Practising certificate fees in 2014-15 Consultation with members Consultation begins: Thursday 19 June 2014 Consultation ends: 16:00, Monday 7 July 2014
Introduction 1. This purpose of this document is to objectively explain the draft budget for the Law Society Group for the year 1 November 2014 to 31 October 2015 and to seek the views of individual members and regulated entities on its content. 2. Responses to the consultation will be shared with Council members who will be discussing, and agreeing a final budget proposal, at their meeting on Wednesday 9 July. 3. The contents of this paper are therefore accurate as of 19 June 2014. However, it should be noted that the final budget may be subject to changes. What is the mandatory practising certificate fee? 4. The majority of the Law Society Group s funding comes from annual fees set each year. 5. The Law Society Group, as the approved regulator, charges an annual fee to individuals (the practising certificate fee) as well as to firms (recognised sole practitioners, recognised bodies, and licensed bodies). These are mandatory and must be paid in order for individuals to maintain their authorisation to practise. 6. The income from the practising certificate fee, and the authorisation fees paid by firms, can only be used for certain purposes: 6.1. Regulatory activities (the total costs of the Solicitors Regulation Authority including the shared service cost allocation from Corporate Solutions ); 6.2. Non-regulatory activities provided by the Law Society (including the shared service cost allocation from Corporate Solutions) which are permitted under the Legal Services Act (e.g. law reform activities); and 6.3. Levies required to be paid under the Legal Services Act: 6.3.1. Part of the cost of the Legal Services Board; 6.3.2. Part of the cost of the Legal Ombudsman; and 6.3.3. The full cost of the Solicitors Disciplinary Tribunal. 7. Together, all of these costs make up the net funding requirement which needs to be met by regulated individuals and firms 1. Overview of the Law Society Group 8. Under the Legal Services Act 2007 the representative and regulatory arms of the Law Society Group exist separately as the Solicitors Regulation Authority and the Law Society professional body (hereafter the Law Society ). Both are served by a shared services function, Corporate Solutions. 9. Collectively the three entities form the Law Society Group. 1 Note that in addition to the Practising Certificate Fee the SRA will collect approximately 8.4 million for the Compensation Fund. Page 2 of 8
Figure 1: Structure of the Law Society Group 10. In 2014-15 the Law Society Group expects to spend 146.133m. Figure 2 break down this figure into the amounts requested from each part of the Group. Figure 2: How Law Society Group expenditure will be distributed in 2014-15 11. Group expenditure is to be funded by commercial income, regulatory income, recoveries from both solicitors and the compensation fund, reserves and the practising certificate fee. 12. Figure 3 shows breakdown of the Group s funding in 2014-15. Figure 3: Funding of the Law Society Group expenditure Expenditure funded by: m Practising certificate fee Recoveries Commercial income Regulatory income Reserves (non-permitted) Reserves (2014 under-spend) Other income Total Expenditure 104.924m 15.451m 14.832m 3.478m 3.998m 3.000m 0.450m 146.133m Page 3 of 8
What is the Group s net funding requirement (NFR) for 2014-15? 13. The Law Society Group s total net funding requirement for 2014-15 is 111.921 million (i.e. total expenditure minus commercial income, regulatory income, recoveries and other income). 14. However, it is proposed that part of the funding for 2014-15 expenditure be met using reserves. Therefore, the total amount requested to be collected from the practising certificate fee is 104.923 million, a reduction of 11.839 million (10%) on 2013-14. Figure 4: Net funding requirement to be met by the PC fee What is the estimated Practising Certificate Fee for 2014-15? 15. If the number of practising certificates issued for 2015 is as currently assumed the proposed practising certificate fee would be 320, a decrease of 64 from 2014. Figure 5: Estimated Practising Certificate Fee in 2014-15 2 Fee Year PC Fee 2013 344 2014 384 2015 320 Change for 2015-64 How will each part of the Law Society Group spend its money in 2014-15? 16. Each of the three entities within the Law Society Group is responsible for setting its own annual net funding requirement. 2 In addition it is expected the Compensation Fund Fee will be levied at 32, resulting in a total fee of 352 a reduction of 88 on the fee levied in 2013-14. Page 4 of 8
Solicitors Regulation Authority expenditure in 2014-15 17. The Solicitors Regulation Authority s net funding requirement is based on expenditure of 47.727 million in 2014-15. 18. The funding of the SRA will constitute 3.478m regulatory income, 13.365m recoveries from the compensation fund and Solicitors, 2m from reserves due to underspends in 2014 and practising certificate fee income of 28.884m.The amount requested from the profession of 28.884m is circa 2m less than the previous year. 19. Figure 6 shows Solicitors Regulation Authority expenditure in 2014-15 highlighting the larger categories of spend. Figure 6: SRA expenditure in 2014-15 Law Society professional body expenditure in 2014-15 20. Overall, the Law Society expects to spend 30.6m in 2014-15. The funding of the Society will be from commercial income of 14.832m, 105k from recoveries and 3.998m from reserves. The total amount required from the practising certificate fee is 11.664m. 21. Figure 7 shows Law Society expenditure in 2014-15 highlighting the larger categories of spend. Figure 7: Law Society expenditure in 2014-15 Page 5 of 8
22. Section 51 of the Legal Services Act permits the Law Society to spend Practising Certificate Fee income on a defined list of non-regulatory permitted purposes 3. 23. For the purposes of deriving the division of expenditure between permitted and nonpermitted purposes each area of the net funding requirement is considered separately: 23.1. Law Society activities can either be permitted or non-permitted. An annual exercise takes place to determine the proportion of time spent on each, which is then used to determine the direct cost of Law Society permitted and non-permitted activities. In 2014-15 it is expected that 25.1m of expenditure (81.7%) will be on permitted activities, and 5.5m, funded entirely from commercial income, (18.3%) will be non-permitted activities. 23.2. All activities undertaken by the Solicitors Regulation Authority are regulatory and permitted in nature. 23.3. Activities undertaken by Corporate Solutions on behalf the Law Society and the Solicitors Regulation Authority are both permitted and non-permitted depending on whether the activity is to support the SRA or Law Society permitted or nonpermitted activity. An annual process takes place, using staff numbers and floor space as the most relevant drivers, to allocate costs to permitted and nonpermitted activities. Corporate Solutions expenditure in 2014-15 24. In overall terms the total Corporate Solutions expenditure is expected to be 54.649m. The funding of Corporate Solutions will be from 0.450m other income, 1.981m from recoveries and 52.218m from the practising certificate fee. 25. Figure 8 shows CS expenditure in 2014-15 highlighting the larger categories of spend. Figure 8: Corporate Solutions expenditure in 2014-15 26. The largest single area of Corporate Solutions expenditure relates to the levies required to be paid under the Legal Services Act. These levies fund the following: 3 http://www.legislation.gov.uk/ukpga/2007/29/section/51 Page 6 of 8
26.1. Part of the cost of the Legal Services Board (LSB); 26.2. Part of the cost of the Legal Ombudsman (LeO); and 26.3. The full cost of the Solicitors Disciplinary Tribunal (SDT). 27. The final total of these levies will not be known until those organisations have finalised their budgets. However, the LSB have provided an indication that the likely sum in 2014-15 will be in line with the fee charged this year (i.e. circa 20m). 28. The remainder of the Corporate Solutions other costs ( 34.57m) plus income and recoveries are allocated out to either the Law Society or the Solicitors Regulation Authority. Based on the current allocation model in 2014-15, a total of 18.012m (53%) will be allocated to the Solicitors Regulation Authority and 16.046m (47%) to the Law Society. 29. Overall project expenditure for 2014-15 is expected to be 13.157m, an increase of 2.991m compared to 2013-14. 30. The project submission for 2014-15 was derived by holding workshops involving stakeholder representatives from the Law Society, the Solicitors Regulation Authority and Corporate Solutions to identify business requirements for individual projects. Project spend is allocated to the Law Society and the Solicitors Regulation Authority using agreed allocation methodology. Further information 31. Further detail on the Law Society Group s proposed budget, net funding requirement, practising certificate fee and compensation fund levy contribution are contained within the Chief Operating Officer s report to Council. This document is publically available on the Law Society s website here. Next steps 32. The Law Society s Council will consider the proposed budget, net funding requirement, practising certificate fee and compensation fund levy at their meeting on Wednesday 9 July 2014. Council members will have the benefit of responses to this consultation prior to that meeting. 33. The proposal, as agreed by Council, will then be submitted to the Legal Services Board for their approval. 34. If you wish to contact your Council member directly you may do so. Information on contacting your Council member is available on the Law Society website: http://www.lawsociety.org.uk/about-us/contact-your-council-member/ Page 7 of 8
Questions The Law Society Group is seeking the views of members and regulated entities on the 2014-15 budget proposals to inform the decision by Council on 9 July as to whether to recommend the budget to the Legal Services Board for approval. Members are asked to consider the following questions: 1. Do you think the Practising Certificate Fee for 2014-15 is: (a) Too high (b) About right (c) Too low (d) Don t know 2. Do you think the balance of spending across the Law Society Group between the Law Society professional body, the Solicitors Regulation Authority and Corporate Solutions is reasonable? (a) Yes (b) No (c) Comments 3. Do you think the balance between the Law Society professional body s spending on permitted Practising Certificate funded activity and non-permitted commercially funded activity is: (a) About right (b) Too reliant on the Practising Certificate Fee (c) Too reliant on commercial income (d) Comments 4. Looking forward to the 2015-16 budget and beyond, do you think the Practising Certificate Fee should: (a) Increase (b) Stay about the same (c) Decrease (d) Comments How to respond Please respond, by 4pm on Monday 7 July, online by clicking here. Page 8 of 8