Income and expenditure

Overview

The CLC is a pure regulator; we do not have a representative function. All our income is generated from the regulated community and is utilised in the performance of our regulatory obligations.

At 31 December 2022, the CLC regulated 222 practices (2021: 223). 

At the end of December, the CLC had 1,638 (2021: 1,499) active CLC lawyers (Licensed Conveyancers and Licensed Probate Practitioners) on the register.

Budget and billing arrangements

After carefully considering the CLC budget for 2023 and in view of the uncertainty of the current economic climate, the Council of the CLC resolved not to change any of the charges or fee fees rates from those that were set in 2021. Any change to what practices pay will therefore be because their turnover has changed, the cost levied by the Office for Legal Complaints (OLC) has changed or the number of cases from the firm before the OLC has changed.

The proposal to not change any of the charges or fee rates was the subject of an open consultation over the summer of 2022. The Legal Services Board approved the CLC Practice Fee application on 2 November 2022. You can find a copy of the application and the approval here.

In 2021 the CLC made significant changes to the Fees levied on Practices. These changes were implemented to make the charges more transparent and fairer and included:

• Increasing the number of turnover bandings from 4 to 9. This allowed for a more effective tiering of the turnover bands and enabled practices to benefit from lower fee rates as they grow.
• Reducing the Practice Fee rates and excluding the Legal Ombudsman charge from the Practice Fee. This improves the transparency of the Fee as the funds are only used for CLC operating expenditure.
• Implementing a separate OLC levy to recover the cost of the Legal Ombudsman recharge. The CLC has no control over this charge, it is based on case numbers and costs provided by the legal Ombudsman. This charge, which is not under the control of the CLC has increased significantly over the last 5 years. By charging this levy to practices separately we increase the transparency of the costs and hopefully increase the focus on complaint handling.

All practices are required to the Practice Fee, OLC Levy and Compensation Fund Contribution as a condition of licence. These Fees are levied on Practices for the licensing year starting on 1 November 2022. We provide the option to all practices to split these costs into 12 instalments payable by direct debit. Should a practice decide to close during the Licensing year, the balance of all outstanding fees becomes payable on notification.

CLC excess reserve levels have now been fully depleted. The reduction of reserves was achieved through Fee rate cuts and running a deficit budget. From 2023 the CLC will need to run a surplus budget to maintain remaining reserves and create additional reserves for the funding of the OLC Levy which is paid in advance by the CLC and collected from practices over the next 12 months. The OLC charges to the CLC have increased annually well in excess above the rate of inflation.

CLC Compensation Fund cost estimate for 2023

The Compensation Fund Expenditure and your contributions are ring fenced and used only for:

• Intervention and practice closure related expenditure (this includes costs associated with finalisation of client matters and storage of files)
• Compensation Fund Grant payments (this includes the payment of grants and, where appropriate, legal fees associated to claims made).

The estimated Income and expenditure are included in the table below.

We do not budget for Compensation Fund grants or new intervention related cost. This is done because we are not able to accurately estimate the timing or value of such expenditure. To offset any possible cost associated with Compensation Fund Grant provisions or Interventions, we run a surplus budget. Any accumulated surplus is added to reserves. Should reserves exceed set policy thresholds then the Council will consider amending fee rates to release or accumulate additional reserves. The Fund is current fully reserved (£7m).

The expenditure estimates for 2023 includes:

• Intervention costs (the cost of file storage, administration of file request and legal costs to support clients of closed practices)
• Recharges (the cost of staff that administer and maintain the Fund)
• Legal costs (cost associated with the defence of claims and protection of the Fund)

OLC Levy calculation

The Legal Ombudsman costs are allocated to approved regulator (and by extension the regulated community) in accordance with the Legal Services Act 2007 (Levy) (No.2) (Amendment) Rules 2014.

The separate OLC levy was implemented from November 2021. Practices were charged pro rata 5/12^th for the part year of the cost of the Legal Ombudsman in 2021. To compensate for this separate charge the Practice Fee contribution rates were reduced meaning that in real terms practices paid less is 2021 than they did in 2020. In 2022 practices were billed for the full year Legal Ombudsman charge.

The legal Ombudsman allocates their cost proportionately to regulators using the 3 year average number of cases accepted by the ombudsman. The CLC then allocates 70% of the total cost to all practices proportionately based on turnover. The remaining 30% of the cost is allocated to practices using the case numbers provided by and used in the Ombudsman’s cost allocation. We think that this is the fairest method of allocating the usage cost as it is these case numbers that drive the overall cost.

The CLC is of the view that these costs are excessive and that the method of cost allocation to the regulators is not transparent or fair. We are seeking change on both concerns so that the charges accurately reflect cost per case and the cost of the other activities from which the legal sector as a whole benefit.