by regulators.

Further detail about the report can be found at https://www.gov.uk/government/news/cma-seeks-views-on-ways-to-help-legal-services-customers