The Ministry of Justice has ruled out reviewing the 8% rate of interest it charges when legal aid has to be repaid – even though the Bank of England continues to hold UK interest rates at 0.5%.
Repayments become liable in civil cases when legally aided individuals - for example, in divorce cases - are awarded money or property by the court. The so-called statutory charge, converting the legal aid grant to a loan, may be imposed at the end of the case on the litigant’s money or property.
The policy is designed to put those who recover assets using legal aid in a similar position to privately paying clients, especially those who have borrowed to fund their legal costs.
The ministry’s current interest rate of 8% has been in place since 2005 under the Community Legal Service Regulations 2005. At the time the Bank of England minimum lending rate was 4.5%.
Responding to a written question by Ellesmere Port and Neston MP Justin Madders, justice minister Shailesh Vara said the current level of ‘simple interest’ was ‘appropriate in discouraging vexatious or unnecessary legal action and encourages early repayment’.
The ministry’s figures show that the amount of interest received on repayments by the Legal Aid Agency has fallen over the past decade.
In the 2005-06 financial year, the agency received £9.2m in interest on outstanding civil interest bearing debt. This figure fell to £6.2m in 2014-15.
No interest is charged on criminal debt.
A spokesperson for the ministry told the Gazette it was ‘right that those receiving legal aid to recover property should repay their costs from the assets recovered’.
The spokesperson said: ‘Interest incurred on these payments is often far lower than the compound interest charged by banks on regular loans.’