The Law Society could be fined heavily if complaints handling fails to improve, after the Secretary of State for Constitutional Affairs last week announced his intention to appoint a Legal Services Complaints Commissioner (LSCC).

Lord Falconer, who also criticised law firms for failing to deal with complaints, has additionally activated reserve powers to recoup the cost of running the Legal Services Ombudsman's office from the professional bodies.

Last year, the office's expenditure was nearly 1.8 million.

Addressing the Law Society Annual Conference in London, the Lord Chancellor welcomed steps the Society has taken to improve complaints handling - such as extra resources, greater use of lay people and the practice standards unit - but said 'it is still not enough'.

He told around 650 delegates: 'Unfortunately, in spite of all the efforts, complaints handling is still not efficient and effective.

I have concluded therefore that I must now appoint a Legal Services Complaints Commissioner with powers to be directed at the Law Society'.

The ombudsman, Zahida Manzoor, will take on the role separately from her current function.

The LSCC has power to set targets for the handling of complaints, to make recommendations about the complaints system, to require failing bodies to submit a plan for complaints handling, and to levy fines if the bodies fail to comply with the agreed plans for improvements.

Briefing reporters after his speech, Lord Falconer said the maximum level of the fine would go out to consultation, but added that 'it's certainly got to be an effective stick'.

Officials noted the 1.9 million fine levied by the Financial Services Authority on Lloyds TSB last week for the mis-selling of investment products.

While stressing the importance of the LSCC and Law Society working together on the targets, Lord Falconer said the move was a 'very significant step so far as the Law Society is concerned', because it introduced an external body into complaints handling.

A Law Society spokesman said: 'We are disappointed with the Lord Chancellor's decision.

It is not clear how this can help.

Our complaints handling has improved significantly over recent years.

However, we will work constructively with the commissioner when she is appointed.

We are pleased that Lord Falconer recognised the successes of our other regulatory work.'

Lord Falconer noted that 'some solicitors are poor at dealing with complaints'.

He argued: 'There isn't a culture in the profession of satisfying people who make complaints.

In many firms, the reaction to a complaint is not to treat it as a legitimate area and see if there's something they need to do to satisfy the complainant.'

Speaking to the Gazette this week, Ms Manzoor said she aimed to work 'very closely' with the Society in setting the targets and methods to measure performance once in post.

She added: 'I would see fining as very much the last resort.'

She said she would be looking at where the extra resources for the Office for the Supervision of Solicitors (OSS) have been spent and would also focus on qualitative as well as quantitative targets.

'I want to see improvements at a much greater pace,' she said.

The ombudsman's running costs will be met by the five professional bodies: the Law Society, Bar Council, Institute of Legal Executives (ILEX), Council for Licensed Conveyancers and Chartered Institute of Patent Agents.

The formula for doing so has yet to be decided.

In 2002/3, the OSS accounted for 89% of cases dealt with by the ombudsman, and the Bar Council for 10%.

ILEX secretary-general Diane Burleigh said the cost should be allocated according to the work each body produces for the ombudsman.

A Bar Council spokesman backed this view.

Ms Manzoor noted that other ombudsman schemes are paid for by the professions they cover.

Neil Rose