‘A breathtaking risk’ was the damning assessment of the cross-party constitutional affairs select committee of Lord Carter’s plan to scrap the hourly rate for fixed fees as a precursor to his vision of a market-driven economy in legal aid. However, it isn’t the fixed fees that appear to have done for Refugee and Migrant Justice (RMJ), which went into administration last week – at least according to the charity, which squarely blames its collapse on the Legal Services Commission’s practice of only paying up on the completion of cases.

That is not the official line. Justice secretary Ken Clarke told MPs that the charity went under because it was ‘unable to manage its affairs’, whereas ‘every other organisation’ had coped with the transition to fixed fees. Putting aside for a moment the disputed circumstances of RMJ’s demise, there are some 10,000 asylum-seeking clients, including 900 lone children, who could be left without representation because of this failure.

That is the nature of the ‘risk’, as vividly articulated by the MPs, when gaps dramatically appear in the threadbare fabric of social welfare law. Such a gap was narrowly avoided at the end of last year with the bailing out of South West London Law Centres. As we enter a new age of public sector austerity, we will increasingly see such breakdowns.

When the new regime of fixed fees was introduced in 2008, a survey by the Law Centres Federation revealed that almost one in five law centres lived under the threat of closure and almost half were in serious debt. The group’s director, Julie Bishop, says that its members have since then ‘learnt to cope, but that isn’t to say that is our ideal system’. The group last year commissioned the New Economic Foundation to look at the new payment system and found that law centres had used up 70% of their reserves on average, essentially to finance cashflow.

‘What I don’t understand is why ministers are making public statements that contradict previous Ministry of Justice reports,’ says Bishop. Indeed, Clarke’s explicit and public rebuttal of RMJ’s own account of events – ‘it’s not a question of any late payments, RMJ were paid what was due’, he told MPs – jars with the MoJ’s own research contained in last June’s study of Legal Advice at Local Level. That document explicitly addressed the impact of cashflow problems on the not-for-profit sector. The fact that ministers are prepared to cut loose RMJ indicates that a line has been drawn.

The fiasco also serves to illuminate the alarming deficiencies of the new regime. Fixed fees can operate to reward the speedy and efficient; in the same way that they can penalise the painstaking and the inefficient.

That appears to be what is happening. Chief executive Caroline Slocock reckons RMJ’s income per client over the last two years has fallen by 46%. Her group has flagged up the LSC response to a Freedom of Information request, finding that almost one-third (29%) of (often notoriously complex) asylum cases are concluding after little work, generating twice the income that they would have generated under the hourly regime.

Immigration lawyers in private practice complain about making a viable business from a £459 fixed fee, and delivering a quality service to vulnerable clients with complex cases and where English isn’t their first language.

Alison Harvey, general secretary at the Immigration Law Practitioners Association, rebuts any suggestion that ‘everyone who is balancing their books is some kind of crook’. Under the Solicitors Code of Conduct, there is no penalty for cherry picking, but Harvey points out that lawyers inevitably take on more straightforward cases despite their commitment to providing a service to vulnerable but demanding clients. ‘What makes me mad is that lawyers’ time and effort would be better spent doing the complex cases to which their skills were suited,’ she says. At its worst, it is a system that incentivises dumbing down.