Misperceptions of ‘deregulation’

Last month, Boston Consulting Group published a report that claimed to assess the effects of deregulating legal services in England & Wales, as driven by the Legal Services Act 2007. The analysis and conclusions are, to put it at its best, disappointing. I am grateful to have been spared the need to offer a detailed review, thanks to this informed critique of the report by Alison Hook.

In the interests of full disclosure, I should note that the report’s authors based some of their work on my independent review (Legal Services Reform: Regulation Beyond the Echo Chambers, published last year). However, having done so, their report could encourage others to take my principal conclusion – that further reform is needed – and, contrary to my intention, use it to amplify the echo within the chambers of my title.

These, therefore, are my summary observations:

First, I have always been puzzled by the assertion that the Legal Services Act 2007 was intended to be ‘deregulatory‘. It did not take anything out of regulatory scope; but it did allow new approaches to fall within it. On that basis, the Act should not be judged as an initiative in de-regulation but more properly as one of re-regulation. Not all regulatory liberalisation is deregulatory.

The BCG report identifies four initiatives behind the 2007 Act: simplify regulatory oversight; end self-regulation; simplify the complaints system; and end the restrictive nature of business structures. Apart from the fourth, there is nothing inherent in these initiatives that even remotely suggests a deregulatory intention – and even the fourth (as I have just observed) was about extending regulation rather than removing it.

Perhaps not surprisingly, the BCG report then instead attributes to the architects of the 2007 Act the more ‘usual’ reasons for deregulation (such as addressing excessive profitability, increasing the number of providers, raising quality and lowering prices). Consequently, the success criteria they use relate to broad market outcomes: their assessment of regulatory reform is based on outcomes that are determined by many factors other than regulation.

This is much like the ‘set-up-to-fail test’ that I talked about recently. It involves adopting your own, preferred test for success that wasn’t one of the goals or direct causal effects of reform (such as economies of scale), or was one of a number of objectives (such as access to justice), but is then forced to bear the weight of judgement for the entire project. Suddenly it’s a lot easier to claim that this reform hasn’t met the test; it never could. It is particularly inappropriate for enabling and permissive legislation like the Legal Services Act that encourages market actors instead of directing them to required actions and outcomes.

Second, the BCG report acknowledges that the legal services sector does not comprise a single market but a set of sub-markets. But it then seeks to evaluate the success of reform by reference either to data that relate to the entire sector or to only a sub-market (the largest 100 law firms). It is at least questionable to evaluate the success of important aspects of the 2007 Act (such as its effects on relative profitability, scale and alternative business structures in the consumer market) by using data from a sub-market to which the fundamental purpose of the 2007 reforms has always been of marginal interest or concern.

Third, my echo chamber point. In essence, BCG conclude that our reforms and ‘deregulation’ have not achieved their objectives, and that the arguments for regulatory reform are either not supported or the evidence is unclear. This will, of course, be music to the ears of those who wish to advocate for service monopoly and self-regulation.

But it is a big leap for anyone to jump from ‘further reform is needed’ to ‘therefore reform isn’t justified’. The former statement is not an acknowledgement or assertion that reform hasn’t worked, but that more – and definitely not less – is needed.

The BCG report’s essential conclusion is expressed in this way:

In summary, only a few of the benefits typically associated with deregulation, have materialized on the legal services market in England and Wales after implementation of the LSA. The most prevalent arguments, such as lower prices and better quality of legal services, cannot be proven to have materialized based on the data and evidence analyzed in this report.

It’s all a rather disheartening affirmation that if you set out to evaluate something based on inappropriate criteria, and then either have no relevant data or seek to draw conclusions from data that apply only to an inappropriate subset of the sector that you are evaluating, it surely cannot be a surprise if the conclusions reached are thought to lack credence or transferable insight.

As it happens, I agree with Alison Hook’s broader point that “if you want anything to change, never let the organised legal profession set the agenda on reform”. But perhaps the real lesson here is that if you want to understand the effects of reform – or even to resist it – be sure to choose valid criteria (rather than assumed or imputed intentions) and then use appropriate evidence.

An independent review of legal services regulation

The announcements are out, and the work has started!  I’m honoured to be leading a fundamental review of the current regulatory framework for legal services in England & Wales through the Centre for Ethics & Law in the Faculty of Laws at University College London.  Full details are available here.

The independent review is intended to explore the longer-term and related issues raised by the Competition and Markets Authority (CMA) market study in 2016, which concluded that the legal services sector is not working well for individual consumers and small businesses, and that the current regulatory framework is unsustainable in the long run.  It called for a review of that framework to make it more flexible as well as targeted at areas of highest risk where regulation is most needed.

The time for the review is right.  In the light of Brexit, ‘taking back control’ presumes full confidence in our domestic rule of law and legal institutions, as well as maintaining our performance and competitive position in the global economy.   The provision of effective and properly regulated legal services is critical to maintaining the rule of law, and the effective and efficient administration of justice.  It is also necessary for sustaining the UK’s position and reputation as a world-leading jurisdiction for the governing law of international transactions and for the resolution of disputes (though this already appears to be under some pressure as a result of Brexit).

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Sweet ’16? Cakes, deckchairs and running fast

(An edited version of this post first appeared in The Times‘s The Brief on 8 January 2016)

As 2015 slides inexorably into 2016, we can ponder what differences this might bring to the world of legal services. The sands are definitely shifting, and the foundations of ‘old law’ continue to crumble as ‘new law’ takes greater hold. Let me explore three themes: demand, supply, and independence.

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