The government has gone 'back to the drawing board' on fixed fees for legally aided family and civil work, the Lord Chancellor admitted last week.



In a series of startling admissions at the Law Society annual conference in London - which came the day after consultation on the plans closed - Lord Falconer also suggested that the introduction of fixed fees may be put back a year, and tendering for contracts brought forward a year, so that both begin in 2008.



The contracts could even require firms to meet some kind of target number of ethnic minority solicitors among their staff, he indicated.



Speaking to reporters after addressing delegates, Lord Falconer conceded that the government has 'realised there are significant problems' with fixed fees and that the figures put out by the Legal Services Commission 'did not work'. He said the professional bodies have been provided with all the underlying figures. 'We need a graduated or fixed fee scheme that better captures the work,' he continued.



At the same time, the Lord Chancellor emphasised repeatedly that there would be no new money for legal aid. 'It is not the case that under-funding is the problem,' he said. 'The problem lies in that there is a finite amount in the public purse that can be spent on legal aid. And this does requires us to find efficiencies in procurement that can enable us to continue to deliver a world-class service.'



Lord Falconer expressed sympathy with the argument that the introduction of fixed fees - due to start in April 2007 - 'before the efficiencies of a new system are able to reap benefit will put considerable pressure on businesses'. Bidding for the new-style contracts is due to start in April 2009. He told reporters that fixed fees 'might be put back... but not as far as 2009'. Equally, the bidding process could be brought forward.



However, he disagreed with claims that profitability will be so low that the new system will drive hundreds of law firms out of business. 'A market-based approach will lead to increased efficiencies. Fixed pricing rewards efficiency. Efficient suppliers will be able to deliver and receive increased volumes of work.



'This is the principle - although in certain circumstances we will look at a graduated fee when particular expertise is required or the work is particularly complex.'



Lord Falconer sent out a slightly confused message on provisions to ensure that ethnic minority solicitors are not disadvantaged by the reforms, talking about a target or an 'aspiration' that could be written into contracts, subject to it being legal and feasible.



Practitioners were pleased with the concessions but echoed the caution of Law Society chief executive Desmond Hudson when he said 'we need to know the detail'. He said: 'The fragility of the supplier base is a very real concern. Firms are voting with their feet.'



Richard Miller, director of the Legal Aid Practitioners Group, said that without new money there would have to be cuts in scope and eligibility. Rather than seeking fresh cash from the Treasury, Mr Miller suggested that the Home Office should contribute from its budget so as 'to bear the cost of their responsibility' for the rising legal aid bill.



He added that the many unanswered questions about fixed fees would make it impossible to introduce them next year, but doubted whether tendering should come at the same time. 'It's a recipe for more confusion,' he predicted.



On ethnic minority solicitors, Mr Hudson noted the government had yet to conduct a proper race impact assessment. Stephen Friday, chairman of the Black Solicitors Network, said the comments showed the government has still not thought out the issue properly and 'is determined to proceed on a cost-cutting basis', regardless of the consequences.



Lord Falconer's remarks came as a survey by family lawyers' group Resolution showed that 90% of firms envisaged they would either give up or reduce the amount of legally aided family work they did if the proposals were implemented because it would no longer be financially viable.



Members estimated income losses of 35% or more, and while two-thirds said the fees were unrealistic in any circumstances, more than half of respondents said they could only continue by giving work to more junior staff or being more selective in the work they took on.



In its response to the DCA's consultation, Resolution said it was not opposed in principle to fixed fees, but stated that 'the current proposals are simply unworkable, being both too simplistic and inflexible'.



By Neil Rose