The future for legal services regulation

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Introduction

Let me begin with a disclaimer. I hold a number of non-executive and advisory appointments with various organisations. What I say here represents my own thoughts and should not be attributed in any way to any of them.

In addressing the fascinating issue of the future for legal services regulation, I confess that I am starting from a possibly contentious proposition: that the current framework is still essentially founded on a Victorian guild and apprenticeship model.

Despite Sir David Clementi’s recommendations ten years ago for a new regulatory approach, unfortunately – though our structure has certainly been reconditioned – it is not as good as new. It is perhaps worth reminding ourselves that his proposals were not as radical as the provisions of the Legal Services Act 2007 itself (in that his views in relation to external ownership and multidisciplinary practice were more conservative than the Act). And so, in a strange twist, the changes in the legal services market heralded by Sir David’s report and enabled by the Act have resulted in a regulatory framework that is not truly fit for the purpose of regulating the liberated market that they have created.

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Tax, moral obligation and the rule of law

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This issue – or confusion of issues – has been troubling me for some time. Let me start with three declarations. First, I used to be a tax lawyer. Second, for me, the obligation to pay tax can ultimately only be a legal one, and not a matter of morals. Third, I’m not in favour of complex, elaborate, or artificial, tax avoidance schemes.

“If we truly believe in the rule of law, there can be no residual notion of a moral obligation to pay tax.”

Legalised confiscation

First, some basics. The purpose of taxation is to finance the State. Indeed, the origins of tax lie in raising money to finance wars. (As an aside, because of the unwillingness of earlier generations to contemplate a permanent state of war, even today income tax is only an annual measure which has to be confirmed and reimposed by Parliament every year, hence the need for an annual Finance Act. So what irony, then, that although we raise more than enough money each year through taxation to finance our defence, governments of all persuasions in recent years have so cut back on defence funding in their allocation of tax revenues raised that our ability to defend ourselves effectively must now be questionable.)

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LSB and laying down the rules

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The Legal Services Board has recently been consulting on the independence of approved regulators and whether to push further on the need for independence.  Their preference would be for a change of rules to require that the chair of a regulatory board should be a lay person (in the same way that the Legal Services Act requires that the chair of the LSB must be a lay person).

I have broadly welcomed the policy of the Legal Services Act’s reforms of the regulation of legal services, and largely supported the LSB in its implementation of those reforms.  That is one reason why I have been surprised by the strength of my fundamental opposition to the LSB’s preference for this rule-change.

Make no mistake: I am not arguing against independent regulation or even a perception of independence.  Indeed, in my recent response (para 4.3.2) to the Ministry of Justice review of the regulatory framework of legal services, I argued for greater separation of the representative and regulatory functions than we have so far achieved.

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