Legal Business Blogs

Autumn Statement: Osborne brings more gloom to the legal sector with deeper MoJ cuts and court closures

While a decision to backtrack on tax credit cuts stole the limelight in the Autumn Statement today (November 25), Chancellor George Osborne revealed further cuts to the Ministry of Justice (MoJ), plans to close 91 courts and curbs on aggressive PI firms pursuing road accident claims.

Sticking by plans to run a budget surplus of £10bn by 2020, the MoJ was badly hit by departmental cuts, with Osborne cutting £500m from its budget by 2019-20. The cut amounts to an 8% drop from the MoJ’s £6.5bn budget for 2015/16 and is a third less than the £9bn budget in 2010/11.

The government reiterated its pledge to spend £700m over five years to modernise and fully digitise the courts, moving to an online system, and Osborne rolled out plans to sell courts to release land for 5,000 new homes.

Osborne told MPs: ‘You can’t say you’re fearlessly tackling the most difficult social problems if you turn a blind eye to what goes on in our prisons and criminal justice system. The Lord Chancellor has worked with the Lord Chief Justice and others to put forward a typically bold and radical plan to transform our courts so they are fit for the modern age. Under-used courts will be closed, and I can announce today the money saved will be used to fund a £700m investment in new technology that will bring further and permanent long-term savings, and speed up the process of justice.’

A consultation on proposals to close 91 courts ended on 8 October and they are now being reviewed for closure. The plans include 20% of the 460 court and tribunal buildings closing across the UK, with a maximum of 115 buildings set to be sold or reused in another capacity. Annual running costs of around £30m a year are expected to be saved.

The proposal includes the closure of two crown courts, 55 magistrates’ courts, 31 country courts and 19 tribunals. Bury St. Edmunds Crown Court and Dolgellau Crown Court are both set to close. Magistrates’ courts are set to close across London, including in Bow, Feltham Greenwich, Waltham Forest and Tottenham, and in Chichester, Dover, Watford, Aylesbury, Stockport, Bury and Prestatyn. Swathes of family courts in magistrates’ and county courts are also set to close as a result.

While there was no mention of legal aid, the MoJ said ‘the government will also look at changes to court fees as it continues to put the courts on a more sustainable financial footing’. As part of the cuts, the MoJ added that ‘by focusing on its reform priorities and delivering significant efficiencies within its back office running costs’, the department will be able to reduce its administrative budget by 50% by 2019-20.

Bar Council chairman Alistair MacDonald QC said: ‘Proposed overall resource savings of 15% and a 50% cut in the department’s administrative budget are obviously a big concern.’ He added that the introduction of court fees means people must now pay to £10,000 in order to get access to the courts if they are injured at work or if they are a small business chasing a late payer.

‘The criminal justice system is creaking to the point where people accused of crimes do not always have a properly qualified legal representative to defend them,’ MacDonald said.

In what was a relatively low-key Autumn Statement for business, Osborne unveiled new measures and funding to target tax avoidance. The Chancellor promised an extra £800m, paid for by a restructuring of HM Revenue and Customs (HMRC) that will see 137 local offices closed and replaced with 13 regional centres, to ‘fight against tax evasion – an investment with a return of almost ten times in additional tax collected’.

There are also new penalties under the General Anti-Abuse Rule that came into force in July 2013, with Osborne stating there will be ‘action on disguised remuneration schemes and stamp duty avoidance, and we will stop abuse of the intangible fixed assets regime and capital allowances’.

Introduced as part of the government’s crackdown on tax abuse, penalties of up to 60% of tax due will be placed on those who use tax avoidance schemes and HMRC has been given the power to claw back money from abusive arrangements.

BDO tax dispute resolution partner Richard Morley said: ‘It was no secret that the government wanted to introduce a penalty aimed predominantly at serial abusers of tax avoidance schemes which consistently fail before the courts. The penalty will be a way to claw back some of the money spent pursuing the serial avoiders.’

Baker & McKenzie head of wealth management Ashley Crossley added: ‘This shows the government’s continued intention to crack down on what is perceived as “aggressive tax avoidance”. This also re-iterates the view that the UK is a place in which individuals must comply with their tax obligations and play by the rules.’

Personal injury lawyers were also hit by the Chancellor, who revealed he will limit unnecessary claims from road accidents in a bid to bring down the cost of motor insurance. The government is set to remove the right to general damages for minor injuries and increase the threshold for small claims to £5,000 to cover a greater volume of injuries in small claims court.

‘This will end the cycle in which responsible motorists pay higher premiums to cover false claims by others,’ the Treasury said. ‘It will remove over £1bn from the cost of providing motor insurance and the government expects the insurance industry to pass an average saving of £40-£50 per motor insurance policy on to consumers.’

Osborne also announced the government would press on with a crackdown on ‘personal services companies’, a move which will have negative implications for contract lawyer services such as Addleshaw Goddard’s Integrate, Pinsent Masons Vario and Allen & Overy’s Peerpoint, as well as BLP’s Lawyers on Demand. 

The Autumn Statement confirmed following consultation, the government will legislate to restrict tax relief for such workers from early next year.

Pulse Accounting chief executive Chris Futcher said: ‘While the change will take effect from 6 April 2016, there is still no confirmation made about how it will be implemented and managed. Contractors, employment intermediaries and end clients continue to be none the wiser about the impact of the legislation come the 6th of April.’