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Mr Gove and the legal levy proposal

A levy of 10% on legal earnings above £150,000 would provide a major boost for access to justice. And Mr Gove may be interested.

Geoffrey Bindman
16 February 2016
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20 years ago I failed to persuade my colleagues on the Law Society’s pro bono working party to recommend a levy on high- earning lawyers to supplement public funding. The working party did however accept a compromise: it urged the Society to establish a voluntary fund. When the proposal was put to the big City firms, they turned it down. The Law Society dropped it. The Labour party later supported a compulsory levy but also dropped it on entering government in 1997.

I do not know if Michael Gove was aware of this when he was appointed as Lord Chancellor and Secretary of State for Justice but I am pleased that he has revived the idea of a levy. Soon after he took office he floated it in a lecture which, when reported, again produced a hostile response from the City. I wrote an article in the New Law Journal in Gove’s support. My suggestion was a charge of 10% on earnings over £150,000.

In response I received a letter from the senior partner of a leading City firm. He sounded encouraging: “there will be many of us in the City keen to hear your views in detail”.

I told him I was happy to discuss the surrender of what I referred to as a “modest proportion of lawyers’ profits”. He soon put me right. “I think you misunderstand me”, he replied, “for a whole variety of reasons I doubt the City would support such an extraordinary proposal.”

Our correspondence continued amicably. I summarise his “whole variety of reasons” which he spelled out:

“(1) Your proposal is far from modest.

 (2) We already pay enough through the general tax levy.

 (3) We do more than you appreciate in the pro bono/access to justice arena.

 (4) You ignore what we do charitably.

(5) The proposal is illogical in singling out lawyers

(6) The real target of your energies should be government which has caused these issues in the first place.” The latter point he elaborated: “I am a supporter of this government but I am ashamed by what its last administration achieved with LASPO and the related funding cuts. Energy should be directed at where the cuts are really and most immediately hurting and seeking to persuade the government to rethink its policy in this area.”

City lawyers had an opportunity to present their case to Gove when he met them on 26 October 2015 at the offices of Clifford Chance. All the ‘Magic Circle’ firms were present and a number of US firms, together with the vice-president of the Law Society and the chair of the City of London Law Society. Reports of the meeting indicate some uncertainty about what the Justice Secretary had in mind. As one commentator put it, “was it a progressive discussion about boosting pro bono and One Nation values or an opportunistic attempt to tap the commercial legal profession to fill a funding gap? Or both?”

Before the meeting it was believed that the MoJ had briefed the Times that they might try to impose a 1% levy on the largest 100 firms. Yet the meeting was also said to be about persuading law firms to increase their pro bono contribution. Several of those attending thought that the threat of a levy was merely designed to encourage law firms to increase their pro bono commitment. Predictably, the overwhelming view of those present was hostile to a levy. However, a private dinner was hosted by Gove for a number of partners of City firms at which the levy was again discussed and it was reported that Gove had made it clear that the proposal would go ahead.

These meetings were followed by the launch of National Pro Bono week on 2nd November, officially opened by the attorney-general, Jeremy Wright QC. He tried to dispel a glaring misconception about pro bono by commercial lawyers. “Let me be clear”, he said, “that pro bono is an adjunct to, and not a substitute for, legal aid funding.” And the director-general of the Bar Standards Board, Dr.Vanessa Davies, apparently added that it is “facile” to assume that “commercial lawyers can pop down to the local law centre and advise on social welfare and immigration law.” Those areas of law are, as I know from my own experience, often far more demanding intellectually and emotionally than much of the work of commercial lawyers.

Of course, this argues for more funding for legal aid, which I agree is a government responsibility. But that does not mean that all legal aid funding has to come solely from general tax revenue. The case for a contribution from the profession remains.

My answers to the points made by my City friend are as follows:

(1)   10% of earnings over £150,000 is hardly punitive. Think how much is left. How much does anyone need to lead a comfortable life? Allen & Overy’s accounts for the year to 30 April 2015 reveal profits distributed to their 527 partners ranging from £712,000 at the lowest level to £2,885,000 at the top.(Law Society Gazette, 7 January 2016) Would a levy of £8 million out of profits of over £400 million cause any real hardship?

(2)   Of course profits are subject to tax up to 45%. This may well be a sufficient contribution to the public purse but it ignores the particular responsibility of lawyers for access to justice which is above and beyond the contribution due from all taxpayers.

(3)   Pro bono can be beneficial but, as the attorney-general says, is no substitute for legal aid

(4)   The same applies to charity.

(5) & (6) Why indeed should lawyers be singled out? This is the key question common to all these objections. It needs a fuller answer.

 Francis Bacon – one of Gove’s predecessors – addressed the question in the preface to his “Elements of the Common Law” published in 1630. “I hold every man a debtor to his profession, from the which as men of course do seek countenance and profit so ought they of duty to endeavour themselves, by way of amends, to be a help and ornament thereunto”. To put it in modern terms: membership of the profession carries with it a particular obligation to advance justice and the rule of law to the best of one’s ability.

The most profound challenge to the legal profession today is unequal access to justice, resulting from the failure to mitigate the growing inequality of resources between citizens.

Lawyers benefit from their membership of a profession which has rules of conduct and a long tradition of integrity. Commercial lawyers in particular benefit directly from the polarisation of wealth in favour of the businesses they serve. This enables them to increase their fees in line with the profits of their clients. Several leading economists, such as Thomas Piketty, Anthony Atkinson, and Nobel prize winners Paul Krugman and Joseph Stiglitz have drawn attention to the growth in market power and wealth of global corporations to the disadvantage of the majority. My City friend who rightly criticises the government for excessively reducing funds for legal services ignores the fact that his own high earnings are the product not just of his own efforts but to a large extent of the distortions of the market. Governments have a duty in the interest of all of us to correct these distortions as far as they can.

Questions remain of course as to the scope of a levy and the use to which its proceeds should be put. Should it apply only to lawyers? Now that others are authorised to provide legal services, should they not be equally levied? Such details need to be worked out but there is no obvious reason why all those providing legal services should not be covered. More difficult is to identify the use to which money raised by the levy should be put. In the past it has been a strong argument against supplementing the legal aid budget with private funding that it would merely encourage the government to reduce its own funding in proportion. It is now quite clear that the government needs no encouragement to cut funding. It would be necessary to earmark money raised from a levy for specific objectives of which the restoration or extension of legal aid is primary. Having already made a commitment to reverse increases in court fees made by his predecessor, Mr. Gove must resist the temptation to use the levy to fill this and other gaps in the Ministry of Justice budget.   

A levy on lawyers’ profits is not of course a panacea for all the woes of the legal system. But it could make a substantial contribution and could only enhance its worldwide reputation and influence. I await Mr. Gove’s proposals with eager anticipation.

 

A shorter version of this article first appeared in the New Law Journal. 

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