Legal aid and the market for lemons

Susan Steed is a researcher in the Valuing what Matters team at nef.

In the wake of George Osborne’s first budget speech, many are wondering how the coalition government’s plans to cut the deficit will affect the public sector.

The case of the legal aid and human rights charity Refugee and Migrant Justice provides some rather grim warnings. The organisation is currently under administration because of changes in the funding of legal aid, which attempt to ‘marketise’ legal aid provision.

There are many problems with these changes. They make no provision for quality advice over quantity supplied. Indeed it has many parallels with the classic economic problem famously described by economist George Akerlof in his 1970 article ‘The Market for Lemons‘. Akerlof wanted to illustrate how uncertainty in the quality of the good or service being provided can drive out good providers. The classic example is used cars. Used car dealers generally know whether the car they’re selling is an old banger – a ‘lemon’ – or a decent little runner – ‘cherries’. Because of all sorts of hard-to-detect factors, such as the previous owner’s driving style, the customer has no idea whether they’re getting a cherry or a lemon. So, they assume that the car they’re looking at is probably half-way between the two: an average quality car. And they pay an average price for it. The end result is that only people who have lemons put their cars on the market.

Now, back to legal aid. In the Commons  debate on the 17 June Ken Clarke proudly announced that the ‘number of people who want to provide service in this area has gone up’. It remains to be seen whether these providers are giving good quality legal advice or ‘lemons’. At present, the government has not introduced a way of monitoring the quality of services. Many critics have argued that the fixed fee has been set too low to provide quality advice. It takes quality providers with the skill and expertise to understand when the law is not been applied correctly or when a case can be taken to the level of a European Court. No longer is this a question of getting a decent used car: for people seeking legal aid, these are matters of life-changing importance.

This problem is complicated by the fact that justice isn’t a private good like used cars, it’s a public good. We all benefit from living in a society where we can uphold our rights and have a means of enforcing them.  By introducing contracts that focus on numbers of individual cases of advice, we’re missing some of the fundamental functions of legal aid. It is not just about responding to demand – and creating more demand as markets do – but responding to this demand proactively. This includes taking on test cases, policy work, preventative and education work. None of these are included in the new contracts.

The consequences of this are pretty dire. First, it may actually cost more. Cutting the cost of advice provision is a false economy: it can contribute to cost further down the line in costly appeals. Second, we haven’t begun to explore the cost in human terms to those unable to access quality advice or find representation for their case. But it also shifts the debate about public spending cuts. At nef, we believe there are ways to do more with less, but have warned about the unintended consequences of poorly thought through efficiency savings. The problem is not only that budgets are being cut but the way services are being commissioned and delivered are constraining their ability to work for public benefit. Rather than correcting market failures they may be creating more of their own.

As the workers at RMJ clear their desks the government can congratulate itself on the increasing number of providers trying to get into the market. There may well be more providers of ‘advice’. But will we live in a society with more justice?

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