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Press releases 2002 -

Competition in professions – improvement but more action needed

PN 21/02     25 April 2002

A number of restrictions on competition in the professions have been removed following an OFT report in March 2001 – but further action is needed.

In a progress report published today, the OFT says that although welcome changes have been made to professional rules, some serious restrictions on competition remain in place.

The report reviews the progress made in the past year and considers what further work needs to be done to liberalise competition in professional services.

Publishing today's report, John Vickers, Director General of Fair Trading, said:

'A year ago the OFT challenged a number of professional rules restricting competition, saying that they should be removed or justified. We welcome the fact that each of the professional bodies concerned has taken some positive action towards removing unjustified restrictions. And some restrictions have been justified. But there is important unfinished business and we continue to work for free competition in professional services.'

PROGRESS SO FAR BY THE PROFESSIONS:

Accountancy

Restrictions identified:

  • Prohibition on advertising comparisons of fees
  • Prohibition on so-called 'cold calling' which involves approaching clients directly to seek new business
  • Prohibition on making payment to a third party for referring work.

The Institute of Chartered Accountants in England and Wales, the Association of Chartered and Certified Accountants and the Association of Accounting Technicians have all addressed these three restrictions.

Architecture

Restrictions identified:

  • Guidance on recommended fee scales.

The Royal Institute of British Architects has agreed to revise the fee guidance but has not yet produced its amended version. OFT will see whether the revised guidance meets its competition concerns.

Law

Restrictions identified in Law Society rules:

  • Restrictions on employed solicitors acting for third parties
  • Ban on multi-disciplinary practices (MDPs)
  • Prohibition on comparative fee advertising and cold calling
  • Prohibition on receiving payment for referring a client to a solicitor
  • Fee guidance on work such as probate and conveyancing.

The Law Society, which was anyway considering liberalisation, has agreed to allow solicitors employed by non-solicitors to provide services to consumers – subject to implementation of necessary consumer protection measures. It would therefore for example be open to banks or supermarkets to provide legal services.

The Law Society Council has been asked by its Working Party to reconsider a proposal to lift the ban on sharing fees with non-solicitor professionals following its initial rejection. Lifting the ban would facilitate MDPs. This could provide benefits such as overhead costs savings and more open access to services for clients. Amendment to legislation may be necessary to enable the Law Society to regulate non-solicitor partners of MDPs.

The prohibition on advertising comparative fees has been abolished as have restrictions on cold calling for business clients. Restrictions on cold calling non-business clients remain in place and the OFT accepts this.

The Law Society is considering recommendations to amend the restrictions on payment for client referrals. It has also said that it is willing to withdraw fee guidance on probate and conveyancing work.

Restrictions identified in Bar rules:

  • Restrictions on advertising fee comparisons
  • Prohibition on clients having direct access to a barrister (rather than via a solicitor)
  • Prohibition on advertising comparative success rates
  • Prohibition on partnerships between barristers and between barristers and other professions
  • Withholding from barristers the right to conduct litigation work currently carried out by solicitors.

Restrictions on comparative fee advertising have been removed by the Bar Council. The Bar Council has also agreed to amend the rule that prohibits clients from having direct access to a barrister. The Bar is currently drafting rules and guidance necessary to implement this amendment. The OFT will consider the details of these changes which are due to come into force in January 2003.

The Bar argues that the prohibition on advertising success rates is justified because it is impossible to relate success and failure to winning or losing cases. The Bar takes the view that repeal of the rule would discourage barristers from taking difficult cases. The OFT understands the Bar's arguments and currently does not intend to pursue the matter further.

However, the OFT remains concerned that the Bar does not intend to lift the blanket prohibitions on the conduct of litigation by barristers in independent practice and on the formation of partnerships between barristers and between barristers and other professionals. The OFT will be investigating these matters further.

ISSUES FOR GOVERNMENT

The original OFT report also identified a number of issues for government to consider.

Issues identified:

  • Schedule 4 of the Competition Act 1998 which allows agreements designated as professional rules to be excluded from the Act's prohibition on anti-competitive agreements

Provision for the repeal of Schedule 4 has been made in the Enterprise Bill which is currently before Parliament.

  • The 50% rule that restricts the conduct of statutory audit to those auditors who practise in a firm that is under the control of individuals qualified to conduct statutory audit.

Government is reviewing wider questions about auditing services following the collapse of Enron. To relax the restriction would require amendment of UK and European law.

  • The QC system administered by government that distinguishes between junior barristers and QCs.
  • Extension of rights to provide probate and conyevancing services.
  • Legal professional privilege

The OFT continues to question the QC system's value to consumers and how it is operated as a quality mark. The QC system has no parallel in other markets. There is concern that the existence of such a mark may distort competition. The OFT notes however that the number of QCs appointed this year was markedly higher than in past years.

Fuller implementation of the provisions of the Courts and Legal Service Act 1990 would allow banks and building societies to provide conveyancing services and would also increase competition for probate services.

The issue concerning legal professional privilege is that it may distort competition in favour of the lawyer, where lawyers are in competition with non-lawyers.

The Lord Chancellor's Department has recently announced its intention to consult on these matters before the summer recess.

The OFT's basic principle – that restrictions on competition need to be removed or justified – applies to all professions. So the OFT is ready to use its available powers throughout the UK to remove unnecessary restrictions imposed by any profession.

NOTES

1. Download Competition in professions - progress statement in pdf format (131 kb).

2. Download the original report on the professions Competition in the Professions in pdf format (867 kb).  This report was issued on 7 March 2001. The OFT's report and that of consultants LECG, which accompanies it, followed a review of competition in the legal, accountancy and architecture professions in England and Wales, the terms of reference of which were given in the Chancellor's Budget for 2000. The review was conducted under section 2 of the Fair Trading Act 1973. The aim of the review was to identify restrictions, whether arising from law, professional rule or other source, which had the effect of preventing, restricting or distorting competition in the professions. The review was to identify any consumer benefits claimed for the restrictions, but to leave for further consideration whether these benefits justified the restrictions.

3. Schedule 4 of the Competition Act 1998 provides a designation procedure under which professions identified in the Schedule can apply to the Secretary of State for Trade and Industry to have the rules regulating a professional service or the persons providing or wishing to provide a service designated. Designation is automatic, although the Director General can advise the Secretary of State on whether designation should be revoked. The exclusion may apply to agreements which constitute designated professional rules, which impose obligations arising from such rules or which are agreements to act in accordance with such rules. Designation has the effect of shielding the rules from the application of the prohibition in Chapter I of the Act that prohibits anti-competitive agreements.

4. The Enterprise Bill was published on 26 March 2002. Further information can be found on the DTI website at www.dti.gov.uk




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