I welcome people to the 12th meeting in 2006 of the Finance Committee. I issue the usual reminder about switching off pagers and mobile phones. We have received apologies from Wendy Alexander.
We are happy to go straight to questions from members.
In that case, I invite John Swinney to start us off.
I begin with a general point. I assume that the officials have seen the submissions that we have received from bodies such as the Law Society of Scotland and the Scottish Legal Aid Board. It is fair to say that the Law Society's submission is pretty critical of the financial memorandum. What are your observations on the issues that the Law Society has raised? Do you accept any of its criticisms of the contents of the financial memorandum?
I make the general observation that our difficulty with the Law Society's written submission is that it does not offer any alternative costings. Although it is critical of our costings in a number of respects, it does not provide us with a concrete alternative basis to go on. We are more than happy to respond to specific questions about where the various figures in the financial memorandum have come from and how we have worked them out.
Can we consider some specific points about the make-up of the estimates in the financial memorandum? The financial memorandum estimates that the commission will require between 50 and 60 staff. Will you share with the committee the basis on which that estimate was made?
Yes. We based the estimate of 55 to 60 staff on an estimated need for approximately 40 adjudicators, who will be the case handlers. The Law Society of England and Wales consumer complaints service produced the figure that their adjudicators can handle an average of 100 complaints per year.
Do you not think that that estimate of 4,000 complaints might be on the high side, bearing in mind what you just said about a peak in complaints relating to endowment mortgages?
We expect the current peak of endowment mis-selling complaints to fall away during the next year or two, but we also expect that the creation of the commission will attract new complaints. It will inspire greater consumer confidence and people might be more forthcoming in complaining.
So you have taken the view that that level is likely to be sustained, although it might be for different reasons.
Yes; it is our best estimate.
You mentioned that the Law Society of England and Wales advised that an adjudicator could handle 100 complaints annually. Is the structure for handling complaints in England and Wales similar to the way in which you envisage that complaints will be handled by the commission? In effect, there will an early assessment of whether a complaint is admissible or worthy of consideration and then more detailed scrutiny will be carried out thereafter. Is the model in England and Wales similar to that?
It is broadly similar, but I would not say that it is exactly the same. The other allowance that we have made is that the 44 adjudicators will have senior adjudicators who will be highly experienced, responsible post-holders who will be able to advise the adjudicators on specific cases. That is not set out in the bill because we intend to allow the commission to determine the precise nature of its staffing structure. We think that it is reasonable to estimate that there will be a need for senior adjudicators as well as the overall team of adjudicators. We envisage that they will be split roughly into five teams. Four teams will handle complaints and one team will deal with appeals. That is the provisional structure that we have worked on.
What is the envisaged split between senior and more straightforward adjudicators?
There will probably be about five senior adjudicators to about 44 adjudicators.
Have you estimated the salary cost of those adjudicators?
Based on the precedent of the financial ombudsman service, the salaries of the adjudicators would be at about B2 level in civil service terms—higher executive officer level. The salary levels of the senior adjudicators would have to be sufficient to attract the right calibre of people with the right level of experience. We estimate something in the region of £60,000 to £70,000 a year for the senior adjudicators.
Are those decisions about salary levels subject to review by the commission once it is established?
Yes.
Once established, could the commission take a different view on salary structures and levels, which might be higher or lower than the arrangements that are set out in the financial memorandum?
That is right. There is a provision in the bill that ministers should be consulted about salaries in prospect, but the intention is to allow the proposed commission flexibility in the light of experience.
I want to push you further on your last point because the total cost is a major consideration in the financial memorandum. Would ministers apply a ceiling or cap to the likely budget and composition of the commission and say to it, "You can go to £2.8 million, but you can't go any further than that because that would become an unreasonable cost on the profession"? Are ministers likely to take that approach?
It is difficult to anticipate what ministers might do. The annual budget and the work plan of the proposed commission have to be the subject of consultation with the legal profession and the professional bodies each January because it is the profession that will pay for the commission. That is an important mechanism that we have taken from the financial ombudsman service, which carries out an annual consultation, so that that there can be a debate between the commission and the profession.
Where does the final determination of the budget rest?
With the commission.
What is the role of ministers in that respect?
Ministers' role is fairly remote and hands off in relation to the overall budget because that is for the commission to set up and develop in the light of the consultation with the profession.
The point that I am driving at is that everyone across the board wants to avoid the costs of the commission becoming punitive on the profession. Therefore, I am trying to find out what the mechanism is to ensure that that does not happen. You said that there is to be an annual dialogue between the commission and the profession to set an annual budget plan and all that goes with it, but the bill provides no veto for ministers that would allow them to say that the commission has gone too far.
No.
I have one other general point about the financing of the commission. The Law Society makes the point that all the costs of the proposed commission, with the exception of start-up costs, are to be carried by the profession, but that currently the Executive pays out to the order of £400,000 a year to support the office of the Scottish legal services ombudsman. What thought has the Executive given to whether its present funding for the Scottish legal services ombudsman should continue to flow into the regulation of the legal profession?
Our provisional view is that the input of that funding to the commission seems anomalous. In five or 10 years, people might ask why the Executive and the taxpayer were contributing to the costs of the commission to such a small extent and purely for historical reasons. Ministers have not reached a conclusive view on the matter but, for the time being, there is a general presumption against a contribution from the taxpayer via the Scottish Executive.
Two considerations lie behind that. First, the provisional view that has been taken is that the handling of complaints against lawyers should be paid for by the legal profession because that will locate in the right place the accountability for complaints against the profession. Secondly, the state will, indirectly, make a significant contribution through the many public sector lawyers in Scotland who have practising certificates. The normal practice is for employers to pay for practising certificates, so we expect that that is likely to be the case with the annual levy. As an employer of lawyers, the public sector will indirectly provide significant funding to the new body. At this stage, we simply do not envisage a direct financial contribution along the lines of the funding for the Scottish legal services ombudsman, as it is planned to abolish the ombudsman's functions.
To follow that line of argument, it is likely that a reasonable proportion of the £400,000 that goes to the Scottish legal services ombudsman will flow from the public sector to the commission through payment of the levy for public sector lawyers.
That is broadly correct. Under the current system, the Law Society's complaints-handling function is funded through the practising certificate fee. That is less visible than the new system will be, because there is no specific levy for that function—the fees are wrapped up in the practising certificate fee. The new system will be different in that there will be a separate annual levy that is directed specifically toward complaints handling. That will be more visible, but the principle will in essence be the same. As employers normally pay the practising certificate and associated fees, that mechanism provides a substantial public subsidy of the system.
Has there been discussion with the Law Society about a reduction in the levies or fees that individuals will have to pay to the Law Society to fund its client relations activity, which will be scaled down? As the Law Society will spend less money on its complaints-handling mechanism, has there been discussion with it about the extent to which the fees and levies that it takes from practising solicitors will be reduced?
We expect a reduction in the practising fee, but the Scottish Executive does not have direct influence in that matter, which is for the Law Society. However, it is clear that when the commission is set up, the Law Society will no longer deal with service complaints, as the commission will deal with them. Therefore, the bill will result in savings for the Law Society, but that is a matter for the society to resolve with its membership.
The most recent count shows that the Law Society spends about £2.1 million a year on complaints handling. According to the information that we have from the society, about 70 per cent of the complaints that it receives are pure service complaints, about 20 per cent are about conduct and the other 10 per cent are hybrid cases. The Law Society will still need to make provision to deal with about 30 per cent of complaints—the 20 per cent on conduct plus the conduct element of hybrid complaints. However, the figures show that it could save 70 per cent of £2.1 million.
Do you have a breakdown of how many of the service complaints are about fees?
The Law Society does not deal with complaints about fees; such complaints are referred to the auditor of court so that the fees can be assessed. When a solicitor has charged a grossly excessive fee that bears no resemblance to a reasonable fee, it also becomes a conduct matter, which comes within the interest of the Law Society. However, the current system is that complaints about fees go to the auditor of court. That system has been the subject of research, which is to be published next month, by the research working group on the legal services market in Scotland. The group is recommending that the auditor of court system be reformed and modernised, but that will be done on a separate and slower track.
If you are dealing with the systems of regulation through a bill, why are you dealing with fees separately and later?
The functions of the auditor of court lie in two areas: first, dealing with and assessing judicial fees and, secondly, dealing with solicitors' fees and complaints about solicitors' fees. The Scottish legal complaints commission might not be the obvious body to have both functions in future, but that is still to be determined. Once the research working group's report is published, the plan is for there to be a consultation on the options. The auditor of court function could remain with the court, it could go to a proposed Scottish civil enforcement agency, or it could go to the Scottish legal complaints commission. However, the matter has not been decided and a public consultation is required before a firm view can be taken.
A substantial part of what the auditor of court does now is not directly related to complaints against solicitors but is instead related to assessing what costs are properly recoverable in litigation once a case has been concluded. It is that dual function that is the difficulty with assuming that everything that the auditor of court does can properly be handed over to the Scottish legal complaints commission. A longer consultation process and further analysis are required to examine what should happen to the different functions that the auditor of court now carries out and to consider whether they should be kept together in the same place and, if so, where that should be.
I was not necessarily assuming that all the auditor of court's functions would transfer, but even if just a proportion of them do, it would seem logical to decide how that will be handled before the Executive goes through the process of legislating to set up the Scottish legal complaints commission. Obviously, the Finance Committee is interested in the financial implications. I will leave the issue there.
The Law Society's submission expresses a fear that there will be a reduction in access to justice, particularly in areas that are often contentious, such as matrimonial law and conveyancing. Many lawyers operate on small margins in legal aid work. The fear is that the proposed levy will lead to practising lawyers withdrawing from those areas of work. How do you feel about that?
The key point is that there are two levies: the annual levy and the complaints levy. It will be for the Scottish legal complaints commission to decide, on the basis of initial analysis, and then adjust, on the basis of experience, first, what proportion it wants to take from each levy; and, secondly, how much the complaints levy should be in different circumstances. The bill states that the annual levy has to be paid by each practitioner in Scotland and must be the same for everyone, but the complaints levy can be varied. It can be charged at different amounts according to different circumstances. For example, there is obviously the potential for the commission—if it thinks that it is appropriate—to give special consideration to work in remote areas or to lower-value work.
However, the bill will not stipulate what should happen or give any advice to the commissioner on the matter. It will be totally up to the commission to decide.
The bill will not stipulate what should happen. It will give the commission flexible powers in this respect. We think that that is right. We need an independent body that has the expertise to make such decisions and that is able to make adjustments in the light of experience of any effects on the market. It would be wrong for ministers to start by taking a prescriptive approach to the issue that might subsequently turn out to be very wrong in terms of market impact.
I want to follow up on John Swinney's earlier question about levy setting. We may be guessing that the number of complaints that are made will be 4,000 or so. If there are many fewer complaints, that will obviously have implications for staff and for the levy. Is it possible for the levy to be reduced?
Yes—obviously that is possible. The commission will need to decide what proportion of its income it wants to take from the complaints levy to begin with. The figures that we have provided are based on 50 per cent coming from the annual levy and 50 per cent coming from the complaints levy. They are purely notional, for the purposes of providing an illustration. The commission could decide that it wants to take much more from the annual levy, as opposed to the complaints levy. It may go down that road if the number of complaints is smaller than anticipated and the fee per complaint gets too high. The commission will need to consider such matters in the light of consultations, research and experience of how the system operates once it is up and running.
That goes back to one of the issues that I raised earlier. The complaints levy should be a disincentive for a solicitor to be unable to resolve a complaint with a client. I appreciate that such issues must be left to the commission, but you may need to reflect more on the extent to which the number of staff and personnel at the commission needs to be scaled down. The last thing that we want is to have a complaints commission set up with 60 staff, when its workload really justifies employing only 40, and for no one to bite the bullet and say that the commission does not need to employ so many people and that costs should be scaled back to minimise the impact on the profession. I appreciate that those are issues for the commission, but it may be important to build into the bill some reflection of the fact that the commission must take account of workload, responsibility and throughput of cases, so that we do not end up creating a big bureaucracy that is serviced for the sake of servicing it, rather than a body that is fit for purpose.
I will need to check the text of the bill to be sure, but I think that Scottish ministers have powers specifically in relation to the staff of the commission—the number to be employed and the terms and conditions of staff.
There is also a provision in the bill that states:
The issue is who determines what is "reasonably sufficient". I am concerned that the commission is in the driving seat with regard to the determination. However, I will put that issue to one side for the moment.
I will deal briefly with the previous point that we discussed, as I have now found the relevant provision. Paragraph 8 of schedule 1 to the bill says:
What is your justification for the figures on the commission's premises?
Those figures came from internal advice from the Scottish Executive's property division. According to the advice that we have received, the estimate is fairly generous. We are told that it is based on Edinburgh premises towards the upper end of the scale, so if the location review went in favour of a different and less expensive location, savings could be made.
I will follow up questions about the complaints levy. Solicitors have told me that they are concerned about the financial impact on them if they are subject to vexatious complaints. If a person continually complains about a solicitor who is exonerated, the solicitor will still be required to pay the complaints levy. Solicitors are anxious about that and the commission will not want such vexatious complaints to add to its workload. What protection will be available to solicitors and the commission against vexatious complaints?
First, the commission will sift incoming complaints and will dismiss vexatious or frivolous complaints, on which no levy will be payable. The profession has asked why the complaints levy should be payable if the solicitor is exonerated, which is a good question. It is important that the complaints levy should still have to be paid if a solicitor is exonerated because the commission would otherwise have, or might be seen to have, a financial interest in upholding complaints. To put the commission in that position would be unacceptable. Although reasonable people would not accuse the commission of upholding complaints in order to attract revenue, the idea would be damaging.
I will ask about two other expenditure proposals. The Law Society of Scotland describes your figure of £40,000 for training staff as "hugely optimistic". On what basis was that figure calculated?
That was an attempt to split the difference between two figures that we have. The Scottish legal services ombudsman does not spend much on staff training—about £300 per annum per member of staff—whereas the consumer complaints service of the Law Society of England and Wales spends about £1,000 a year per member of staff, which would take the commission's cost to £60,000. We have split the difference, but towards the more generous end of the scale. The figure is a bit of a guesstimate, but it is reasonable in the circumstances.
The Law Society of Scotland has expressed concern about future costs as a result of subordinate legislation and has said that £20,000 is a grossly low estimate. What is your view?
I think that that figure is for consultancies; it is difficult to estimate what the commission will spend on that and the amount could fluctuate greatly from year to year. The consumer complaints' service in England and Wales has said that it has had little need so far to take external legal advice, so it does not have significant costs for that. On the other hand, if somebody took the commission to judicial review in a particular year, £20,000 might consume much, if not all, of the budget for that. We think that the cost might be a lot less than £20,000 in many years, but we accept that it could be significantly more in years when there is a particular need for expert legal advice.
We have concentrated on expenditure, but the financial memorandum indicates that considerable savings could be made. Where would they be made and can you quantify them?
Can you point us to the relevant paragraph in the financial memorandum?
It is certainly in the financial memorandum, but I might have to come back to you on where it is.
The savings might refer to the Law Society of Scotland's savings from not handling service complaints any more.
So it would be a transfer of costs rather than a saving.
It could be, but I would need to look at the precise paragraph in the financial memorandum and ascertain to what it refers.
Perhaps we can come back to this question, convener.
We can deal with it in correspondence.
On the training costs that Andrew Arbuckle mentioned, the financial memorandum assumes that there will be a low turnover of staff, but the Law Society disputes that. Intriguingly, it says in its submission that there is a high turnover of staff in its client relations office because it is a stressful situation in which staff
That estimate could be optimistic, but the basis of our approach is that the staff will perform a specialist function. I imagine that many of them would be recruited because they had a background of handling consumer complaints. That is a stressful job, but many of the staff will be accustomed to dealing directly with dissatisfied members of the public and with people who might be aggrieved that complaints had been made about them.
There is an implicit assumption in the financial memorandum that some of the people who are working in the Law Society's client relations committee will transfer to the Scottish legal services commission. What financial assumptions have been made about that transfer, bearing in mind the need to maintain levels of remuneration, pension entitlements and so on when staff transfer from one organisation to the other?
At the moment, the financial memorandum makes no assumptions about that. We know that the level of salary that we have assumed for the case investigators is broadly similar to what the ombudsman's staff will be paid. We do not have detailed information about what the various members of the Law Society's complaints handling staff are paid and you are right to suggest that that could significantly affect the figures. However, we have no idea how many people will transfer to the new body. I suspect that that will very much depend on the outcome of the location review. If the location review does not suggest that the body should be located in Edinburgh or somewhere close by, I suspect that very few of the Law Society's staff will transfer. The assumptions in the financial memorandum are based on the civil service B2 pay scale, which is what we would be looking at with regard to external recruitment. We also believe that that is broadly right with regard to the ombudsman staff. However, if lots of the Law Society's staff transferred, our figure might not be correct.
Paragraph 125 of the financial memorandum gives a figure of £38,000 for recruitment. You are talking about recruiting about 60 staff, so that figure strikes me as being a bit light. I am not quite au fait with the newspaper advertising costs in Scottish newspapers, but I daresay that they are pretty significant. What is the basis of your assumption?
We estimated advertising costs of £32,000. In fact, we factored in the same advertising costs in relation to the commission members. That sum is based on recent experience of running a recruitment exercise with advertisements in two editions of The Herald and The Scotsman, which cost £32,000. Inevitably, our estimates might be slightly out of date by the time we come to place the adverts. That is a risk in relation to all of the costs that we are discussing.
Is that £32,000 estimate based on a comparable media advertising campaign?
I think that the estimate is based on the advertising that we did to recruit a replacement for the outgoing Scottish legal services ombudsman.
It was for the staff of the Scottish legal services ombudsman.
Yes, that is correct. I apologise.
Did you have any thoughts about a mechanism that would lead to a significant reduction in the number of complaints and, therefore, to a significant reduction in the cost of dealing with the complaints? To pick up Jim Mather's repeated phrase, was the mechanism designed with continuous improvement in mind? How will what you are doing result in a better system?
The overall policy that underlies the bill is that, wherever possible, complaints should be resolved at local level by the lawyer or the legal practitioner, which will mean that complaints will not come to the commission in the first place. The commission has the power to refer premature complaints back to the local level if the complainer has not taken up the complaint with the legal practitioner. That is an important part of the policy. Lawyers should, increasingly, deal with complaints locally. Of course, the complaints levy provides an incentive for them to do so, but the Law Society has strongly supported that development. The fact that it has a practice rule for law firms that requires them to have a complaints partner is evidence of its vigorous promotion of that initiative.
You have described the mechanism through which complaints are handled. How can we improve the system such that fewer complaints are generated, and how will the system that the bill creates for dealing with complaints impact on that?
The bill sets out a number of functions for the commission on the dissemination of good practice. Each year, the commission will assess what comes from the profession by way of complaints and will analyse the issues that cause problems. It will give feedback to the profession and the professional bodies by disseminating the good practice that emerges from that experience.
I will finish with a comment on how the financial memorandum has been put together. It would have been helpful to have the basis on which some of the assumptions have been made—which you have told us about in your answers to our questions—spelled out much more clearly. For example, the memorandum does not deal explicitly with the possible implications of the commission's location in Edinburgh, or the grades at which you assume staff will join the commission. Such issues' having been dealt with explicitly would have alleviated the need for us to ask questions about them.
Meeting suspended.
On resuming—