Institute of Welsh Affairs: Agenda Magazine, Winter 2012

Sarah Wyburn asks whether new entrants on the high street will give a distinctive edge to the Welsh legal system

In the fifteen years since the 1997 Referendum, devolution has led to a raft of policy initiatives that have changed the way Wales is governed, and has set a new public policy agenda. Last year’s referendum gave significant new impetus to this momentum. Yet beyond constitutional law, you could be forgiven for thinking nothing has changed in the Welsh legal world.

The law that governs criminal, civil and family proceedings is actually “the law of England and Wales”. There is no practical difference between a case being heard in Wales or England, save that cases in Wales can be conducted through the medium of Welsh.

Following the 2011 Referendum, lawyers in Wales increasingly ask whether the next step could or should be a move to full law-making powers in further areas of public life. Naturally, much of this discussion has centred on whether there might soon come a time when a separate Welsh legal system exists. The UK Government’s planned funding cuts, combined with a completely unrelated piece of new legislation, could unwittingly be providing additional momentum in this debate.

The legislation in question is the innocuous-sounding Legal Services Act 2007, which contains provision to allow non-lawyers to set up a law firm, or to buy into an existing one, in a new structure called an ABS (Alternative Business Partnership). This legislation could ultimately have far-reaching consequences for Wales.

At the time the Act was drafted, much of the debate centred on allowing professional staff who were not legally qualified, such as chief executives and practice managers, to become equity stakeholders in their firms, or allowing firms to seek outside investment to continue growth. It soon became clear that the Act would also provide opportunities for non-legal companies, including big household name brands, to set up legal practices. The legislation was dubbed “Tesco Law” (although, ironically, Tesco have no plans to enter the market). It led many lawyers to fear a future dominated by big names squeezing out traditional high street practices.

The most commonly imagined scenario saw new entrants dominating the market, through a combination of economies of scale, marketing budgets, and the brand recognition most law firms could only dream of. The new entrants’ overheads would be lower (so the argument goes), and so the fees charged to clients would be lower. Their adverts would emphasise trustworthiness and loyalty to a known brand. Existing firms in profitable locations would be swallowed up or driven out of business; those located in less desirable areas would become financially unfeasible.

Whilst the Act will have a major effect on the legal sector in Wales, its impact may not be as extreme as some predictions suggest. There will be an increase in external investment. Possibly some brand names will set up shop (the Co-op has already put its name down). However, it will not mean the end of the independent specialist law firm. Indeed, when the first three approved Alternative Business Partnership firms were named in March, two were small traditional law firms who had simply applied for authorisation to take on extra investors. The first ABS in Wales is also a pre-existing Cardiff law firm.

Asking whether “Tesco Law” is a threat to the legal sector in Wales is something of a red herring. The real question is what the legal sector in Wales will look like when the Act, combined with the UK Government’s planned budget cuts, are in full force.

Market research indicates that firms emphasising a local, personal service, especially those specialising in niche areas of law, can continue to differentiate themselves from new competition. For non-transactional work, people seem to want a bespoke service from a dedicated specialist, not a low-cost service mainly handled by a call centre.

I have found the fact that my firm specialises in family law is a real asset when approached by new clients. Clients often explicitly say they have come to us because we are a niche practice rather than a “jack of all trades”. I would expect any existing specialist high-quality firm to tell the same story, and do not see that being any different if the competition were a bank or a supermarket.

The real impact in Wales will be that outside investors will look for profitable work (not Legal Aid) to ensure a return on their capital. When combined with the Justice Secretary’s announcement that Legal Aid funding is being withdrawn for almost all family disputes, this will make it much harder for individuals in Wales to secure Legal Aid representation.

The rates paid by the Legal Services Commission for Legal Aid family work are already so low as to make doing this work uneconomical. With the UK Government’s further cuts, combined with pressure from new investors, and competition from rivals who have this kind of investment in place, most firms are seriously considering giving up Legal Aid work.

The options for those who need legal representation, but are not in a position to fund it privately, will be severely restricted. In Wales, this could have a disproportionate impact compared to other areas of the UK, because of its existing levels of social disadvantage. There is already a growing surplus of clients needing public funding in Wales, and an increasing shortage of firms able to service them. Waiting times of over a month to see a solicitor are common.

The Welsh Government has pursued a progressive public policy agenda, and it should now give serious consideration to how it might seek to restructure the funding of legal services in Wales in line with this agenda. It should consider how it can intervene and protect legal services for the most vulnerable in Wales.

Such a move by the Welsh Government would not only safeguard services for people most in need, but could moderate the approach of national “brands” currently considering setting up in Wales. It may also pave the way for a more localised emphasis within legal services. This could open up new opportunities for community social enterprises, as well as existing independent legal practitioners, to fill.

The fifteen years following the first referendum on devolution have seen little change for the legal sector in Wales beyond constitutional law. The next fifteen years following the second referendum could see the most sweeping changes in centuries, and might lead to a “Law of Wales”.

Sarah Wyburn is a Partner at Wendy Hopkins Family Law Practice LLP

Published: 14/12/12