The Ministry of Justice has announced measures to save £6m a year from the legal aid budget by ‘tightening the rules for civil legal aid’.

The announcement came as the Public Accounts Committee (PAC) published a damning report on the Legal Services Commission’s performance in managing legal aid.

PAC chairman Edward Leigh MP criticised the LSC’s ‘lax’ financial management and internal controls, noting that it lacked the ‘basic information’ about the costs and profitability of law firms that would enable it to know whether it had set its fees at an appropriate level.

He said the LSC’s plans to introduce price-competitive tendering, which it was forced to abandon, were ‘hamstrung by its lack of knowledge of the market’. The LSC did not know whether the reforms it had introduced following Lord Carter’s 2006 report were working, or what effect they were having on the sustainability of firms, he stressed.

The PAC report said the LSC’s ‘lack of grip of the basics and lack of a clear strategic direction’ were compounded by ‘confusion and uncertainty’ over its relationship with the MoJ, which led to duplication of effort.

The report noted that the LSC spends £125m a year on administration. The committee’s conclusions followed an evidence session before the PAC in December, where senior individuals from the LSC and MoJ were called to account over the highly critical findings of two previous reports into legal aid management by the comptroller and auditor general.

Law Society president Robert Heslett said it was ‘vital’ that the LSC gained a better understanding of the supplier base to prevent firms being forced to abandon legal aid or become insolvent.

An LSC spokesman said it would consider the report carefully and respond fully in due course.

Meanwhile, reforms unveiled by the MoJ this week will restrict access to domestic civil legal aid for non-UK residents. The measures will also toughen up the application of the ‘public interest’ test to ensure that cases only receive funding if there is a ‘realistic prospect of the outcome of the case providing benefit to others’.

The MoJ said it will also ‘tighten the rules’ in relation to low-value damages claims against public bodies and judicial reviews.