The Legal Services Board has published a report on the legal needs and experiences of small businesses, which summarises the findings of a large-scale survey of over 10,000 small businesses in England and Wales.
We are also making the case for a legal support strategy for small businesses which sets out five key areas it should address. We are calling on the Ministry of Justice, the Department for Business, Energy and Industrial Strategy, and other key stakeholders to deliver on it collectively. The key asks have been informed by the results of our survey, and input from the Federation of Small Businesses and the Small Business Commissioner and they are in alignment with government priorities for small businesses.
In this webinar Tom May, Research Manager and Tania Hardcastle, Regulatory Policy Manager, discuss the findings of the survey, why a Legal Support Strategy for Small Businesses is important and what it should seek to address.
Webinar transcript:
Tania: Hello everyone. Welcome to the LSB’s webinar on Small Business Legal Needs. My name is Tania Hardcastle and I’m a Regulatory Policy Manager here at the LSB. I’m joined by my colleague, Tom May, Research Manager here at the LSB and today we’re going to talk about the results of the 4th wave of our large scale, Small Business Legal Needs survey of over 10,000 small businesses in England and Wales and also why we’re making the case for a Legal Support Strategy for small businesses. For now, I’m going to hand over to Tom to talk through some of the key findings of the survey. Over to you, Tom.
Tom: Thank you. There we go. So, as Tania mentioned, this is a reasonably large survey. We started off with over 10,000 small businesses but just to clarify it a little bit, obviously small businesses, they play a really big part socially as well as economically and it’s easy to forget that. Of all the small businesses, the vast majority are small in size, so up to 49 people but in total they employed around about 12 million people and had over 1.billion turnover in England and Wales in 2020. Despite being such a big factor in our lives often internally they rarely have that in-house legal capacity and we know from this survey, and it’s not changed much from previous surveys, that only 6% tend to have that in-house capacity because they’re typically too small to be able to justify that post. This isn’t the first time we’ve been interested in small businesses and in fact, this is the 4th wave of the survey starting off with previous research, what feels like way back now in 2010. So, this 4th wave, we worked with YouGov who conducted the fieldwork for us to interview via an online survey. 10,228, from memory, small businesses based across England and Wales. We asked them about specific issues. So they didn’t need to know that they necessarily had legal issue for us to be able to identify that. So we took them through up to 83 different potential issues. We’re also working off OECD guidance on legal need surveys and for the first time, we’re actually including estimates of met need and unmet legal needs which we’ll come on to in a bit.
We’ve also got 2 standardised scales measured aspects of legal capability which I’ll come on to shortly as well. These have been developed by academics over at UCL and, of course, being where we are, we’ve also looked at the impact of the pandemic and leaving the EU. Now, this looks a fairly busy picture but the first thing to take away from this is that overall, when we asked them about the 12 months prior to the survey, nearly a third, 32, have had at least one legal issue and some, actually, have had more. So while a quarter have had an issue, 4 in 10 had had 5 or more. You can see they’re quite spread out, looking at the chart. Trading on the left hand side is the most common but it certainly doesn’t dominate overall. But overall, at 8%, the most common issue we’re having, goods or services that have been paid for that have been delivered late and then similarly, we have late delivery of those that have already been provided. And then a little way below that, at around 4%, late payment as well. So, a few things there that might seem fairly familiar to some people but just to reiterate, there isn’t any one thing that tends to be the main issue that a small business will encounter. Looking at how these effects small businesses, probably not surprising to see that it’s typically around loss of income but you can also see there, there are opportunity costs so inability to take on new work, losing a current customer or a contract and then wider damage to the business whether it’s reputation-ally or to even sometimes property itself.
It’s interesting to see that how people primarily view and describe the issue is related to whether they get professional help or not. So you can see, in red there, where people have described the issue is primarily legal in nature. Nearly 4 in 10 manage to get professional help but only 11%, similar to that 12%, described it as bad luck and that’s only a fifth, less than a fifth, that got professional help as a result. So we can see that how you see the nature of the problem may be related to where you go or where you don’t go to get help and how you end up. I said that we’d talk about the impact of the pandemic and leaving the EU. Now, nearly a quarter, 23%, said that leaving the EU had had an impact on the issue that we talked to them about and nearly 4 in 10 said the pandemic had an impact on the issue. When we teased that apart a little bit, we can see that for both, most said it had caused, in terms of the largest single proportion, round about 35/36% and a broadly similar proportion said, ‘Yes, it hadn’t caused but it had made the issue that they had worse.’ We can see then around about a quarter said that it hadn’t made the issue worse or caused it. So it may have changed the nature of the issue, perhaps maybe it might of even made that issue slightly less worse. The thing to pull out from this overall though is that we see that 32% that had an issue, that’s not significantly different from the last wave we conducted back in 2017.
So possibly, whilst things like leaving the EU and the pandemic have caused or made things worse, it’s also possible that they’ve prevented other issues from cropping up. That might sound a bit strange but you can imagine, if you’ve temporarily ceased training and your staff are furloughed, you’re not then going to be doing anything that would possibly then encounter a further issue because you’re not trading. This is probably my favourite picture out of all the things we have to share today. Starting off from the left-hand side, we’ve got all the businesses that we talked to. That 10,228. As you can see most, 10,000, they didn’t have any legal issues in that previous 12 months but 3,000, they had had an issue. Then we can see in the middle where they go. Some don’t take any action and that might be perfectly logical. The biggest simple proportion though, nearly 1,400, decided to deal with that issue on their own and around half that number, just over, nearly 800, got professional help. Then you can see a smaller proportion either went to business friends or to family and friends. Now, when we look where they go to after that, we can see that for those in professional help and those who attempted to sort out the problem on their own, those who went on their own were more likely to say that the process wasn’t fair compared to those who got professional help. That matters because when you reach that point where you think the process isn’t fair, you can see that you’re also more likely to say that it didn’t end up in your favour rather than it did end up in your favour compared to if you thought the process was fair. Obviously, we can only talk to people when they’ve reached the end of that issue and it’s been resolved or concluded, so you can see we had about 1,400 where it was still ongoing. So, they couldn’t say if it ended up in their favour or not but it’s that link between trying to deal with something on your own, whether you think the process is fair or not and whether it ended up in your favour or not, that we’re particularly interested in. Legal services, they are structured as a market. You have to go out and find them and find help. So we’re particularly interested in people comparing different providers or shopping around because that encourages the market to work better. It encourages people to have a good offer, good price and so on and so forth.
You can see here, and it’s not a huge number of those who told us about this when they were shopping around but still nearly 1,000 but over half didn’t. Another 8% wanted to but didn’t know how to, leaving only just over a quarter who said that they did. When we look at the reasons why they didn’t shop around, some already knew where they wanted to go to. Others, (TC 00:10:00) it’s really because of difficulty either because they didn’t know how to or didn’t feel they had the time or there just wasn’t the easy access to information out there to work out what the difference was between the different options. These related to policy areas that LSB is looking to around market transparency and other programmes that we have. The big take away from here when we do look at those sources of professional help are that those that are regulated legal professionals, like solicitors, conveyancers, barristers etc., they are only a minority of that overall picture. You can see the most common source is going to your accountant and that makes sense because, as a small business, you probably will have an accountant already and they’re probably the easiest place to go to initially. Then after that, it’s solicitors firms. You can see there’s a wide range of potential sources here whether it’s trade bodies or other sources.
Now I mentioned right at the beginning about legal capabilities. These are measures that are developed by academics at UCL. Standardised measures, self-reported. We use 2 of the 5 measures that they’ve developed. 1 is around perceived accessibility of justice. So this is how accessible they think the civil justice system is. The second is legal confidence. So this is the confidence that, as a user of legal services, that you can get a fair and positive outcome when faced with a legal issue. Now most of them score sort of medium but you can see roughly a fifth have low scores and a fifth again have high scores, approximately. That’s important because we’ve seen that that links to where people go and the outcome that they get and how fair that they perceive the process to be. There’s also a link with size of the business as well. When you think about it, perhaps unsurprisingly, those larger small business tend to have higher scores when it comes to legal capability and that might be related to you’ve got more people in the business, so you’re more likely to be able to draw on that experience and expertise but it’s quite a difference. You can see we’ve got nearly a quarter of those who are sole-traders have low confidence and a fifth have a low perception that justice is accessible compared to less than half for those who have got businesses between 10-49 staff. Consequently, at the other end, you can see they are much less likely to have high legal confidence or have high perceptions that justice is accessible. And then when we move down to the bottom of this slide, you can see that just under a fifth of sole traders got professional help compared to nearly double that proportion for those with over 10 staff. They’re also less likely to see that the process was fair. So you can see that two thirds thought it was fair, of sole traders, versus nearly 8 out of 10 for those with 10 or more staff. Similarly, more likely to say that it wasn’t fair. So almost a third for those who are sole traders compared to just over a fifth for those with more staff. So you can see that link between importance of legal capability, getting help, whether it was fair and that relationship with business size as well. Part of it is related to doing some of the things that we like to see to happen. So you can see, for example, shopping around. Those with high confidence and high accessibility, significantly more likely to shop around than those with low levels of legal confidence and low perceptions that justice is accessible. And similarly, less likely to get that professional advice. We see that flows through so less likely to think that the process was fair and less likely to think that the outcome is in favour, particularly around low levels of legal confidence. Now we’ve also estimated having met and unmet legal needs and this shows how that flows through. So we can see that out of those 10,000 businesses, as we saw earlier, most 7,000 didn’t have any legal issues but we had just over 3,000 that did. Of those, many 1,400, that issue was still ongoing so we can’t say whether they had a met need or not because obviously at that point, it hadn’t finished. But of those 3,000, 40% didn’t have a need either because it was low level of seriousness and therefore didn’t need that help or it was slightly more serious but, because they had high levels of capability, they were more able to deal with it by themselves. These leaves us with 15% of all those who had an issue who had an identified legal need. Now of those, unfortunately 12 of those 15%, you can see, had an unmet need. Either because, for whatever reason, they didn’t get professional advice, or it took too long, or they did get help but it didn’t feel adequate for what they needed. So that leaves us with only an estimated 3% had a met legal need. So you can see, out of those 480 that we know definitely had a legal need, it’s only 80 who actually had a need that was met. Obviously that’s not ideal.
Having taken you through all of that, I’m now going to hand you over to Tania who will pick up on the policy side.
Tania: Thank you for taking us through those survey findings, Tom. There are some really striking figures and emerging themes coming out of that. The results do really make clear that small businesses continue to face challenges in accessing legal services and that they aren’t empowered to obtain legal services meeting their needs. The ability to deal with legal problems is key to running a business effectively and the access to justice gap faced by small businesses has wider consequences for our economy and society from stifling innovation and job creation to undermining the UK’s objective to be a global centre for dispute resolution. In addition to our research, we recently bought a group of senior stakeholders together including the Small Business Commissioner and the Federation of Small Businesses to share insights on how we could make the best use of the findings and to determine the key areas of focus that a Legal Support Strategy should address. Informed by the results of our survey, and with input from senior stakeholders and in alignment with government priorities for small businesses, we’ve identified 5 key areas which a Legal Support Strategy should seek to address.
The first key area is early information and advice provision. The second is fostering innovation in the delivery of legal services and access to information. The third key ask is making the market work better for small businesses. The fourth key ask is access to better resolution mechanisms and finally the fifth key ask is capacity building through networking with larger businesses to resolve legal issues. I’ll take you through each of them in a bit more detail. So, what we’re calling for here is a collaborative approach which goes beyond regulators and has cross-governmental co-ordination so we see the Department for Business Energy and Industrial Strategy and the Ministry of Justice as the principle government departments taking the lead in developing a strategy, drawing in other government departments and agencies where relevant.
So, beginning with the first key ask then, the early information and advice provision. Now, why is that relevant? Well, obtaining information and advice on legal issues early on helps the small businesses address problems before they become complex and costly. The ministry of justice developed a Legal Support Strategy for individuals and recognises that early resolution brings wider benefits to society and to governments. Now our government and membership bodies already provide important support roles. The information that small businesses need is spread thinly across a fragmented advice landscape. So, what we see here is value in exploring a legal support and information service for small businesses on a national scale akin to Citizens Advice for individuals, for example. Based on that, under this key ask, what we’d like to see is, poor strategy for small businesses address is equipping small businesses with information, resources and advice so that they recognise issues at any early stage and get help that they need.
Moving on to the second key ask, fostering innovation in the delivery of legal services and access to information. Why is that relevant? Well, we’ve previously commissioned joint research with Law Tech which found that SMEs, or small and medium-sized enterprises, are looking for solutions that offer value for money, aren’t time consuming and provide reassurance. The research also found that small businesses see a role for Law Tech solutions particularly for their most common legal needs. In addition, there is quite a fragmented approach to regulation across government which is challenging for smaller businesses who do not have the expertise, the resilience or the resource to navigate a complex system. (TC 00:20:00) New regulations emerge frequently and are delivered by different government departments. On that basis, under this key ask, what we’d like to see Legal Support Strategy address is firstly the development of easy to understand, standardised tools that help small businesses to address their common legal needs. Secondly, better alignment between traditional legal services and technology to provide small businesses accessible legal solutions which offer value for money. And thirdly, transparency and accessibility in regulations and regulate decision making to help small businesses navigate a complex, regulatory system.
Now, looking at the third key ask, making the market work better for small businesses. Why is this relevant? Well, there is a long standing issue in legal services that too many consumers, including small businesses, don’t engage effectively with the market. There is a lack of understanding of the sector and poor access to clear and comparable information about providers which means that a significant proportion of consumers can’t easily access legal services which suits their needs. The Competition Market Authority also published a study on the legal services market in 2016 which found that competition for legal services for individual consumers, as well as small businesses, was not working well. Since then, legal services regulators have introduced new requirements on legal businesses to improve transparency on pricing, quality, regulation and redress. Following a CMA progress review in 2020, the LSB has used it’s statutory powers to issue a statement of policy on empowering consumers. This sets expectations of legal regulators to support consumers to engage effectively with the legal services market. As well as making progress on transparency by legal businesses, regulators are also expected to facilitate the use of tools that could provide useful and comparable information to consumers such as digital comparison tools, review websites or a centralised database of regulatory information. Legal services are also widely seen as unaffordable by small businesses. In the small business legal needs survey, just 10% of respondents view lawyers as cost-effective and almost 1 in 5 who paid for legal services used personal savings to meet these costs. Now, at a time when small businesses are paying back government-backed COVID-19 loans, and with rising inflation, financial challenges encountered because of unexpected legal costs can bring significant setbacks to already struggling businesses. There is also anecdotal evidence that the legal expense insurance market for small businesses is expanding, yet our survey data shows that only 4% of businesses used insurance to fund their legal costs. This might suggest that small businesses are not using the insurance policies they own. Based on this information, under this key ask, what we’d like to see Legal Support Strategy address is firstly helping small businesses engage with the market and shop around for a provider. Secondly, exploring the potential for legal expense insurance play a bigger role in financing legal expenses. Thirdly, the scope for alternative financing options for legal services to small businesses.
So, moving on to the fourth key ask, access to better dispute resolution mechanisms. Now, why is this particularly relevant? Well, access to dispute resolution mechanisms which focus on early intervention and alternatives to court would help small businesses to avoid court proceedings which can be very costly, complex and time consuming. In recognising this, the Ministry of Justice put out a call for evidence on dispute resolution in England and Wales back in August 2021. This was designed to support the development of more effective dispute resolution mechanisms. The Small Business Commissioner was also set up by the government to help small businesses tackle late payments which is an endemic issue amongst small businesses. The Small Business Commissioner identified that a third of payments to small businesses are late and that 20% of small businesses experience cash flow problems due to late payments. The financial challenges experienced because of commercial disputes have knock on effects on the economy as investment, innovation and growth are all impacted. Late payments have a negative impact on small business profits, innovation and hiring of new employees. Based on this information, under this key ask, what we’d like to see a Legal Support Strategy for small businesses address is firstly, creating a dispute resolution system which includes early intervention options, alternative resolution mechanisms and a fairer, cheaper civil justice system and secondly, the improvement of a claims process for debt recovery.
Moving on now to the fifth and final key ask. Capacity building through networking with larger businesses to resolve legal issues. Why is this particularly relevant? Well, the legal knowledge and capability that large businesses have can potentially benefit small businesses. Particularly those which are new or just starting out. The government already recognises the value of peer mentoring in its help to grow management scheme which helps 30,000 small and medium-sized businesses maximise their growth potential and resilience through peer networking that enables sharing experiences with groups of other small business leaders. We’d like to see networking opportunities between small and medium-sized businesses specifically though, for legal knowledge sharing and we recognise that networking could help to deliver against all of the other key asks that we’ve mentioned already. Small business membership organisations could work with large business membership organisations to facilitate networking opportunities between their members. For example, the Federation of Small Businesses could work with the Federation of British Industry and the British Chambers of Commerce to facilitate networking opportunities. Under this key ask, what we’d like to see Legal Support Strategy for small businesses address is the creation of networking opportunities between small and medium-sized businesses to enable legal knowledge sharing.
From myself and Tom, thank you very much for listening. If you want to engage with this further, please do reach out on the e-mail address below.
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