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Lord Clinton-Davis: My Lords, my amendment is No. 80. What I am suggesting is that the current provisions which are not contained in statute should be incorporated in primary legislation, as far as disregard of house capital is concerned, in assessing resources for legal aid. That would have one very positive effect in that Parliament would be able to control the situation, which it cannot do at the moment. The present position is as stated in the first part of the amendment: £100,000 is the exempted amount, and it is limited to that. I think it is a perfectly reasonable proposition to have a limit so far as the disregard of equity is concerned, and the regulations currently do that.
However, it is important also to strike a balance between ensuring that people are not effectively being denied legal aid through being required to contribute from assets which are not realisable and ensuring that those applicants who are well off are required to pay even if their affluence simply took the form of house capital rather than a large disposable income.
From the Explanatory Notes to the Bill, it appears that the Government intend to move away from that principle and to treat house capital in the same way as any other capital asset so far as assessment of contributions is concerned. The only modification would be that applicants would not be expected to provide the contribution up front; instead, it would attach as a charge to their house.
If that is the Government's decision, it is a wrong one. It would effectively mean that applicants entitled to income support would be required to meet the full costs of their legal aid. In reality, people in that position will be almost bound to turn down legal aid. All the research shows that those on low incomes do not want to borrow against the security of their house, even when it comes to more vital matters such as repairs. So it is unlikely that they would be any more willing to borrow to meet legal costs. The effect would be to make legal aid unavailable to those buying their own homes. That seems a wrong decision. It is one that I certainly do not like.
Retaining a £100,000 exemption for house capital is not an ideal situation, as it takes no account at all of different house prices in different regions of the country. However, it is a sensible compromise between the need to obtain contributions from those who can afford to pay and the need to ensure that legal aid is not, through unrealistic rules about contributions, effectively denied to those buying their own homes.
The background is that under the present legal aid regulations the first £100,000 of equity in a house is disregarded for determining both eligibility for legal aid and liability to pay contributions. An individual is eligible for legal aid if he or she has a house with an equity of less than £100,000 and other capital of no more than £6,750, provided that he or she satisfies the income qualifications. If a person has capital of between £3,000 and £6,750, he or she may have to pay by way of contributions capital in excess of £3,000.
The Government's proposal as set out in Annex A to the Explanatory Notes to the Bill is that the £100,000 disregard will be continued for eligibility for legal aid or public funding, but will not be continued for liability to pay contributions. So if someone has no capital assets other than equity of £99,000 in their house, a litigant who is funded by the community legal service will be liable to pay contributions of up to £96,000. The community legal service will most generously defer enforcement of that debt until the sale of the house, but meanwhile the litigant must pay a market rate of interest under the proposals in Annex A.
The effect of that is that hardly any home owner will ever apply for funding from the community legal service. Those eligible for funding--we do not expect the funding limits to be raised above the present ones--will be those living on benefits or modest pensions, or holding low-paid jobs. Many people in those categories are, however, home owners. If such a person loses a case and is saddled with a contribution of, let us say, £20,000, which is perfectly possible in a case that is not of enormous complexity, how on earth is he or she to pay interest of £1,000 to £1,500 a year, which means £20 to £30 a week, out of his or her income? For example, what about those whose mortgage interest is paid out of income support? Will income support cover the interest on these contributions as well? I would bet pretty strongly that it will not.
What about a young couple wanting to start a family and needing their existing equity in their present house in order to buy a bigger house? Will they take the risk of losing that equity and being unable to make the move that they need to make?
The Law Society, in giving a briefing before the Committee stage, said that the Government's proposal in Annex A would effectively mean that legal aid would only be available to those living in rented accommodation. I agree. Equity in a home is simply not a resource that is available to fund litigation. My amendment therefore directs a disregard of the first £100,000 of equity for contributions as well as for eligibility. The amendment also covers the assessment of resources when deciding on liability to pay costs ordered by a court under Clause 11, as well as for the purpose of liability to pay contributions under Clause 10.
I should add that, since the resources of all parties are relevant for Clause 11, fairness requires that there should be disregard for the party seeking costs as well as for the party liable to pay costs.
Subsection (2) of the new clause in my amendment brings in a limit on the deduction of mortgage debt from equity that already applies to legal aid. That is, if you have a debt of more than £100,000, it is a limited charge on the house, the charge is limited to £100,000.
Subsection (3) is intended to cover the situation where an individual funded by the community legal service is a co-owner rather than sole owner. For example, where the action by the husband will benefit the wife as well as him and they jointly own a house with an equity of £200,000, it is probably unreasonable to allow the husband to claim the full disregard of £100,000 in an action in which he is receiving public funding. Regulations could provide for that situation.
If this amendment is not accepted and the Government go ahead with their proposals in Annex A to the Explanatory Notes, I believe that a very serious injustice will be done and that many people will in practice be unjustifiably excluded from public funding for legitimate claims.
Lord Kingsland: My Lords, I wish to speak to Amendment No. 78 and Amendment No. 80, to which I put my name. Amendment No. 78 would ensure, as the noble Lord, Lord Clinton-Davis, has already said, that those in receipt of family credit would not be required to contribute towards the cost of assistance they receive from the community legal service.
Family credit is a benefit paid to low income families where at least one parent is working. It is a regular weekly supplement to income. It seems anomalous that those who have been assessed as requiring regular weekly support from public funds to meet their ordinary living expenses should, at the same time, face the possibility of contributing towards the cost of legal help.
This amendment will also ensure that the arrangements for contributing towards the cost of legal representation, where cases go to court, are brought into line with the rules concerning legal advice. At present, those receiving family credit are not required to contribute towards the cost of legal advice, but they are potentially liable to contribute towards the cost of legal representation.
Amendment No. 80 would incorporate in primary legislation the current provisions concerning disregard of house capital in assessing the resources of applicants for legal aid. It would ensure that there was parliamentary control over any variation to the figure.
Until recently, as noble Lords will have learnt from the speech of the noble Lord, Lord Goodhart, any equity value which an applicant might have in his or her dwelling house was disregarded for the purposes of assessing contributions towards legal aid. It was similarly disregarded for other means-tested benefits.
The reasoning behind this was that those with equity in a dwellinghouse above that figure might reasonably be expected to borrow against the security of the home to meet legal costs. I accept that it was reasonable to have a limit in the disregard of equity. It was important to strike a balance between ensuring that people were not effectively denied legal aid by being required to contribute from assets that were not realisable and ensuring that those applicants who were well off were required to pay even if their affluence took the form of house capital rather than a large disposal income.
However, the Government have indicated in the explanatory notes to the Bill that they propose to move away from that principle. They intend to treat house capital in the same way as any other capital asset in assessing required contributions. The only modification is that applicants will not be expected to provide the contribution up front; instead, it will attach as a charge to their houses.
Her Majesty's loyal Opposition believe that that approach is fundamentally misconceived. It means that applicants who are entitled to income support will be required to meet the full cost of their legal aid. In reality people in this position will be almost bound to turn down legal aid. Research evidence shows that those on low incomes are unwilling to borrow against the security of their homes even for vital repairs. They are unlikely to be any more willing to borrow to meet legal costs. The effect of this is to make legal aid unavailable to those who are buying their own homes. In terms of social justice that seems a peculiar approach for the Government to take. The retention of the £100,000 exemption for house capital is not perfect; in particular it takes no account of different house prices in different regions of the country, but it is a sensible compromise between the need to obtain contributions from those who can afford to pay and the need to ensure that legal aid is not effectively denied to those buying their own homes through unrealistic rules about contributions.
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