Fears were sparked by a proposal from the Ministry of Justice (MoJ) to cut costs even further, on top of the previous Labour government’s move to slash legal aid fees by !2.5%.
The MoJ is likely to encounter vast opposition when parliament resumes but on confirming the plans, it said the UK legal system was the "most expensive legal aid system in the world".
The news follows the Immigration Advisory Service’s (IAS) placement into administration as a result of financial problems earlier this month. IAS was the largest provider of immigration law services in the legal aid sector.
IAS followed the same path as Refugee and Migrant Justice (RMJ), another large charity which provided publicly funded immigration services. RMJ went into administration last year after getting into financial difficulties related to the legal aid scheme. It is thought that IAS had over 25,000 live cases (over double the number of cases that RMJ had when it was placed into administration).
The charity was trying to negotiate repayment of money owed to the Legal Services Commission (LSC), but IAS’s trustees took the view that as a consequence of the pending legal aid cuts, the service would not have sufficient cash in the future to pay off this debt.
Around 300 staff were employed by IAS and the service worked from 14 offices and had a further 12 outreach services hosted in other locations.
This case also followed the news that the legal advice charity Law for All, based in west London, entered liquidation because of the looming reduction in fees.
Steve Hynes, director of the Legal Action Group, said: “We fear we are going to get more insolvencies after Law for All because the costs of doing legal aid won't stack up.”
Law for All employed 70 lawyers and other staff. It provided advice and legal support to around 15,000 clients a year in several west London boroughs as well as parts of East Anglia and Staffordshire.
The charity issued a statement that said: "Changes to the administration of publicly funded legal work have resulted in an unsustainable administrative burden … not to mention reduced payments in real terms.
"These factors – combined with current plans by the government to cut legal aid payments by a further 10% this autumn and to almost completely end legal aid in October 2012 – have led the trustees, reluctantly, to conclude that there is no hope of a viable, long-term future for Law For All."
As well as reducing legal aid fees, the government's Legal Aid, Sentencing and Punishment of Offenders Bill proposes to save a further £350m by withdrawing legal aid from welfare, medical negligence, housing and family issues.
The extra 10% cut will come into force in October for criminal and civil cases and next February for family cases, unless it is voted down by MPs.