The government underestimated the impact of its cuts to civil legal aid and does not know who is eligible for funding in the new regime, the National Audit Office says today.

The spending watchdog's report Implementing Reforms to Civil Legal Aid concludes that the Ministry of Justice is on track to meet its main objective of cutting legal aid spending by £300m a year.

But the reforms, which came into effect under the Legal Aid, Sentencing and Punishment of Offenders Act in April 2013, have also led to a 30% year-on-year increase in family court cases in which neither party is represented and a 56% decrease in mediation referrals.

In response, the MoJ stated that legal aid is still getting to people who most need it and that ‘significant savings’ have been achieved.

In total, the NAO said unintended consequences are likely to cost the court service an extra £3m a year and the MoJ specifically an extra £400,000.

It says that the ministry expected removing funding for civil legal aid for private family law matters would divert people away from courts and increase mediation referrals by 9,000 per year. However, there were 17,246 fewer mediation assessments in 2013-14, a 56% decrease from 2012-13.

Use of the statutory exceptional case funding, which provides legal aid where a failure to do so would breach rights under international law, has been ‘lower than planned’. The Legal Aid Agency planned for between 5,000 and 7,000 applications in 2013/14 – it received just 1,520, of which 69 were granted.

The NAO report warns of potential effects on health and wellbeing as a result of legal aid cuts with knock-on consequences for the wider public sector. It concludes that the government ‘did not have a good understanding’ of how people would respond to the changes and has done little monitoring of their effects.

Amyas Morse, head of the NAO, said a lack of understanding from the MoJ meant that the reforms ‘cannot be said to have delivered better overall value for money for the taxpayer’.

Morse said: ‘The MoJ is on track to make significant and quick reductions in its spending on civil legal aid. 

‘However, it has been slower to think through how and why people access civil legal aid; the scale of the additional costs to the ministry likely to be generated by people choosing to represent themselves; and the impact on the ability and willingness of providers to provide legal services for the fees paid.’

Margaret Hodge, chair of the House of Commons Public Accounts Committee, today said the MoJ was ‘out of touch with reality’ and showed ‘no understanding’ of the wider costs.

‘It is all well and good that the ministry is meeting its objective of cutting spending on civil legal aid, but it is doing this without knowing what the knock on effects might be for other organisations and people needing advice.’

A spokeswoman for the MoJ said the additional costs were around 1% of the savings that would eventually be made. 

She added: ‘At the time our reforms began we had one of the most expensive legal aid systems in the world at around £2bn per year. Given the financial crisis inherited by this government there was no choice but to find significant savings. This report confirms we are doing just that.

‘This was never going to be an easy process, but we have made the necessary reductions whilst ensuring legal aid remains available where people most need legal help.’

Law Society legal aid manager Richard Miller said: 'The LASPO legal aid cuts have resulted in severe consequences for access to justice with the greatest impact affecting the poorest and most vulnerable sectors of society. Parties involved in private family law applications relating to children are experiencing particular difficulties. These findings underline the truth that’s now emerging: lawyers are very effective at steering separating couples away from the courts. Without lawyers to resolve disputes less contentiously, more couples end up fighting in court, to their own detriment and that of the children of the families concerned. The experience of the past year has proved that removing lawyers from the process is a false economy.;

Jon Black, the president of the London Criminal Courts Solicitors’ Association said: ‘The unintended consequences of cutting legal aid to the bone in civil courts were predictable if the warnings had been listened to. Just as we have repeatedly been warning that the price to be paid for society is too high if the MoJ carry on with their plans for criminal legal aid. 

'We in the profession are hoping that this NAO report comes at just the right time to prevent the second wave of criminal cuts and the devastating carve up of solicitor contracts in police stations and magistrates' courts. The collateral these would cause, plummeting standards of defence and miscarriages of justice, are too high a price to pay. The government ignored warnings on civil legal aid, they mustn’t fall into the same trap with our criminal justice.’

Shadow justice secretary Sadiq Khan said LASPO had been bad value for money and left hundreds of thousands of people without proper legal advice. ‘Labour warned that denying people legal aid in this rushed way would merely see costs rise in other areas but sadly the government failed to listen,’ he added.