More entrants to the legal services market may be bad for competition

Mon 21 Jul 2014 by Lorraine Imhoff

Written by Lorraine Imhoff

Lord Chancellor and Justice Minister Chris Grayling says “We need a more diverse and innovative legal services market that attracts new providers …” Stirring words no doubt, but perhaps the government is just trying to make the cost of legal services cheaper by allowing unqualified people to provide them?

Members of past and present governments seem to think that ‘attracting new providers’ to the legal services sector will in some way create greater competition and provide consumers with wider choice. But it is arguable that there is wide competition at present and no evidence that the demand for services in the conveyancing sector is not being met.

One of the ways which already exists to widen the legal services market is the ‘Alternative Business Structures’ (or ABS). Under the Legal Services Act 2007 companies owned and managed by non-lawyers have been allowed to apply for registration as ABSs so that they can provide various legal services. They still have to be regulated however as well as having a qualified lawyer on their staff.

No rush of investment in the legal services market

One of the ideas behind this was that such ABSs would be better able to attract private equity funding. But it seems that banks and other financial sources have been not been willing to invest in a speculative new market. 

So far there has been no huge rush by commercial companies to register as ABSs. Many of the companies which have done so were either existing firms of solicitors or other firms such as personal injury claims companies which were already operating in the legal sector.

It seems to be the government’s view that more competition will drive down legal costs. But there is already widespread competition in the legal services market. The days when solicitors could be struck off for the sin of advertising and the Law Society laid down fixed fees for conveyancing work have long gone.

Plenty of competition among existing providers of conveyancing services

Conveyancing services can now be provided by licensed conveyancers and ABS companies as well as solicitors. If you are buying or selling a home you can choose from thousands of firms – from a local high-street firm on your doorstep to a large firm with many offices and offering nationwide coverage. Costs can vary widely, as can the level of service offered. 

It is arguable that opening up the legal services market may be less desirable for consumers and actually reduce competition in the long run. 

Fewer firms doing conveyancing will lead to less consumer choice  

For instance there are a few companies which are attempting to secure a large slice of the conveyancing market for themselves by various marketing strategies. Some companies may perhaps be closely associated with national chains of estate agents so that property buyers will feel they have to use such a company. But using a company which has a financial connection with the agents acting for the seller may not be in a buyer’s best interests.

If conveyancing work does become concentrated in the hands of just a few large companies then smaller law firms are likely to be driven out of this sector and consumer choice will be reduced. 

Consumer choice has also been reduced as a number of law firms have been forced to withdraw from doing residential conveyancing work. This is because several mortgage lenders have cut the numbers of firms they are prepared to instruct on mortgage work. 

Most buyers prefer to have the same solicitor acting for their lender as well as for themselves, so firms which are not on a lenders panel will lose work. This has particularly affected smaller firms and those which do not handle a substantial volume of conveyancing work. 

How the government could cut the cost of buying a home

Government ministers should perhaps note that legal costs are but one of the many of the costs and expenses associated with buying or selling a home. Many of these other costs will substantially exceed the solicitors’ costs – such as estate agents commission – and some such as stamp duty and land registry fees are directly fixed by the government.

The present way in which stamp duty land tax is charged has attracted widespread criticism. Despite this successive governments have shown no inclination to reform the system – at least as far as England and Wales are concerned (although the Scots have been allowed to go their own way.) 

It seems that governments are keen on reforms which don’t cost them anything but less keen on reforms which might affect their tax revenue!




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