Fixed payments: a real impact?

One of the most controversial changes to have been introduced in the legal aid regime in Scotland was fixed payments (more commonly known as “fixed fees”) for summary criminal cases.

When it was announced in 1998, the system of fixed payments was to be introduced on efficiency grounds. The declared intention was to reduce the level of spending on summary legal aid while ensuring that defence solicitors would (in the words of the then Minister for Home Affairs) continue to be able “to provide a quality service for the payments that are on offer”. Critics warned of diminishing firm incomes, a loss of defence capacity, and a risk to the quality of defence work. Looking back at that debate, it is striking that both sides accepted that fixed payments would lead to a reduction in overall legal aid spending: the question was whether or not this would lead to insufficient capacity and miscarriages of justice.

We were commissioned by the Scottish Executive to conduct independent research into the effect of fixed payment on: legal aid spending; firm incomes; case management; case trajectories; and the overall perceptions of the quality of defence work. This article, due to constraints of space, is restricted to reporting and discussing some of the findings on the impact on firm incomes and legal aid spending. The full findings of the study are detailed in our full report submitted to the Scottish Executive in 2005, “Impact of the Introduction of Fixed Payments into Summary Legal Aid: Report of an Independent Study” (220pp). However some of the findings about the impact on case management and case trajectories have been reported in our article in [2006] Criminal Law Review 722-741. We are grateful to the Scottish Executive for permitting us to report here some of the findings on the financial impact.

The move in outline

For readers not entirely familiar with the the move to fixed payments, it may be useful to provide a brief outline. The fixed payment system, introduced on 1 April 1999, replaced the previous “time and line” or “proportional” system based on itemised billing. Under the new system solicitors receive a basic payment of £300 (plus VAT) per case in the district court and £500 (plus VAT) per case in the sheriff court. These sums cover all work from an initial not guilty plea at the pleading diet up until trial. After the first 30 minutes of the trial, further payments are available, as well as, inter alia, for bail appeals and deferred sentences. Solicitors can no longer claim additional payments for costs associated with preparing the case, although a few exceptions (e.g. medical reports) can be claimed in addition to the basic fixed fee. Payments are made for blocks of work: £500 in the sheriff court (or stipendiary magistrate cases in the district court) for any work done up to and including the first 30 minutes of trial. After the first 30 minutes of trial the first day of a trial attracts an additional £100 and the second day £200. In the district court all work up to the first 30 minutes of trial attracts £300, after which the payments are an additional £50 per day.

Conduct of the research

The study ran from December 2003 to January 2005. It was assisted by a research advisory group convened by the Justice Department of the Scottish Executive, consisting of representatives of the Justice Department, Scottish Legal Aid Board (SLAB), the Law Society of Scotland, local criminal bar associations, the Crown Office and Procurator Fiscal Service (COPFS), the judiciary, and two independent academic experts in the area.

The study used a mix of quantitative and qualitative methods. Statistical analyses of two large disaggregated sets were conducted. We were given access to SLAB disaggregated data files relating to a five year period 1997-2002. The statistical analysis of disaggregated data allowed for more controlled analysis to be conducted than is possible by using aggregated data (as used in annual reports). The analysis of disaggregated SLAB data allowed detailed examination of income and expenditure. Data sets supplied by COPFS allowed the proportions of cases terminating at each of different stages of the summary process to be identified. The analysis of that data related to the period 1991-2003. We also conducted a postal and telephone survey of defence solicitors, and in-depth face-to-face interviews with a range of “street level” and senior practitioners, and other stakeholders. (The research was explicitly not commissioned to examine the impact of fixed payments on traineeships.

Overall spending trends

Chart 1 (above) presents data on expenditure on summary legal aid from 1994-95 to 2003-04.

It shows expenditure on summary legal aid reaching a peak of over £53m in 1996-97. Thereafter it declined until 2000-01, since when it has risen. The chart also illustrates that most of the growth during this period was for sheriff court summary cases.

Chart 2 (below) shows the total payments (net of VAT) made to solicitors, and the number of cases covered by these payments. It is clear that after the introduction of fixed payments expenditure rose broadly in line with the number of cases. This is confirmed by data showing a virtually static average payment per case to solicitors after the introduction of fixed payments.

The fall in the average cost of summary cases between the pre- and post-fixed payment periods is a direct consequence of the fact that the fixed payment in each type of court was set below the average payment made under the previous “time and line” system in the years immediately preceding the introduction of fixed payments. Thus for a given number of legally aided cases in the years following the introduction of fixed payments, total expenditure on summary legal aid should be expected to be lower than it would have been had fixed payments not been introduced.

However, chart 2 also shows that while the average cost per case declined, total spending on summary legal aid rose quite sharply after its initial fall with the introduction of fixed payments. Indeed, this rise was much sharper than that seen in the years immediately preceding the introduction of fixed payments. Statistically the main explanation for this increase is the rise in the volume of cases receiving summary legal aid, particularly in the sheriff courts, as illustrated in chart 2.

In the financial year in which fixed payments came into operation (1999-2000), the number of summary cases in the sheriff courts granted legal aid rose even though the absolute number of complaints initiated fell. In 2000-01 and 2001-02 the number of complaints initiated rose, but the number of cases granted rose more rapidly. As a consequence, the ratio of legally-aided cases to complaints initiated increased in the three years following the introduction of fixed payments. Consequently for cases granted legal aid in 2001-02, total fees paid to solicitors for summary cases were higher than for cases granted legal aid in 1997-98.

Sheriff court summary cases constitute more than 75% of legally-aided summary cases. Our full report explains that since the introduction of fixed payments there has been an increase in the ratio of legally-aided cases to complaints initiated. That ratio rose from 44% in 1998-99 to 53% by 2001-02. Does this rise have any substantial connection with the introduction of fixed fees, or was it simply produced by other phenomena which have no direct connection to fixed payments?

Behind the figures

It was not possible for this exploratory study to determine with absolute certainty what has caused this increase in the ratio. However, it was possible to explore some of the likely causes, which were raised by interviewees. We explored whether or not the increase was caused by other changes to policy or procedure (e.g. human rights legislation; treatment of racial aggravation; whether there had been an overall shift in prosecutions from district to sheriff courts etc). It was found that in overall national terms, these had only a very marginal impact on the rise in the ratio.

A different explanation for the rise in the ratio emereged from our telephone and face to face interviews with solicitors and others. This relates to the way in which solicitors bill for cases, and indeed how “a case” is defined under the fixed payment system as opposed to a “proportionate” (or “time-and-line”) system.

The advent of fixed payments in Scotland may have led some solicitors to begin to adjust their billing behaviour in relation to work which might previously have been regarded as ancillary to the main case, or where solicitors might simply have absorbed the costs of this ancillary work in the “main” case. Under the old “proportionate” or “time-and-line” system, many solicitors might not have bothered to apply separately for ancillary work. Under fixed fees there is a much greater incentive to ensure that a second application is made. Thus it may be that one explanation for the rise in the ratio is that solicitors have tended to become more careful to ensure that each case receives a separate summary legal aid certificate. We should emphasise that we do not seek to suggest that there would necessarily be anything improper if it is the case that solicitors are now, as a consequence of the introduction of fixed payments, making such additional claims. Indeed, one could argue that the use of additional applications is more correct and transparent than the previous practice of absorbing such work into the main case.

Impact on firm incomes

We now turn to the way in which this has impacted on solicitors’ firms. A more detailed discussion is provided in our full report, where further levels of analysis are provided (such as the impact at the level of individual solicitors).

As mentioned briefly above, the number of firms successfully applying for summary legal aid declined after the introduction of fixed payments. The initial drop is probably due to the introduction of registration and the SLAB code of practice. The number of firms conducting legally-aided work in the summary courts for the period covered by the SLAB data is shown in the table. The table also shows that the average number of summary legal aid cases per firm rose after the introduction of fixed payments. In 2001-02 it was 38% higher than in the year preceding introduction. Over the same period average fee income per firm rose by 37%.

However, the average figures in the table obscure large differences between firms, because of the varying degree of involvement of different firms in summary legal aid. In our analysis we grouped together those firms which specialise in this area (“specialists”), those which can be described as “generalists” and those which are “non-specialists”. This distinction is based on where a firm lies in the distribution of cases per solicitor. Specialists are defined as those where the number of cases per solicitor involved in summary legal aid is in the top quartile (top 25%). Specialists accounted for just over 80% of legally-aided summary cases in 1997-98 and received 81% of the fees paid for such cases. By 2001-02 their share of the number both of cases and of fees had fallen to 77%. Non-specialists are those whose cases per solicitor are in the bottom quartile, whilst generalists lie between the top and bottom quartiles.

Multivariate analysis was used to estimate the change in firms’ incomes over the period covered by the SLAB data. This reveals that although the average income of non-specialist and generalist firms fluctuated over the period studied, none of the fluctuations was statistically significant. However, the incomes of specialist firms fell by a statistically significant amount below the pre-fixed payment level in the first two years after the introduction of fixed payments. The fall was less in 2000-01 than in 1999-2000. However, by 2001-02 the average income of specialist firms recovered to above the 1997-98 level, although not by a statistically significant amount.

In our face-to-face interviews with, and telephone surveys of defence solicitors, and depute procurators fiscal, it was very widely reported that many defence firms (especially larger, specialist firms) had adjusted to the new payment regime by taking on more cases.

Displacement effects to A&A

It is not unreasonable to expect that in a period when summary legal aid fees are subject to limitation, solicitors’ firms carrying out legally-aided work would be likely to ensure that they received payment for all aspects of legal advice. In face-to-face and telephone interviews, it was suggested by some defence solicitors that in the past some solicitors did not claim everything under advice and assistance (“A&A”) to which they were entitled. In particular, when their client’s application for summary legal aid was successful they did not submit a claim for A&A. Under a regime of fixed payments for summary legal aid, solicitors might be more likely to claim for A&A. Gray, Fenn & Rickman (1999) found this to be the case when standard fees were introduced for magistrates’ court cases in England & Wales.

Some defence solicitors we interviewed confirmed that, as a result of the impact of fixed payments, they were now more assiduous in their use of A&A: “because of the fixed fee system I am careful in granting advice and assistance, because there are certain things that are not covered by the fixed fee that were perhaps covered by the old system, so you have to think about what you won’t get under the fixed fee that you might get under advice and assistance, but clearly you have to do so within the regulations” (telephone survey, non-stakeholder defence solicitor).

SLAB provided the researchers with details on criminal A&A intimations for the two years before and the first three years after the introduction of fixed payments. The only statistically significant changes were for specialist firms (calculated in terms of criminal A&A). These estimated changes in the average number of intimations per firm (together with the 95% confidence intervals for the estimates) for specialist firms are shown for each year in chart 3. Intimations of A&A by specialists increased by statistically significant amounts after the introduction of fixed payments. Specialists accounted for 90.5% of A&A intimations in 1997-98 but 93.6% in 2001-02. This increase in share as well as the increase in absolute numbers of intimations is consistent with specialists being more assiduous in claiming for A&A since the introduction of fixed payments.

As shown in chart 4, average income from A&A for specialist firms increased by statistically significant amounts after the introduction of fixed payments. In 1997-98 specialists accounted for 87.8% of A&A payments, but by 2001-02 this had risen to 93.4%.

Final observations

Although the introduction of fixed fees has reduced average spending on a per case basis (because of the level at which the fees were set), it does not appear to have reduced expenditure overall. The rise in the ratio of legally-aided cases to complaints initiated appears to be at least partly connected with the impact of fixed payments. Furthermore, the new system of fixed payments led to a displacement effect to A&A.

However, some of the criticisms of fixed payments were also wide of the mark. In particular, not all firms have suffered financially from fixed payments – those which have been willing to adapt to take on much higher volumes of cases have done well financially from fixed payments. For this reason the predictions of “catastrophe” – that there would be an obvious lack of defence capacity – have not been realised either.

Looking back to the time of the announcement and introduction of fixed fees, it is striking that the debate was largely cast in terms of speed/efficiency versus quality and preparation. However, the findings of our research tend to undermine that simple dichotomy. For example, the attempt to accelerate the point at which clients pled guilty appears to have been contradicted by the impact of other effects of fixed fees also intended to accelerate the process (e.g. reductions in levels of client contact, preparation etc). (These results are documented and explained in our full report originally submitted to the Scottish Executive in 2005.) These unintended consequences undermine the easy assumption that defence solicitors are responsible for “spinning out” cases or slowing the process down. In fact the reverse appears to be true. These findings from our research underline the point that greater involvement of lawyers tends to have the effect, overall, of encouraging earlier settlement.

    Cyrus Tata is Director of the Centre for Sentencing Research and senior lecturer in law at the University of Strathclyde. Frank Stephen is Professor of Regulation, School of Law at the University of Manchester.

For charts please refer to  The Journal downloadable PDF file.