Lawyers have greeted with dismay the news that the Lord Chancellor is impressed with the 'fundholders for justice' concept as a means of controlling legal aid expenditure.

The idea, which is borrowed from the National Health Service, was first floated in a report by the centre-right think tank, the Social Market Foundation, in July (see [1994] Gazette, 20 July, 3).

Fundholders for justice, who need not be lawyers, would determine a client's eligibility for legal aid, and whether the problem was best solved by legal action, before buying legal services from competing law firms.The amount available for legal aid each year would be cash limited and agreed sums would be distri buted to the legal aid regions according to their estimated needs.

This week the Lord Chancellor's Department described the idea as 'an important, interesting proposal which [Lord Mackay] is attracted to'.

The department declined to confirm reports that a green paper is imminent, but observers expect to see one emerge early in 1995 and an LCD spokeswoman indicated that the fundholder idea would feature prominently in any consultation.The idea is being examined as part of the LCD's fundamental review of legal aid ordered by Michael Portillo, former chief secretary to the Treasury.

Legal aid spending is forecast at £1.4 billion in 1994/95.The report identifies as the central problem in the current system the fact that legal aid is paid for by a remote third party .

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the government .

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but both bought and delivered by the same group of people .

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lawyers.

The argument goes that because the legally aided individual relies on the lawyer to decide what services to supply, there is potential for supplier-induced demand and consequent escalation in costs.

The proposed solution is to switch responsibility to fundholders who would have no vested interest in using traditional legal services.

New providers of legal services are also envisaged with greater use of alternatives to lawyers, such as arbitrators and ombudsmen.But the concept of fundholding has been heavily criticised by the Law Society.

'The essence of fundholding is cash-limiting.

It is an attempt to curb expenditure by rationing legal advice,' said Russell Wallman, head of the Society's professional policy team.

He pointed out that under the proposed system, entitlement to legal aid would be much more discretionary, depending on a range of factors including availability of funds or whether the fundholder felt a case warranted legal advice.

Mr Wallman said the government should concentrate on two much more constructive solutions to the burgeoning legal aid budget .

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a reduction in the cost of the civil litigation system and alternative methods of funding.Roger Smith, director of the Legal Action Group, was equally dismissive of the fundholding idea, describing it as 'intellectually bankrupt'.

He pointed out that the NHS model, the full effect of which had yet to be revealed, was 'hardly a very good advertisement' for fundholding.

His main objection was that fundholding involved a rationing process, with decisions about rationing being pushed down to the lowest level.

'If you have a fixed budget and decide that legal aid must be curtailed, that is a political decision and should be taken in the political arena, nationally,' he said.Mr Smith also discounted the report's 'simplistic' analysis of supplier-induced demand, pointing out that solicitors' decisions regarding legal aid were subject to the control of the courts in criminal matters, and the Legal Aid Board in civil matters.

'The factors governing demand are much more complex than they say and require a much more complex response,' he said.

Mr Wallman commented that 'the description of supplier-induced demand is plainly farcical as far as criminal and civil legal aid is concerned'.

But he allowed that there was 'an element of truth' in it as applied to the green form scheme.

The Society acknowledges the need for control of the recent trend of 'mass marketing' the green form scheme by practitioners.

But Mr Wallman doubts whether fundholding is the answer.

Even one of the authors of the report, Law Society Past President Tony Holland, has strong reservations about how fundholding might work in pr actice.

Mr Holland said he was 'a bit edgy' about whether the best way of satisfying need for legal aid was by allocating funds to the regions.

'The problem is that a lot could depend on the wealth of the city rather than the need for legal aid.' But Mr Holland, denied that the Social Market's report was aimed at cutting costs.

'It is not a cost-saving exercise, it is a reallocation of money to better effect.

Lawyers on their feet in court is not always a sensible use of money.' He said that some cases .

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boundary disputes, for example .

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might be better solved without the intervention of lawyers.

Mr Holland was one of a small number of people from whom the fundamental review working party took secret soundings.

Other proposals in the think tank's report include that the LAB should negotiate block contracts with selected legal aid firms which would be assured a minimum level of work in return for reduced prices, and that cost-consciousness amongst litigants should be encouraged by getting them to pay a proportion of the costs of a case.-- 'Organising cost-effective access to justice', by Tony Holland, Gwyn Bevan, health economist, and Martin Partington, professor of law, both at Bristol University.