A living wage from Legal Aid? The tale of Petunia Perfect

Petunia Perfect, the perfect Solicitor, sets up her Legal Aid practice in Scotland in November 2011. She is 5 years qualified now, so able to be a sole practitioner, but she’s going to stick to working 9 to 5 with an hour for lunch, 5 days a week, with 28 days a year holiday.

Since she is only doing Legal Aid work, obviously her fee income is going to be based on SLAB rates. These are quite complicated, but attendance with a client under Advice & Assistance is £51 per hour. Since Petunia Perfect is perfect therefore every single hour of her working week earns this rate; she saves up all her work on correspondence, preparing papers etc. until she has enough that she can bang enough of them out within an hour that she will still get the £51.

She does all her CPD outside office hours, never does pro bono work, and never even sees a client in the office who won’t qualify for Legal Aid. Every minute of every working day is spent earning that £51 per hour.

For, at 35 hours a week, 48 weeks a year of perfect work, her accounts to SLAB will be £85,680.00. Pretty good fee income don’t you think.

But wait: that is gross fee income, which need to have all the costs of the work deducted. So what does she need to spend?

First off, before she even sees her first client she needs to pay for her annual Practising Certificate from the Law Society of Scotland – that’s £1295. Before she can get that, she needs to pay for her Professional Indemnity Insurance: as sole practitioner who has never had a claim against her (she’s perfect after all), with Insurance tax included that’s £5157.96. She is also required to do Compulsory Professional Development (CPD), so let’s say that costs her £1000.

Then she has her office. Using national average statistics for 2011 of £138 per square metre, for a 150 sq.m. office that is £20,700. However, we’ll assume she qualifies for the Small Business Rates scheme, so has 100% rates discount.

She needs all the furnishings and equipment for the office, which we’ll keep pretty basic and capitalise over 5 years, so that’s £2500 per year. Add on stationery – paper, toner etc. and that’s another £2000 per year.

She has a single member of staff, who is also pretty perfect. He is able to be receptionist, secretary, practice manager and cashier, so can do absolutely every non-fee earning task for Petunia, but he’s so enamoured with her perfectness that he’ll do all this work for National Minimum Wage. He also has perfect attendance – never sick so never needs a substitute. Working 9 to 5, with usual paid holidays and Employers National Insurance, that comes to £14,265.14 per year Petunia Perfect needs to pay out.

Since she has an employee, she needs Employers Liability Insurance, as well as Buildings, Contents, and Occupiers/Public Liability Insurance; since she’s perfect she gets this all at a snip for £250 per year. She also gets a deal on her telephone/fax/internet of £1000 per year, and on Heat & Light (electricity) of £2500. Postage costs her about £500 per year. She’s just so perfect.

Also, when you do Legal Aid, if a client has an outlay to pay, you don’t get that from SLAB until you get your account paid, so in effect you need to lend the client/SLAB the money. Petunia Perfect can afford to do this from her own capital, so all it is costing her is the interest she loses – rates are poor now, so say 0.5% interest on £10,000 – that’s  £50.00

So totting up all these expenses we get:

Law Society Practising Certificate	1,295.00
Professional Indemnity Insurance	5,157.96
CPD	1,000.00
Rent	20,700.00
Office Equipment	2,500.00
Stationery	2,000.00
Employee (Minimum Wage)	14,265.14
Insurance	250.00
Telephone/Fax/Internet	1,000.00
Heat & Light	2,500.00
Postage	500.00
Interest	50.00
Total	51,218.10

That’s £51,218.10 to deduct from the fees of £85,680.00, leaving an annual gross income of £34,461.90

Give the sole employee a more reasonable salary – say £8 per hour? That will cost Petunia £18,936.32, dropping her income to £29,790.72

Now, of course since Petunia Perfect is perfect, she doesn’t need to spend anything on advertising, which for most firms would be at least a few hundred pounds a year. Since her work is perfect she never gets any abatements from SLAB, which most firms are reporting at around 10% upwards of fees lodged. Since her employee is perfect, she never needs to spend any time on admin. so gets to charge 100% of her working time (most Solicitors are pleased if they can bill 80% of their time; plus of course most such highly trained staff would want more than National Minimum Wage). She’s got no finance to service, no provision for repairs, maintenance, water rates, or sundry expenses.

If you were to factor in all of these, someone less perfect would have a lot more costs from less income. So Peter Practice, his NMW employee is not so efficient as Petunia’s therefore Peter only manages 80% of his time billed to SLAB, and SLAB abates this 10% – that’s £61689.60 fees from SLAB. Even Petunia Perfect’s expenses would leave him only £10,471.50 income, which is less than minimum wage. Also he spends £500 a year on advertising, he’s got water rates of £200 a year, puts aside £200 per year for repairs & maintenance and another £100 for sundry expenses.  Also he needs finance to cover the outlays, that’s 8% on £10,000 is £800 interest. That leave’s Peter working full time for £8,671.50 or £5.16 per hour with no paid time off – time to find another job Peter!

But let’s get back to Petunia’s original gross income of £34,461.90. How does that compare to other graduates. Well let’s see, and just for comparison we will include NMW as well.

Average Salary (2011) of

NMW Worker:	£12,646.40
Petunia Perfect:	£34,461.90
Teacher:	£35,000
Police Officer:	£39,000
HMRC Civil Servant:	£40,915
Train Driver:	£42,000
Police Inspector:	£58,000
Salaried GP:	£63,000
Backbench MP:	£65,738

So Petunia gets less than an average teacher, and that’s without any pension, paid holidays, sick leave or other benefits; if she is sick or wants maternity leave, that reduces her income, and she needs at least a few thousand a year out of it to pay into a pension scheme, which all the others get on top of their salary.   Of course that’s also paying her employee NMW only – if she pays him more, she’ll drop even further below the teacher’s income.  And this is for Petunia Perfect doing Legal Aid work, as we’ve already seen it’s very easy for that to drop well below National Minimum wage: poor Peter Practice, he’s off to become a train driver!

Am I arguing that Legal Aid rates need to go up? Not necessarily. It is theoretically possible to make a decent living wage on Legal Aid, operating on bare minimum costs (or cross subsidising these with private client work) if all work done can be charged and paid but the killer is the administration which cuts into chargeable time, and the (apparently unjustified) abatements of fees by SLAB.

The provision of free finance to SLAB is a nuisance but on these figures not an overall major cost. Late payment by SLAB, affecting cash flow and meaning that one has to pay income tax on fees rendered but not actually paid are much more significant issues.

There’s also an issue not covered above that if a client “recovers or preserves” property, their Legal Aid account has to be settled from this property. Quite apart from the fairness or otherwise to the client in various circumstances (you manage to avoid your house being repossessed, but then have to sell it to pay the legal bill!) this often leads to the Solicitor acting as unpaid collection agent, pursing the client for the money due under Legal Aid but not being paid for anything involved in this.

There’s also frequent arguments with SLAB about whether there has been a “recovery or preservation” (which again is unpaid time), such as “this client was advised what they can do at the Small Claims Court; they may or may not raise an action but they have 5 years in which they can do so; we therefore consider there is a potential recovery and you don’t get paid until they raise the court action, when you demand the money off them, or when the 5 years is finished”, or “this client got their spouses share of the family home worth £x thousand in exchange for taking over £x thousand of debt; we are disregarding the taking over of the debt and hold there to be a recovery of £x thousand, client must pay the Legal Aid bill.”¹

If more of the red tape were removed, and Solicitors had no doubt that for providing certain work to a client they would get a certain and prompt payment from SLAB, there would be more willingness to provide Legal Aid work. How do we go about doing this, while still maintaining accountability to ensure taxpayers money isn’t used unnecessarily? That’s a question that will need to be worked out between the legal profession, SLAB and the politicians.

Providing detailed, itemised accounts is no doubt a useful tool to ensure that work is being properly carried out.  However, fewer and fewer Law Accountants will now prepare Legal Aid accounts (and of course if they do they charge a percentage fee which eats into the resulting income) which means that Solicitors or their staff need to prepare these, eating into chargeable time.

However it is particularly galling to do 2 years work, lodge an account then be told that SLAB hold the last item they will accept as chargeable was halfway through, it is therefore more than a year since the last work they accept as covered, so you will get paid nothing.² That is an extreme example, but it is commonplace to be told that several items in a file are not accepted for payment, or are to be abated because SLAB do not consider the work was actually needed – appointment with client was too long³, deed should be “formal” i.e. a standard “insert name here” style instead of bespoke for the clients instructions. Unfortunately this leads to cases where SLAB state they will only pay for certain work, but the Law Society considers that only doing only that work is “inadequate professional service” or even professional negligence to the client – leaving the Solicitor damned if they don’t and damned unpaid if they do.

As SLAB now require all Legal Aid practitioners to use Legal Aid Online, perhaps Solicitors could lodge accounts of work item by item as it is done, and have each of these accepted or not as lodged – even if the fee itself is only going to be paid at the end. At least that way Solicitors would know what was going to be paid and if SLAB do not want to pay any more the Solicitor can tell the client (who can argue this directly with SLAB) instead of carrying on doing work which will never be paid (or pursue the client for payment on the basis that the work was assessed retrospectively to not be under the Legal Aid Scheme, knowing that the client does not in fact have any money to pay a bill). Also if an increase on authorised expenditure is needed (an initial grant of Advice & Assistance only authorises £95 of fees and outlays), all the details of what has been done to date are there, simplifying the request to increase this. No need for stage reports or peer review – everything is there in front of SLAB as it is done.

Alternatively, set up an independent Auditor; the Solicitor simply submits the final file to the Legal Aid Auditor who fixes a “fair and reasonable Legal Aid fee”, tells the Solicitor how much it is and instructs SLAB to settle that amount. This removes any certainty from the Solicitor of how much will be paid, but reduces the administration required and guarantees the prompt payment. It also reduces the number of staff needed at SLAB itself. Not perfect, but arguably an improvement over what is happening just now.

Also, if there is a claim of “recovery” by the client, deal with it directly between SLAB and the client, not SLAB to Solicitor, Solicitor to client, client to Solicitor, Solicitor to SLAB, repeat ad nauseam.

However, what will certainly NOT reduce costs is to replace private Solicitor Legal Aid with SLAB employed Solicitors (Civil Legal Assistance Office or Public Defence Solicitor’s Office) because SLAB will need to pay for all the same expenses as a private firm but is not permitted to pay the Solicitor less than Minimum Wage and almost certainly will need to pay at least as much as Petunia Perfect is earning, with pensions, Employers National Insurance and other benefits on top.

Note 1: Both these examples taken from genuine client cases.
Note 2: So is this one; apparently it is not enough for a client to give instructions by letter, they need to telephone or physically attend to confirm that you are still instructed by them. Go figure. Incidentally, SLAB also don’t pay for you to read instructions given by letter or email, only by telephone or in person .
Note 3: Never have worked out how a civil servant in Edinburgh can tell that an upset and emotional client giving the detailed history of 20 years of domestic abuse of self and children only needed 30 minutes instead of the hour they actually took. Presumably that’s why I don’t work for SLAB – insufficient psychic abilities.