Roundtable: Wales – devolution revolution

What is the ‘going rate for devolution’ in the UK? In recent months this has become a much more urgent question – and not only because Scotland came within a few hundred thousand votes of sundering the union last September.

It was raised in precisely these terms a fortnight ago by Plaid Cymru leader Leanne Wood. She was commenting after David Cameron and Nick Clegg unveiled a new package of powers for Wales that still leaves Welsh devolution lagging behind Scotland and Northern Ireland.

For solicitors convening in Cardiff at the Gazette’s latest roundtable, the slow divergence of Wales from English law and statute is already posing real challenges. I can say this with confidence because the Gazette will soon launch a new ‘Legal Update’ for Wales. Reader soundings revealed that there is now more than enough that is different happening in Wales to justify discrete articles covering what is not yet – and may never be – an entirely separate jurisdiction.

The St David’s Day agreement is a case in point. Proposals based on those set out in last year’s report of the Silk Commission include various divisions of the High Court and appeal court sitting in Wales on a regular basis and judges in those courts allocated to Wales.

There should also be at least one judge in the UK Supreme Court with ‘particular knowledge and understanding’ of the distinct requirements of Wales, the agreement recommends. These courts already sit in Wales from time to time – the contention is that this position should be formalised.

Among more prosaic talking points at present are the practical and symbolic implications of a separate stamp duty land tax (SDLT) for Wales, which is set to take effect from April 2018. This is the first new tax to be levied in Wales for 800 years, following recommendations of the Silk Commission’s first report on fiscal matters. Income and corporation tax could one day follow, it is being suggested.

Kathryn Roberts, senior partner at Eversheds in Cardiff, says: ‘I attended a CBI event recently and it came as a shock to most people in the room how far potential tax powers could extend in Wales. We could potentially be in competition [with other UK nations].

‘To me that just opens up all sorts of challenges for us as a profession and as a country. My fear is that there would be a “race to the bottom”. SDLT of itself is an interesting development, but actually it’s where it leads that is the scary thing.’

Roberts need not lose any sleep yet. New SNP leader Nicola Sturgeon last week ditched predecessor Alex Salmond’s proposed 3% corporation tax cut commitment for Scotland. But devolution of SDLT alone is no small matter. In 2013/14 the tax raised £145m in Wales from 51,600 transactions.

Mark Evans, director of Allington Hughes and a member of the Law Society’s Wales Committee, suggests: ‘Is there potential for Wales to attract investment by, for example, having a more favourable SDLT system?’

This is the avowed goal of the Welsh government, which has said it is interested in reforming SDLT to ‘make it easier to do business in Wales’.

Andrew Evans, partner and head of tax at Geldards, is unconvinced. ‘Look at business SDLT,’ he says. ‘The top rate is 4% on anything over £500,000. Will a reduction to 3% make a blind bit of difference to someone coming to Wales when they’ve got all the other costs to consider? Probably not. The business rates over the life of a property would be more.’

The danger, says Eve Piffaretti, head of commercial at Blake Morgan in Wales and the Public Law Group, is that the rate is actually increased.

As with any devolved government that eschews economies of scale, there is an inevitable cost attached. ‘If Wales decides it wants its own [revenue collection agency] to collect SDLT, someone’s got to pay for that,’ says Andrew Evans. ‘And if we’re only raising £145m, we don’t want to be spending 20% of that sum collecting it.’

This puts the spotlight on a critical and often overlooked difference between Scotland and Wales as ‘theatres’ for the practical application of devolved powers. Wales has 2.2 million fewer people than Scotland and the border with England is much less empty.

Edinburgh is 125 miles from Newcastle and there is not much but sheep pasture and sleepy Berwick-upon-Tweed in between. Wales has the huge population centres of Bristol and north-west England right on its doorstep. The business risks of doing things differently are arguably higher in Wales than in Scotland, therefore.

Wales could in theory levy different income tax rates, but how would they work? Would they be based on employer’s head office or residence?

Mark Evans says: ‘Airbus [which employs 6,000 people in north Wales] may not be too happy if they had to differentiate between staff who live in England and those who live in Wales. That cross-border interaction is huge.’

There is more to day-to-day devolution than tax, of course. Edward Friend, director of west Wales boutique property practice Carreg Law, says: ‘You can’t choose your client. There are different property law regulations across the border. If practitioners are not aware of those differences there is the danger of negligence claims. Because all the literature is based on England, I think practitioners in England are unaware. So it’s a minefield.’

Ditching economies of scale does have its compensations – literally. The more differences there are, the more specialist in nature professional advice becomes and the more there is for professional advisers to do. A former president of the Law Society of Scotland told the Gazette in advance of last year’s referendum that full independence would have meant ‘piles and piles of work’ for solicitors, in helping duplicate functions ranging from issuing driving licences to regulating financial services.

Peter Hurn, commercial property partner at Hugh James, says: ‘Potentially you’re going to get to the point where you’ll have the same difference as exists between Scottish and English law. That may be good in one respect because if you have work that’s going on in Wales, you need to have a Welsh lawyer.’

But there are complications, Hurn adds: ‘You may find that the big Cardiff firms wouldn’t be able to get work from England and abroad because the perception would be that the law is different. You’d have to keep up with both Welsh and English law; so whether it’s a good or bad thing from a commercial perspective depends on what kind of practice you are.’

Andrew Evans adds: ‘It could be quite dangerous if we have legislation only for Wales and ignore English law. Can we get enough money out of the legal market in that situation to keep the big firms going? The answer is probably not. The market is not big enough. Cardiff is not like Bristol.’

There is another problem – ‘Welsh law’ per se has not yet been systematically documented for ease of use. A Law Commission project, ‘The form and accessibility of the law applicable to Wales’, is now under way.

Its recommendations cannot come soon enough. Some publishers are understood to have taken the decision not to develop Wales-specific texts because it would not justify the investment. And this lacuna hardly helps the client either, because it takes a solicitor so much longer to come up with the ‘right answer’.

It can reasonably be concluded then that the (physical) contiguity of England and Wales and their (political and legal) divergence is pulling the profession in Wales in different directions.

Cardiff in particular has been successfully promoting itself as a hub for financial and related professional services; but Wales must not become a backwater.

In a speech last November, lord chief justice Lord Thomas of Cwmgiedd warned Cardiff Business Club: ‘Wales must not strive to be a hub for back offices and departments staffed by paralegals, while exporting its best students.’

Steve Berry, chairman of Acuity Legal, says: ‘I’m not convinced Cardiff stands out as a back-office centre. Manchester, Birmingham, Bristol – they seem to be more attractive to the big City law firms. Herbert Smith are in Ireland. I don’t really see anyone jumping to come to Cardiff. In many cases it’s a little bit too far from London.’

Roberts notes the ‘keen incentives’ offered by the Welsh government to locate jobs there. Last autumn ‘Big Four’ accountant Deloitte announced plans to create 500 new back-office jobs in Cardiff in a major boost to the capital’s enterprise zone.

But she offers a corrective to the LCJ’s bleak vision: ‘Cardiff has some fantastic full-service law firms, which are able to serve not only local but also national and international clients. So while there may indeed be appeal in building some back-office functions here, we also have several firms punching way above their weight.’

‘We’re net exporters of legal services,’ Berry points out.

North Wales faces a quite different problem, according to Mark Evans: ‘The challenge will be to increase the number of firms in north Wales in business and commercial services, because at the moment we tend to lose out to the north-west – Liverpool and Manchester. The dynamics of north and mid-Wales mostly relate to small and medium-sized firms.’

As for ‘exporting its best students’, there is consensus that this remains an issue. And it is an issue that could become urgent as Wales seeks to recruit and nurture the legal expertise that devolution will increasingly demand.

‘The latest figures show just 229 trainees. And there will be huge disparities,’ Mark Evans says. ‘In north Wales I don’t think there are many trainees at all. My nephew’s doing his Masters at Aberystwyth. I asked him about staying in Wales and the statistics show you’ve got more potential in England at the moment.’

During the recession, smaller firms concentrated on retaining existing qualified and trained staff and did not have the resources to invest in trainees, attendees agree. Some identify a tendency to employ paralegals. There are no incentives for the smaller firm to employ trainees, which is viewed by those present as a missed opportunity.

A similar situation applies in local government, laments Shaun Jamieson, county solicitor at Cardiff County Council. ‘It’s very difficult to offer traineeships when posts are being cut,’ he says. ‘Cardiff hasn’t had trainees for over two years and I think a number of local authorities are in the same position.’

As the downturn has receded for commercial firms, the predicament of small practices in Wales (as elsewhere) has not noticeably improved. Some are in a critical condition – and their potential demise bodes ill for rural communities which are hardly spoiled for choice. ‘Advice deserts’ are looming as the government continues to eviscerate legal aid, and these areas face a tightening squeeze from the volume players. The roundtable also agrees that unregulated providers of services such as will-writing are a growing problem – there is no level playing field in terms of regulation.  

‘It is becoming harder and harder for those smaller firms to survive, least of all consider expansion,’ says Mark Evans. ‘Firms are retrenching and getting smaller or looking to join a larger firm as an exit strategy.’

He adds: ‘The cuts have had a huge impact. As a firm we have always had a social and moral commitment to legal aid, in family, crime and housing. We used to have a welfare contract but of course that was culled.

‘Now is in criminal where there are major problems.’

There are currently 128 firms with criminal contracts in Wales accessible from 173 offices (including 44 offices in north Wales). The Ministry of Justice wants just 30 contracts for the whole country, including eight in north Wales.

‘Where we are based there is potential for people coming in from across the border to provide these services,’ Mark Evans says. ‘But you’ve also got to take into account the Welsh language and the ability to advise or represent people in Wales. That may not be offered as a result of the changes coming through.’

Opinions about the future health of the profession in Wales differed depending on size of firm represented by those sitting at the table.

Emyr Pierce, managing director of property specialists Emyr Pierce Solicitors, was formerly managing partner of the oldest legal practice in Cardiff. He is downbeat: ‘Everything we have heard tonight suggests there is not much of a future for small firms. I am particularly concerned about the extent of rural coverage.

‘I think back years ago to when lenders were not instructing sole practitioners. Principality [Building Society] did so as a matter of principle because they felt they needed to provide coverage to their customers.’

Roberts, meanwhile, reflects: ‘The law has been demystified and I think that’s right. There will always be elements of more complex legal work that require skilled and experienced lawyers. As our clients are being put under cost pressures we need to find new ways of finding services.’

Mark Evans is optimistic: ‘There will be opportunities with devolution. To the north Wales small practice, I say: get your affairs in order; look at who your insurers are; look at Lexcel; and sell yourselves as much as you can, because firms in England will want contact as devolution increases. There may be opportunities to be part of a bigger entity.’

• For more information about the Law Society’s Wales office see the website.