UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 97-iii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Justice Committee

The budget and structure of the Ministry of Justice

Wednesday 13 June 2012

Matthew Coats

Evidence heard in Public Questions 493 - 528

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Oral Evidence

Taken before the Justice Committee

on Wednesday 13 June 2012

Members present:

Sir Alan Beith (Chair)

Steve Brine

Mr Robert Buckland

Jeremy Corbyn

Christopher Evans

Mr Elfyn Llwyd

________________

Examination of Witness

Witness: Matthew Coats, Chief Executive, Legal Services Commission, gave evidence.

Q493 Chair: Mr Coats, welcome. We have some questions to ask you about the Legal Services Commission. What date did you take up the post?

Matthew Coats: 27th February.

Q494 Chair: It is still early days.

Matthew Coats: Indeed-three and a bit months.

Q495 Mr Buckland: Mr Coats, welcome. I want to deal with the change in nature of the LSC in April of next year from an NDPB-nondepartmental public body-to an Executive agency. First of all, how will that change improve the performance of the LSC and what will be different from the current arrangements?

Matthew Coats: I think the move to Executive agency status is the right decision and provides an opportunity for the organisation to improve. As well as saving a significant amount of money, it will also give us a clear focus-a clear purpose-to the competent administration of the legal aid system. Secondly, it will give us an opportunity to be a closer part of the justice family of organisations and Government more broadly and should give us the platform to improve our relationships across the board. Finally, there are opportunities for our staff in being part of the wider civil service, which of course in turn should help us engage with them better and get better results. So there is a strong argument for doing that. What you will find to be different is a clear focus, as I have said, on administration, performance, rigour and the stewardship of public money.

Q496 Mr Buckland: One of the issues that has concerned policy makers and politicians is the potential infringement of independent decision making when it comes to the funding of legal aid decisions. What is the LSC and its successor body going to be doing to ensure that that independence is retained?

Matthew Coats: The independence is now part of the Bill as well and, of course, that frames it well. Part of this is to prepare properly and to make sure that we fully understand decisionmaking processes and how we are going to operate in the future. We also need to consider how we are going to demonstrate the independence, too. The primary mechanisms for demonstrating that independence will be the Lord Chancellor and Secretary of State publishing the guidelines for the classes of cases but not becoming involved in any of the individual cases. Then the Legal Aid Agency and I will publish an annual report about our work that will give transparency to the way that we work within those guidelines and the decisions that we have made. That is the preparation we are doing at the moment and that will be a way of ensuring and demonstrating that independence, too.

Q497 Mr Buckland: You are particularly sensitive when the Government are a party to an action because, increasingly, legal aid is being focused upon those areas where the individual is having to challenge decisions by the state, which is normally the Government. Are you confident that the new arrangements will be able to establish the degree of independence that is quite clearly necessary for a decisionmaking body like yours?

Matthew Coats: The cases you talk about are not the only sensitive issues and not the only place we will need to demonstrate independence, but I am satisfied that the basic mechanism of the publication of guidelines, the statutory duty of independence and the transparency of publishing what we do will give us some confidence that independence will be delivered.

Q498 Mr Buckland: As you know, the LSC-you are fairly new on the block-has had a very difficult and troubled history. It has come in for a lot of criticism by this Committee and other bodies, which is the background to its abolition. How are you managing the morale of staff, bearing in mind the difficult previous history?

Matthew Coats: The LSC does a difficult job; there is no doubt about that. As you say, there has been a fair amount of criticism. There has also been a fair amount of success and improvement in the last couple of years-and in particular the last six months, with the clearing of backlogs, for example. Part of my job is to present to the staff a balanced picture, to make sure they get recognition for the good things that they have done over the last couple of years but being sufficiently challenging about the improvements that we need to make into the future. If I may, I might just refer to the kind of direction I am giving to them.

I am saying to the organisation at this point-I agree it is early days, but the situation seems relatively clear to me-that we should be doing and thinking about three things. We should be thinking about improving our casework-that is making sure we continue to operate within our service standards; reducing the error rate, which is obviously part of the qualification of our accounts; and putting the service online.

Secondly, we need to develop the organisation. We need to turn ourselves into an agency without being distracted by that from the day job but also to reduce our size and become a more efficient and productive organisation. With lots of people within the organisation, I will need to look at our capability and also set the right culture.

Thirdly, I am saying to the organisation that we need to work with others and we need to work with others better, whether it is being a more active member of the justice family working with CPS, the MoJ and a lot of other different organisations, but also working with the profession, with the providers in what will be a difficult year with the implementation of legal aid reform form, and to deepen and broaden those relationships.

To balance that, we are the people who select providers and enforce the rules but at the same time provide good customer service and guidance to them. Setting that clear direction to the staff and acknowledging the good things they have been doing, but being honest with them about the improvements they need to be making, is what will get the best from them, in my experience.

Q499 Chris Evans: Jack Straw, when he came before the Committee, and the Law Society’s written evidence, have both made claims about the policy-making roles between the LSC and MoJ. In fact, Jack Straw when he came before us said that the LSC had 60 people working on policy when they were there to implement policy and not make it. Have things changed or are there still tensions in that regard?

Matthew Coats: My experience is that there are not tensions in that regard. That decision has been made and has been put into place. I have worked in a variety of settings over the years, with policy being part of the job, or policy and implementation, and it being strictly delivered. For this particular situation, to separate policy and delivery is entirely the right answer. What I find is a set of very good relationships, and the implementation of legal aid reform and the preparation for implementation, now we are into that, is a really good example of very close working relationships between my team and the team at the Ministry, whether they are policy or legal colleagues. I have seen no tension at all. In fact it is a very productive collaboration.

Q500 Chris Evans: There seems to have been in the past a belief that the LSC has spent time formulating policies, only to be rejected or substantially changed by the MoJ. Do you think money and resources have been wasted in that regard or do you think that is just a myth?

Matthew Coats: I do not know enough to give you a definitive answer on that, I am afraid.

Q501 Chris Evans: You have demands on Ministry of Justice resources. How are they settled within the board? Does the dominance of NOMS present difficulties for other agencies?

Matthew Coats: That has not been my experience thus far. I have been welcomed on to the board, which is a very strong, proactive and good team in my experience. While we might be smaller in head count terms, our budget is more than a quarter of the Department’s budget, so I have not felt us to be without influence at all. I could see why you might ask the question, but that has not been my experience.

Q502 Chris Evans: Thank you for your answers, but, finally, could you just set the journey that the LSC is going on at the moment towards being an Executive agency from the present arrangements? I think that would be quite helpful.

Matthew Coats: Now that the Bill is an Act, that is the big thing that actually creates us, and we have had for some time a quite detailed project plan that divides into a number of strands, whether that is the HR strand or things about IT, governance or finance. The plan is a good one. We are well into implementation of that, and, for example, I have just written to all the staff with the basic terms of the transfer that we have agreed with the MoJ. I did that yesterday.

I have accelerated that part to give staff certainty about the future. There are a number of things that need to be done through the autumn-the review of various policies and procedures to make sure they are right for the new agency. We will be preparing a framework agreement with the Ministry, a plan for the future, which I am sure we will develop. There are structures and so on about the recruitment of new nonexecutive directors, for example, which we are processing at the moment. So there is a strong plan. We are in the middle of implementation and I am confident that we will be able to create the agency to the correct timetable in the right way.

Q503 Steve Brine: You said there are a lot of things to be done and, obviously with the sea of change that lies ahead for you, the Bill is an Act and you have to retender several thousand civil legal aid contracts as well as make this change to the new organisation. Is that a challenge that you are prepared for or is it a perfect storm that could be a disaster?

Matthew Coats: There is a lot to do.

Q504 Steve Brine: That is selfevident, but are you resourced and set up to do it?

Matthew Coats: I think we are. There has been a good deal of planning prior to my arrival. I am pleased with how my induction period has gone and the grip that we have on both the daytoday and also the more strategic aspects. Clearly, the risk we have to manage is to make sure that we keep the day job going-the processing and the paying of bills within the service standard. The organisation has done very well on that. At the same time we need to create the new organisation and implement legal aid reform. Broadly different teams are working on that. It comes together around our Executive teams’ table, and my job is to ensure that we are not trading off but that we are balancing and we are doing all the things satisfactorily. I am watching carefully for signs of stress and strain because-of course you are right-there are risks with that. But I am satisfied for the moment that we are managing them.

Q505 Jeremy Corbyn: Thank you for coming. What will all these changes mean for the delivery of justice and access to justice? I have very serious concerns about the quality of some immigration advice that is given. Access to legal aid lawyers is very limited, and, because of that, the immigration service and Home Office often feel under very little pressure to resolve cases that can go on for years, leading to incredible levels of stress. You must be aware of this from your various appointments. Are these changes going to make any difference?

Matthew Coats: I will resist the temptation to talk about my perspective from a previous job on immigration. Broadly, the impact on clients and on the legal system is a matter for the Ministers rather than our side in implementation, so I am limited in what I could say about it. The LSC has a very important role, though, in making sure that Ministers are aware of what is happening on the ground. We deal with a very large number of providers and are, if you like, the daytoday knowledge that the Ministry has of what is occurring. A big part of what I need to do is to feed back the consequences of the reforms that will be implemented so that future policy can reflect what has actually happened.

Q506 Mr Llwyd: The Legal Services Commission has previously run a number of what can only be described as flawed tendering processes. What lessons have you learned for the future? I understand, of course, you were not at the helm when that happened, but what lessons have you picked up from that experience?

Matthew Coats: I am limited in my experience of this and it is early days. I see an organisation that has learned about the administration of contracts, about making the rules clear, about making processes well run and communicating results clearly and explicitly to people. I think those lessons have been learned, improvements have been made over the last few years and there has been progressive improvement.

Going back to the earlier point, we have a lot of procurement work to do this year. I have tested the process and looked at the overall process, and I am satisfied that we are well set to see that through, but it will be quite difficult. Some people obviously do not like the answers that they might get from the process too, which is always an issue, but the organisation has learned in the ways that I have described and is well set to do a good implementation of the procurement to come.

Q507 Mr Llwyd: You referred to procurement. How has the LSC been developing its commissioning skills so that it can ensure value for money contracts?

Matthew Coats: Again, this is before my time, but what has happened is that the organisation has drawn in a number of people with outside experience and broader experience who have worked in more commercial roles, particularly in the leadership area. We have also invested in not just the commissioning and procurement-the front end of the process-but also in the contract management. There is a particularly strong team in the LSC, which I have found, around contract management; people around the country are able to help providers operate the contract. So there has been a development of capability, but that is not to say there should not be more development in commissioning, procurement and subsequent contract management.

Q508 Mr Llwyd: How can the Commission use contracts to incentivise practices to result in efficiency savings, do you think?

Matthew Coats: That is a good question. It is too early for me to form my views completely and for the procurements to come that I will influence more, and there will be reform of the crime side. That is clearly what we need to do. My view is that we need to have contracting mechanisms that incentivise innovation, improvement and have quality built in. Unfortunately, it is a bit early for me to say exactly how we will do that. I am sure that will be something that I will be able to share with you as time passes.

Q509 Mr Llwyd: Most small legal aid practices have at least one or two members of staff devoted to form filling for the Commission. How do you respond to the Law Society’s claim that you "micromanage" providers?

Matthew Coats: A big part of my induction has been taken up by getting some direct experience, whether through solicitors or chambers, by understanding the views of the providers. So I have spoken and visited a couple of dozen of those in one way or another over my first three months. I have also taken some time to go through the administrative side with them.

It strikes me that the plans that we have to put our services online will be a big part of helping them do business properly. That is probably the biggest thing we can do. I am keen to continue the dialogue with both representative bodies and individual providers to make sure that we are sensitive to the needs of their business and, again, as I have said earlier, strike that balance between being the people who make and enforce the rules but subsequently provide good customer service and support to people in different times.

Q510 Chair: Mr Buckland? Okay, I will ask the question. In fact in some ways it might be easier if I did. Jack Straw, when he came in front of the Committee, said he thought that the LSC was still quite strongly infused with the original system for running legal aid, which was that legal aid was run for the lawyers, by the lawyers. Carolyn Downs described the relationship with legal service providers as "adversarial". Which of them is closest to the truth?

Matthew Coats: I am not sure I find either to be. Clearly, times have moved on. I have worked quite hard to talk to the representative bodies and to develop my relationship with them, and I have a strong sense, I think, of the challenges they face. My position is that we are not always going to agree on everything; we have different jobs to do. Our job is the competent administration of the legal aid system and theirs is to represent their members, but it does not mean that we are not part of the same system and that we cannot find common ground. Having a mature and open discussion with people about what you agree on and what you do not is the way to improve things, and I can see signs of that already beginning. But I do not think I would be unrealistic in how far that goes. There will be times when people have radically different opinions.

Q511 Chair: When we visited the Commission before you arrived, those of us who were there that day were rather struck by the very hesitant approach that the Commission took towards the unwillingness of solicitors to submit legal aid claims online, to use an online system, as though this was really very difficult to them. I have to say it is something we all have to do in our parliamentary financial claims. We got the impression that the Commission was very hesitant about securing innovation from its client solicitors.

Matthew Coats: Again, I cannot comment on the impression that was created then. We clearly need to do this and we need to give people confidence that new systems work. People sometimes are hesitant if systems are not reliable or do not work properly. We have selected 40 providers in the north-east to be the pilot for the online system for civil. The feedback from them about the front end of the new system is positive and we will need to build confidence with them. If we can build confidence with arrangements that work, we can be strongly encouraging everyone in due course to use it, because of course in time-

Q512 Chair: In due course. Is this optional? As MPs we were not given the option when an online system was introduced. We were just told, "You won’t get the money if you don’t use this system."

Matthew Coats: No, we would be strongly encouraging that people use the system.

Q513 Chair: On the other side of the coin, the Law Society chief executive wrote to the major clearing banks on two occasions saying, "Please go easy on practitioners’ overdrafts because there are massive delays in the Legal Services Commission paying out to them."

Matthew Coats: That may have been true at one point, and, again, I referred earlier to the organisation working very hard to make sure that we process applications and pay the bills, which is a core purpose of our organisation. I am pleased to say that we are working within our service standards now, and, although there are voices that may say there are still delays, I am sure that part of that is a bit of a time lag until people realise the situation. So, for basically crime and civil, we are within the time for processing that we publish. The challenge for us is to stay there, and it is a central challenge. A point was made about the crowded agenda that we have. The important thing for me to continue focusing on is that the bills are paid on time-the day job-whilst we are doing the other things that need to be done too.

Q514 Jeremy Corbyn: Is it any part of your responsibility to report back or monitor and report back to the Home Office or Justice Department and Ministers the effect of the legal aid changes, access to justice and the numbers of people who simply do not get access to justice because of the cutbacks?

Matthew Coats: Yes. It is part of our job to feed back the effect of the reforms, yes.

Q515 Jeremy Corbyn: Are you undertaking a research project or monitoring of it then?

Matthew Coats: Not in terms of research but I mentioned the contract management team earlier. We have a large team that deal daytoday with providers and they will be the primary mechanism through which we feed back the effects of the current reforms.

Q516 Jeremy Corbyn: Will they be monitoring the courts as well such as the number of people that turn up on selfrepresentation?

Matthew Coats: That would not be part of my team’s responsibility, but I am sure that might well be a sensible thing for me to say to my colleagues in the Ministry who do that job that it is something we should look at.

Q517 Jeremy Corbyn: Will you be doing that then?

Matthew Coats: I will, yes.

Q518 Chair: The NAO said that poor financial management in the LSC was strongly related to poor financial management by the MoJ itself. What engagement and support are you getting from the MoJ and is it enough?

Matthew Coats: Since my arrival I have felt strongly supported by the MoJ and, indeed, a good finance team at the LSC. The first task for us, as I am sure you are aware, is to make sure that we lay our accounts pre-recess, and we are on track to do that. Enormous strides have been made already. We have actually submitted our accounts to the NAO already and the final audit is under way. That is a big achievement and a big success. That has been a joint piece of work with MoJ and one that has been a really good collaboration. So I have felt strongly supported in the time I have been with the Department.

Q519 Chair: You wrote to us about this in April. Are you satisfied that you are making the progress that you specified in that letter?

Matthew Coats: Yes, and we are still on track.

Q520 Chair: What about the savings? You referred earlier to the transition to an Executive agency, which has been delayed. Does that mean the savings will come later?

Matthew Coats: The quantum of savings-the overall amount-will not be affected. A small amount has been deferred by the delay, yes, but it does not affect the overall situation.

Q521 Chair: Do you know enough about your costs?

Matthew Coats: The costs break down into two broad groups. There is the cost of running the organisation, which is the smaller number, and there is the cost of the legal aid fund, which is the larger number. I find an organisation with strong and normal cost and budgeting systems that you might expect to find anywhere in terms of budgets and monthly reporting; in running the organisation they are perfectly satisfactory, and we have a good understanding of the costs of the various functions within the organisation. The understanding of the costs of the legal aid fund is a more specific and more unique function to us and there is a very strong costs model-a projection model-that we run. We have already run it for the current year and that does represent a good understanding of our costs.

If I was to point to an improvement that should be made, currently, because it is quite a complex undertaking, we only run the projection once a quarter. I have asked the team to intensify that to once a month because during the period of change-the point was made earlier-we need to have an even stronger grip at a time when we are making savings, and we need to understand what is happening in order that we can both manage our own costs but also, which is the point made earlier, that we are able to feed back about the effect of the reforms and what is actually happening.

Q522 Chair: The MoJ told us that you have recently introduced new driver-based forecasting models that include underlying drivers of case starts that take into account key external economic factors such as levels of earnings and eligibility. Can you confirm that or is there anything you want to say?

Matthew Coats: On the specifics I could not comment.

Q523 Chair: Assume it is true. The MoJ did tell us.

Matthew Coats: I would assume it is true. I have been quite impressed actually with the complexity and the sensitivity of the overall model. It has been something that has been developed over many years, and the best and most accurate models are done by increment and constant improvement rather than just as a one-off for unveiling something. So, overall, the understanding of cost is good.

Q524 Mr Buckland: I am sorry I hesitated earlier. I wanted to declare the fact that I have been a criminal legal aid practitioner but I have not done any new cases since the general election of 2010. But it is in the light of my experience, having regularly overwhelmingly done legal aid practice and been paid promptly under the old system in criminal defence fees, that the accounts I am now getting from colleagues at the bar is that there has been a dramatic deterioration in the time scale over which they are paid.

The problem is this, is it not? The Crown courts are an overwhelmingly paper-based system; therefore barristers’ briefs are going to be in paper form. They are added to with additional pages because it is on a page count very often with graduated fees. Sometimes mistakes are made, and my understanding is that, if a mistake is made, instead of there being some sort of negotiation or discussion, the whole application is thrown back to square one, resulting in further delay. What measures are you putting in place to try and deal with those sorts of practical problems that are leading to real discontent at the criminal bar?

Matthew Coats: I will just make a couple of points in response to that. First, I repeat that there is a bit of a time lag between what the perceptions are at the moment and what the situation is. Changes that were made a year or two ago did result in a big backlog growing up and processing times going to an unacceptable length. That is undeniable. However, that has been remedied and we are now processing within the published service standard. I am sure perceptions will catch up over a period of time as well around that.

Q525 Mr Buckland: What is the published service standard?

Matthew Coats: The published service standard is to complete our processing within eight weeks, and we have achieved that.

Q526 Mr Buckland: Does that involve payment too?

Matthew Coats: No, it does not. The BACS run that actually gets the money into the account is on top of that. We have reduced our internal standard to six weeks, because, of course, it is just obvious that for people who publish eight weeks, if they do not get the money within eight weeks, it is going to be difficult to explain to them. We have set an internal standard of six weeks and we are currently processing at five.

Q527 Mr Buckland: From the time the submission is made to payment, what is the time scale now?

Matthew Coats: It depends on the individual case because the submission and exactly how it works will depend, but, as I said, from the time the bill is submitted to the payment is five weeks, plus the BACS run.

Q528 Mr Buckland: That is now happening in cases with effect from a particular date or-

Matthew Coats: It has been happening for the last two or three months. Our service standard is to deal with 90% of the cases within that time period, and that has been achieved now since March. There was a question and our organisation has done well, and it is something I have reinforced. Because it was an issue during my induction period I went to Nottingham, which is the place where this is processed, to reinforce the importance of solving this problem even before I started, which I believe they have done.

The organisation has made progress on the high volume lower-cost cases. With regard to the low volume very high cost, whilst we are also within the service standard, because of the complexity of that and what is at stake for providers, as I am sure you know, there are improvements we can make with that. I have been visiting chambers to understand people’s feelings about that and I am keen to see if there are operational improvements that we can make. Part of the issue is that quite a lot of this is about perception, and there this is anxiety, quite clearly, because of what is at stake for people. I am hopeful, when we sustain performance, that that will feed through into people’s perceptions of the organisation over a period of time.

Chair: Mr Coats, thank you very much indeed for your help this morning.

Prepared 19th June 2012