Royal Faculty of Procurators in Glasgow
Debate on the Legal Services (Scotland) Bill
Faculty Hall, 9 March 2010
The Law Society of Scotland says we need Alternative Business Structures ‘because of a changing market’.
Yet, when Sir David Clementi proposed the introduction of ‘Tesco Law’ in England and Wales in 2004, the UK was in an era of laissez-faire economics, with light-touch regulation and fiscal policies from the FSA and the Bank of England.
Corporate profits were ‘sky high’ and liberal regulation ruled. Sir Fred Goodwin proudly announced the highest ever ‘profits’ for a UK bank in 2005. The Royal Bank of Scotland made £8.2bn that year.
Tesco Law was born from the bowels of a flawed, light-touch regulatory regime, and a morally bereft culture of greed. When I hear its false promise of greater competition, and greater consumer choice, I think of Gordon Gecko addressing shareholders in the film, Wall Street.
"Greed is good. Greed is right. Greed works".
Well it didn’t work in 2007.
Our financial system went into meltdown, and had to bailed out by the public. I say the public, because it was the taxpayer who bailed it out, not some nebulous group of Consumer Focus or Which? ‘consumers’.
In the City, and around the world, the debate is now on managing the risk created by the size or breadth of financial activities. There is talk of ‘Narrow Banking’ – forcing, through regulation, a split between retail and investment banking to protect the public interest.
Last month, Kevin Warsh, a member of the Board of Governors of the Federal Reserve said we needed a new financial architecture, ‘one in which improved regulation and supervision play an important role but co-extensive role with greater market discipline’.
Big is now bad, small is good. ‘Robust competition from the bottom-up is the better way forward’ says Warsh.
With Scotland’s landscape of a multitude of small and medium sized legal firms we already have robust, bottom-up, competition.
So why does a Scottish Government, and a Scottish Law Society, wish to impose a flawed and outdated market model – susceptible to moral hazard and prudential risk - on Scotland’s legal profession?
The answer is no secret.
The Scottish Government want our biggest firms to compete internationally as ‘Scottish’ law firms. They say they need Tesco Law to access money to grow their business, and compete internationally.
It’s nonsense of course, because there is nothing to stop our largest firms doing all of this under our current regulatory system. Indeed, there is currently no need for them to be regulated by the Law Society of Scotland at present.
I understand that some of our biggest firms have used threats of a re-badge under English law, if the Law Society of Scotland did not accommodate their wishes.
The greatest irony of the Legal Services (Scotland) Bill is that it could pave the way for the biggest Scottish firms to be ‘owned’ and controlled by larger English law firms, or non-legal businesses outwith Scotland – the exact opposite of what the Scottish Government seeks to protect. For example, Clifford Chance has a turnover more than the combined earnings of the Scottish legal profession.
In truth, there is only a handful of people who stand to gain from Tesco Law in Scotland. The partners of the big four firms who can sell their equity on a huge open market – instead of a the relatively tiny Scottish solicitor market.
So the public’s right to access an independent legal profession in Scotland, Scots law, and 1,246 legal firms in Scotland are all to be prejudiced to accommodate the pecuniary interest of 50 or so partners in four firms in Scotland?
The original call for Tesco Law in Scotland came from a super-complaint to the OFT from Which? in London. It’s primary purpose was to create greater consumer choice through deregulation. Yet, when I was debating this issue with Ian on Sunday, he made it clear that our biggest firms didn’t undertake casework for consumers! They acted exclusively for corporate clients – so it’s quite clear this isn’t a ‘consumer issue’ within the profession.
That said, Consumer Focus Scotland, and Which? still maintain Tesco Law will improve access to justice in Scotland. They provide no evidence for these assertions. Sir David Clementi himself said that his report did not apply to Scotland, and the Bain report in Northern Ireland rejected Tesco Law as appropriate for the legal services market in that jurisdiction. So we find ourselves with a Bill in Scotland which is based upon no empirical evidence whatsoever of any market failure. That is no way to legislate.
I have been working on the Property Factors (Scotland) Bill – a private members Bill. Now, here the OFT undertook a special market study in Scotland which found there was a lack of effective competition in the property factor market, with one third of all customers being unhappy with their service. And of those who had complained, two-thirds remained dissatisfied. Shocking really.
But Consumer Focus Scotland backs the Scottish Government line of no statutory intervention in this market in Scotland. No need to protect consumers despite all of the hard evidence. Bizarrely, we have no evidence of any lack of competition in the Scottish legal services ‘market’ but a clamour for statutory intervention?
Organisations like Consumer Focus Scotland are wrong to approach the Scottish legal profession and system as a commodity.
Access to justice is not a consumer right. It is a constitutional right. It is a public service, like education or health. It is this self-evident truth which requires all solicitors, and the legal profession to be independent. Independent for the sake of a human being, a client, not an unknown consumer of service.
You cannot be 99% independent.
You cannot be independent if you are accountable to non-solicitors with their own agenda.
And you cannot be an independent legal profession if the Scottish Government can dictate the number and criteria for lay member appointments on your ruling body. This is the statutory equivalent of a Sword of Damocles.
Ladies and gentlemen, quite simply the Legal Services (Scotland) Bill represents the beginning of the end of over 500 years of solicitor independence; and the independence of our Scottish legal profession.
Govan Law Centre
9 March 2010