Corporate report

Annual Report and Accounts 2023-24: Financial Statements (HTML)

Published 25 July 2024

Applies to England and Wales

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Financial Statements

2023‑24 2022‑23
Notes £000 £000
Statutory charge interest   (4,330) (4,353)
Income under the legal aid schemes 3 (33,996) (31,778)
Other income   – –
Total operating income   (38,326) (36,131)
Expenditure under the legal aid schemes 4 2,228,394 2,008,576
Staff costs 5 55,080 48,765
Other operating expenditure 5 34,308 40,438
Depreciation, amortisation and impairment 5 6,790 6,381
Total operating costs   2,324,572 2,104,160
Net operating costs   2,286,246 2,068,029
Other comprehensive expenditure      
Net (gain)/loss on revaluation of intangibles 6 (276) (627)
Net (gain)/loss on revaluation of property, plant and equipment 7 (6) 79
Net loss/(gain) on revaluation of right of use asset 8 – –
Total comprehensive net expenditure   2,285,964 2,067,481

All income and expenditure are derived from continuing operations.

The notes on pages 97-134 form part of these financial statements.

31 March 31 March
2024 2023
Notes £000 £000
Non-current assets      
Intangible assets 6 21,766 23,070
Property, plant and equipment 7 316 918
Right-of-use assets 8 6,715 7,610
Trade and other receivables 10 121,453 121,365
Total non-current assets   150,250 152,963
Current assets      
Trade and other receivables 10 51,123 52,751
Cash and cash equivalents 11 51,837 49,244
Total current assets   102,960 101,995
Total assets   253,210 254,958
Current liabilities      
Trade and other payables 12 (215,001) (211,005)
Other financial liabilities 13 (928) (928)
Provisions for liabilities and charges 14 (957,230) (859,894)
Total current liabilities   (1,173,159) (1,071,827)
Total assets less current liabilities   (919,949) (816,869)
Non-current liabilities      
Other financial liabilities 13 (5,599) (6,199)
Provisions for liabilities and charges 14 (722) (794)
Total non-current liabilities   (6,321) (6,993)
Total assets less liabilities   (926,270) (823,862)
Taxpayers’ equity      
Revaluation reserve   2,591 2,775
General reserve   (928,861) (826,637)
Total taxpayers’ equity   (926,270) (823,862)

The notes on pages 97-134 form part of these financial statements.

Signed for and on behalf of the Legal Aid Agency

Jane Harbottle

Chief Executive and Accounting Officer

Legal Aid Agency

22 July 2024

2023‑24 2022‑23
Notes £000 £000
Cash flows from operating activities      
Net operating cost 2 (2,286,246) (2,068,029)
Adjustments for notional and non-cash transactions   36,028 39,745
Intra-departmental balances settled via general reserves   (3,281) (1,504)
(Increase)/decrease in trade and other receivables 10 1,540 7,158
Increase/(decrease) in trade and other payables 13 3,996 8,700
Less movement in lease trade payables   – –
Increase/(decrease) in financial liabilities 13 (600) 1,719
Less repayments of principal on leases   1,342 1,880
Less lease additions 8 (149) (3,658)
Less movements in payables relating to items not passing through the Statement of Comprehensive Net Expenditure   387 297
Movement in provisions   97,264 122,965
Net cash outflow from operating activities   (2,149,719) (1,890,727)
Cash flows from investing activities      
Purchase of intangible assets 6 (128) (1)
Purchase of property, plant and equipment 7 (8) (332)
Net cash outflow from investing activities   (136) (333)
Cash flows from financing activities      
Supply funding from MOJ: revenue   2,154,133 1,905,245
Supply funding from MOJ: capital   (343) 36
Repayments of principal on leases 8 (1,342) (1,880)
Net cash inflow from financial activities   2,152,448 1,903,401
Net increase/(decrease) in cash and cash equivalents in year   2,593 12,341
Cash and cash equivalents at the beginning of the year   49,244 36,903
Cash and cash equivalents at the end of the year 12 51,837 49,244

The notes on pages 97-134 form part of these financial statements.

Revaluation reserve General reserve Total
Notes £000 £000 £000
Balance at 1 April 2023   2,775 (826,637) (823,862)
Net operating cost for the year 2 – (2,286,246) (2,286,246)
Supply funding from MOJ: revenue   – 2,154,133 2,154,133
Supply funding from MOJ: capital   – (343) (343)
Other comprehensive expenditure        
Net gain on revaluation 6, 7, 8 282 – 282
Non-cash adjustments        
Intra-departmental adjustment   – 528 528
Notional recharge from MOJ 5 – 28,908 28,908
Notional external audit fee 5 – 330 330
Movement in reserves        
Transfers from revaluation reserve   (466) 466 –
Balance at 31 March 2024   2,591 (928,861) (926,270)
Balance at 1 April 2022   2,625 (697,003) (694,378)
Net operating cost for the year 2 – (2,068,029) (2,068,029)
Supply funding from MOJ: revenue   – 1,905,245 1,905,245
Supply funding from MOJ: capital   – 36 36
Other comprehensive expenditure        
Net gain on revaluation 6, 7, 8 548 – 548
Non-cash adjustments        
Intra-departmental adjustment   – (632) (632)
Notional recharge from MOJ 5 – 33,058 33,058
Notional external audit fee 5 – 290 290
Movement in reserves        
Transfers from revaluation reserve   (398) 398 –
Balance at 31 March 2023   2,775 (826,637) (823,862)

The notes on pages 97-134 form part of these financial statements.

Notes to the financial statements for the period ended 31 March 2024

Note 1 – Statement of accounting policies

The financial statements have been prepared in accordance with the Government Financial Reporting Manual (FReM) 2023-24, under the direction issued by HM Treasury under the Government Resources and Accounts Act 2000. The accounting policies contained in the FReM apply International Financial Reporting Standards (IFRS) as adapted or interpreted for the public sector context. Where the FReM permits a choice of accounting policy, the accounting policy that is judged to be most appropriate to the circumstances of the LAA for the purpose of giving a true and fair view has been selected. The accounting policies adopted by the LAA are described below. They have been applied consistently in dealing with items that are considered material to the financial statements.

a) Basis of preparation

The financial statements are presented in Sterling rounded to the nearest thousand (£000) unless otherwise stated. The financial statements have been prepared under the historical cost convention, modified to account for the revaluation of certain financial assets and liabilities.

Significant judgements and sources of estimation

The preparation of financial statements requires the use of judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenditure during the reporting period.

The estimates and associated assumptions included within the financial statements are based on data held by the LAA, historical experience and various other factors. These are believed to provide a reasonable basis on which the carrying values of assets and liabilities that are not readily apparent from other sources can be estimated.

The key areas in which management make estimations are intangible assets (note 6), trade and other receivables (note 10) and provisions for liabilities and charges (note 14). These notes contain further information about the nature of the estimates.

Going concern

The LAA is an executive agency of the MOJ established under the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act 2012 to commission, procure and pay for legal aid services from providers (solicitors, barristers, mediators and the not-for-profit sector).

The future financing of the LAA’s activities is expected to be met by the MOJ from funds, which are voted annually under the relevant Appropriation Act. The LAA takes the view that the going concern concept applies as long as the provisions of the LASPO Act 2012 remain extant.

b) Changes in accounting policies and disclosures

New and amended standards adopted

There have been no new or amended standards adopted in the financial year beginning 1 April 2023.

New standards, amendments and interpretations issued but not effective for the financial year beginning 1 April 2023 and not early adopted

IFRS 17 ‘Insurance Contracts’ requires a discounted cash flow approach to accounting for insurance contracts. The EU adopted the standard in November 2021, but the Financial Reporting Advisory Board has agreed to delay the mandatory adoption of the standard until 2025-26 and should be included in the 2025-26 FReM at the earliest. Early adoption of IFRS 17 may be permitted on a case-by-case basis as agreed with HM Treasury. To assess the impact of the standard, the LAA will review contracts which meet the definition of insurance contracts.

The LAA does not consider that any other new or revised standard or interpretation will have a material impact.

c) General reserve

Supply funding

Supply funding received from the MOJ is credited to the general reserve within the Statement of Changes in Taxpayers’ Equity upon receipt of funds. The LAA receives supply funding from the MOJ periodically throughout the year and it is accounted for on a cash basis.

Intra-departmental adjustment

Intra-departmental adjustments relate to the settlement between the LAA and the MOJ of:

• transfers of property, plant and equipment
• intercompany purchase and sale transactions

d) Segmental analysis

Operating segments are determined in accordance with IFRS 8 ‘Operating Segments’ based on what information is presented for decision making purposes to the LAA Board.

e) Income

The LAA’s income includes:

• contributions from funded clients
• costs recoverable from funded clients or others
• recoveries from damages and statutory charges
• Crown Court recoveries
• recoveries of defence costs
• income from the Public Defender Service
• administration income

Income is recognised at the point when it is probable that the economic benefits associated with funding a case would flow to the LAA.

The majority of income relates to the reimbursement of legal aid spend, and we consider the legislation under which charges and recoveries are made to constitute a contract: this income is within the scope of, and accounted for under, IFRS 15 ‘Revenue from contracts with customers’.

Recoveries from damages and statutory charges

Statutory charges and damages arise when legally aided clients successfully gain or retain an asset or damages as a result of the legal assistance they receive. In these circumstances the client must repay the cost of their legal aid. If the client has insufficient disposable assets to repay the legal aid, the LAA gains security over the debt by registering a formal charge over the relevant asset.

Amounts are accounted for as income when they have been assessed as owing to the LAA, in accordance with the five-step model set out in IFRS 15 ‘Revenue from contracts with customers’.

Statutory charge interest receivable

Under the Legal Aid Act 1974, the Legal Aid Act 1988, the Access to Justice Act 1999, and the LASPO Act 2012, where funded clients have recovered or preserved property rather than obtaining damages, recoverable costs may be secured by a charge against the property. Under the Community Legal Service (Financial) Regulations 2000 as amended by the Community Legal Service (Financial) (Amendment) Regulations 2005 and the Civil Legal Aid (Statutory Charge) Regulations 2013, some of these debts are interest bearing debts which have interest due on the outstanding principal balance at 8% per annum.

Crown Court Means Testing

Income from Crown Court Means Testing is recovery of legal aid costs relating to criminal cases. The LAA is only entitled to this income when an applicant is convicted. The income is recognised at a point in time, on conclusion of a case. At this point the LAA has satisfied its obligation to provide

legal aid services, and the outcome of the case and the amount the client is required to reimburse the LAA for legal aid costs are known.

f) Expenditure

Expenditure (notes 4 and 5) comprises sums payable, including:

• the estimated value of work completed by legal aid service providers not yet billed
• expenditure under the legal aid schemes which includes services provided to funded clients
• refunds of contributions to funded clients
• costs awarded to other parties and other costs associated with the provision of legal advice and assistance
 • other operating expenditure which includes the cost of staff and the administrative costs of running the LAA

g) Employee benefits

The LAA accrues for the expected cost of the annual leave entitlement of its employees in accordance with IAS 19 ‘Employee Benefits’. The LAA estimates this accrual by calculating the average value of outstanding leave across each pay band which is then used to provide an extrapolated total.

h) Pensions

The Principal Civil Service Pension Scheme (PCSPS) is an unfunded defined benefit scheme of which the LAA is unable to recognise its share of underlying assets and liabilities. In accordance with the FReM, the LAA accounts for this as a defined contribution scheme. The LAA recognises contributions payable to defined contribution schemes as an expense in the year in which it is incurred, and the legal or constructive obligation is limited to the amount that it agrees to contribute to the fund.

i) Notional recharges

The notional recharge from the MOJ represents the LAA’s usage of corporate services. The notional audit fee represents the cost of the annual external audit performed by the NAO on behalf of the Comptroller and Auditor General.

j) Accounting for Value Added Tax

Irrecoverable Value Added Tax (VAT) is charged to the relevant expenditure category or, if appropriate, capitalised with additions to non-current assets. Income and expenditure are otherwise shown net of VAT.

k) Assets under construction

Assets under construction are valued at historical cost within property, plant and equipment and intangible assets as appropriate, and are not depreciated or amortised. An asset ceases to be classified as an asset under construction when it is ready for use. Its carrying value is then removed from assets under construction and transferred to the respective asset category. Depreciation or amortisation is then charged on the asset in accordance with the stated accounting policy. Expenditure is capitalised where it is directly attributable to bringing an asset into working condition, such as external contractor costs and relevant employee costs.

l) Intangible assets

Intangible assets comprise internally developed computer software (including assets under construction) and purchased software licences.

Development costs that are directly attributable to the design and testing of identifiable and unique software products, such as external contractor costs and relevant employee costs, are recognised as intangible assets when they meet the criteria of the FReM, which has been adapted from IAS 38 ‘Intangible Assets’. Other expenditure that does not meet this criterion is recognised as an expense as incurred.

The useful lives of internally developed software range from one to 10 years. In accordance with IAS 38 ‘Intangible Assets’, the LAA reviews the economic useful lives of its intangible assets each financial year.

Purchased software licenses are recognised when it is probable that future service potential will flow to the LAA and the cost of the license can be measured reliably. These licences are initially measured at cost. Purchased software licenses are amortised over the license period.

The LAA applies a capitalisation threshold for intangible assets of £10,000.

Subsequent to initial recognition, intangible assets, excluding assets under construction, are restated to fair value. As no active market exists for the LAA’s intangible assets, fair value is assessed as replacement cost less any accumulated amortisation and impairment losses.

Intangible assets are revalued at each reporting date using Producer Price Indices (PPI) for Current Cost Accounting, published by the Office for National Statistics.

m) Property, plant and equipment

Property, plant and equipment assets costing more than the capitalisation threshold of £10,000 are treated as capital assets. Where an item costs less than the capitalisation threshold but forms part of an asset or grouped asset, whose total value is greater than the capitalisation level, the item is treated as a capital asset.

Property, plant and equipment is restated at fair value each year by indexation up to the year end using PPI for Current Cost Accounting, published by the Office for National Statistics.

n) Leases

Scope and exclusions – LAA as lessee

In accordance with IFRS 16 ‘Leases’, contracts, or parts of contracts, that convey the right to control the use of an asset for a period of time are accounted for as leases.

Contracts for services are evaluated to determine whether they convey the right to control the use of an identified asset, incorporating both the right to obtain substantially all the economic benefits from the asset and to direct its use. If so, the relevant part of the contract is treated as a lease.

As adapted by the FReM, IFRS 16 has been applied to leases with nil or nominal (that is, significantly below market value) consideration and arrangements for accommodation between government departments.

When making these assessments, the LAA excludes two types of leases. Firstly, those relating to low value items, which it considers as those where the underlying asset would have a cost of less than £10,000 when new, provided those items are not highly dependent on or integrated with other items. Secondly, contracts whose term (comprising the non-cancellable period together with any extension options the LAA is reasonably certain to exercise and any termination options the LAA is reasonably certain not to exercise) is less than twelve months.

Initial recognition – LAA as lessee

At the commencement of a lease the LAA recognises a right-of-use asset and a lease liability.

The lease liability is measured at the value of the remaining lease payments, discounted either by the interest rate implicit in the lease, or where this is not readily determinable, the LAA’s incremental rate of borrowing. This rate is advised annually by HM Treasury (3.51 for leases recognised in 2023, 4.72 for those in 2024). Where the lease includes extension or termination options, the lease payments will be for the non-cancellable period together with any extension options the LAA is reasonably certain to exercise and any termination options the LAA is reasonably certain not to exercise.

In the event that a lease contract has expired but the LAA remains in occupation pending negotiations for a renewed term, the lease term has been measured as the estimated time until the new contract will be agreed.

The measurement of lease payments excludes any VAT payable, and irrecoverable VAT is expensed at the point it falls due in line with IFRS Interpretations Committee 21 Levies. Where the Government Property Agency passes on the cost of VAT payable to a head landlord, but has not opted to tax the property, the VAT cost passed on is not expensed: it is included in the lease liability and right-of-use asset value.

The right-of-use asset is measured at the value of the lease liability, adjusted for:

• any lease payments made before the commencement date
• any lease incentives received
• any incremental costs of obtaining the lease
• any costs of removing the asset and restoring the site at the end of the lease.

However, where the lease requires nil or nominal consideration (usually referred to as a ‘peppercorn’ lease), the asset will instead be measured at its existing use value, with the difference between the carrying amount of the right-of-use asset and lease liability treated as notional income (or on transition, a credit to the General Fund).

Subsequent measurement – LAA as lessee

The lease liability will be adjusted for the accrual of interest, repayments, reassessments and modifications. Reassessments are reappraisals of the probability of the options given by the existing lease contract, for example, where we no longer expect to exercise an extension option; modifications are changes to the lease contract. Reassessments and modifications are accounted for by discounting the revised cash flows: using a revised discount rate where the LAA becomes or ceases to be reasonably certain to exercise or not exercise an extension or termination option, or the lease is modified to amend the non-cancellable period, change the term of the lease, change the consideration or the scope; or at the existing discount rate where there is a movement in an index or rate that will alter the cash flows, or the amount payable under a residual value guarantee changes.

After initial recognition, the right-of-use asset will be measured using the fair value model. The LAA considers that the cost model (measurement by reference to the lease liability) is a reasonable proxy for fair value, in the case of non-property leases, and for property leases of less than five years or with regular rent reviews.

For other leases, the asset will be carried at a revalued amount. The value of the asset will be adjusted for subsequent amortisation and impairment, and for reassessments and modifications of the lease liability as described above. Where the amount of a reduction to the asset exceeds the carrying value of the asset, the excess amount is recognised in expenditure.

Expenditure for each financial year includes interest on the lease liability and a straight-line amortisation charge on the right-of-use asset over the life of the lease, together with any impairment of the right-of-use asset and any change in variable lease payments, that was not included in the measurement of the lease payments during the period in which the triggering event occurred. Rental payments in respect of leases of low value items, or with a term under twelve months, are also expensed.

Finance and other leases – LAA as lessor

Where the LAA acts as a lessor, the arrangement will be assessed to determine whether it constitutes a finance lease, being where the risks and rewards incidental to ownership of an underlying asset are substantially transferred to the lessee. For these leases, the asset is derecognised and a receivable is recognised, with accrued interest being treated as income over its life. For all other leases rental income is recognised on a straight-line basis.

Estimates and judgements

Where a lease is embedded in a contract for services, the amount to be recognised as the right‑of‑use asset and lease liability should be the stand-alone price of the lease component only. Where this is not readily observable, a determination will be made by reference for other observable data, such as the fair value of similar assets or price of contracts for similar non-lease components.

The LAA has determined the lease term by assessing the level of certainty as to whether termination or extension options will be exercised. In making these judgements, reliance has been placed on the professional judgement of estates staff, supported by information on corporate asset management plans, other business strategies, investment already made in the underlying asset, ongoing business needs and market conditions.

The LAA has determined that the cost model is a reasonable proxy for fair value in most cases, because the rents payable are in line with open market rates. In the case of longer leases where there are not regular rent reviews, there is a greater chance of divergence between cost and fair value, hence a professional revaluation is appropriate.

The LAA leases various non-property assets. It has determined that, at the present time, all non-property leases which are not individually low value are immaterial. Consequently, no non-property leases have been recognised in these accounts.

o) Depreciation and amortisation

Except for assets under construction, depreciation or amortisation is provided on all non-current assets on a straight-line basis to write off the cost of assets over their estimated useful lives as follows:

• Fixtures and fittings – five years
• Furniture and equipment – three to five years
• Information technology – three to five years
• Computer software – three to 15 years
• Right-of-use assets – the life of the lease

p) Revaluation

When an asset’s carrying amount increases as a result of a revaluation, the increase is recognised in the Statement of Comprehensive Net Expenditure to the extent that it reverses a revaluation decrease of the same asset previously recognised here. Any remaining increase is credited directly to the revaluation reserve in the Statement of Changes in Taxpayers’ Equity. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset. The net amount is restated to the revalued amount of the asset.

The revalued element, representing the difference between depreciation based on the revalued carrying amount of the asset charged to the Statement of Comprehensive Net Expenditure and depreciation based on the asset’s original cost, is transferred from the revaluation reserve to the general reserve each year.

q) Impairment of non-financial assets

At each reporting date, the LAA reviews the carrying amounts of its property, plant and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the fair value of the asset is estimated to determine the extent of the impairment loss.

Impairments that reflect a permanent diminution in the value of an asset, as a result of a clear consumption of economic benefit or service potential, are charged directly to the Statement of Comprehensive Net Expenditure, with any remaining revaluation reserve balance released to the general reserve.

When an asset’s carrying amount decreases (other than as a result of a permanent diminution), the decrease is recognised in the revaluation reserve to the extent that a balance exists in respect of the asset. Decreases in excess of the revaluation surplus are charged to the Statement of Comprehensive Net Expenditure.

Any reversal of an impairment charge is recognised in the Statement of Comprehensive Net Expenditure to the extent that the original charge, adjusted for subsequent depreciation, was previously recognised here. The remaining amount is recognised in the revaluation reserve.

r) Financial instruments – assets

The LAA’s financial assets comprise cash and cash equivalents, and trade and other receivables.

The LAA’s receivables are accounted for under IFRS 9 ‘Financial Instruments’ and IFRS 13 ‘Fair Value Measurement’. Gains and losses are disclosed within note 4, expenditure under legal aid schemes.

Assets measured at fair value

Statutory charge and interest receivables are measured at fair value through the profit or loss in accordance with IFRS 13, as they are not solely payments of principal and interest, and therefore do not meet the tests set out in IFRS 9.

IFRS 13 applies the consideration of the three hierarchies set under the standard for determining fair value. This is explained in note 9. The practical application of IFRS 13 with reference to the LAA’s assets is explained in note 10, including detail regarding key assumptions which support the most significant fair value estimates set out in note 10.

Assets measured at amortised cost

The LAA recognises an impairment for expected credit losses on financial assets measured at amortised cost under IFRS 9 ‘Financial instruments’. This includes receivables from legal aid providers and clients who are not subject to the statutory charge. Subsequent to initial recognition, at fair value, these assets are carried at amortised cost using the effective interest rate method, less any impairment. Any interest receivable or loss arising on impairment is recognised in the Statement of Comprehensive Net Expenditure.

The LAA derecognises a financial asset only when the contractual rights to the cash flows for the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership to another entity.

s) Impairment of financial assets

For assets held at amortised cost, IFRS 9 requires the LAA to recognise at amortised cost and to then recognise expected credit losses based on historic experience and adjusted for reasonable and supportable forward-looking information such as management’s assessment of likely recoveries. This assessment may be of individual assets (individual impairment) or of a portfolio of assets (collective impairment). An assessment of collective impairment is made of financial assets with similar risk characteristics. For these assets, the LAA’s previous experience of losses in each portfolio is used to estimate the degree of impairment on that asset class.

Where such an estimate is made, impairment provisions are made to reduce the carrying value of financial assets accordingly. LAA applies the simplified model as permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

Further detail on the valuation models used to generate these estimates and the actual impairments against the LAA’s receivables is included in note 10 to these financial statements.

Default is determined by reference to one or more missed contractual payments but also include arrangements in place to pay less than contractual payments, fraud and bankruptcy or other indicators.

t) Cash and cash equivalents

Cash and cash equivalents comprise bank balances held with commercial banks including those administered through the Government Banking Service, with original maturities of three months or less.

u) Financial instruments – liabilities

Initial recognition and measurement

The LAA’s financial liabilities comprise trade and other payables. These are initially measured at fair value, which is their transaction price. They are subsequently valued at amortised cost, but this has nil impact due to their short maturities. The LAA is not empowered to borrow money.

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.

Liabilities measured at fair value

An analysis of fair values of financial instruments and further details of how they are measured is provided in financial risk identification and management (note 9) to these financial statements.

v) Provisions

Provisions represent liabilities of uncertain timing or amount. Provisions are recognised when the LAA has a present legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and for which a reliable estimate can be made for the amount of the obligation. Provisions reflect the best estimate of the expenditure required to settle the obligation. Where the effect is material, the estimated cashflows are discounted. The effect of discounting is charged directly to the Statement of Comprehensive Net Expenditure.

Amounts outstanding on funded cases

The LAA recognises its liability to pay for work completed by legal aid providers at the reporting date but not yet billed. Estimates for each legal aid scheme, including Civil Representation, Civil Legal Help, Crime Higher and Crime Lower are produced using available data and statistical modelling techniques. The assumptions used by management in producing these estimates are described in note 14, provisions for liabilities and charges.

Provision for amounts outstanding in relation to privately funded cases (Central Funds)

Under the terms of the Prosecution of Offences Act 1985, acquitted defendants who have applied for legal aid and been found ineligible may, in limited circumstances, obtain an order from the Crown Court to recover their costs. The LAA estimates the value of unbilled costs to arrive at the amount disclosed in the financial statements as a provision. The amount is an estimate of the expenditure required to settle any obligation at the reporting period end date.

Dilapidations of leasehold property

Provision is made for estimated dilapidation costs on leasehold buildings. The provision has been estimated with reference to the condition and location of the buildings and the requirements of the relevant lease.

Provisions are made for costs when it is probable that an outflow of resources will be required to settle a current obligation.

w) Contingent assets and liabilities

A contingent asset is a potential asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the LAA. A contingent asset is disclosed where an inflow of economic benefits is probable.

A contingent liability is disclosed when the likelihood of a payment is less than probable, but more than remote. In addition to contingent liabilities disclosed in accordance with IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’, the LAA discloses, for parliamentary reporting and accountability purposes, certain statutory and non-statutory contingent liabilities, where the likelihood of transfer of economic benefit is remote, as required by Managing Public Money.

x) Third-party assets

Deposit accounts for funded clients

Awards for damages to funded clients are initially payable to the LAA. The LAA places these funds on deposit until the final costs of a case have been calculated, when any excess of contributions and damages is paid to the funded client. These funds are accounted for as assets held on behalf of third parties and are therefore not recognised in the Statement of Financial Position. Awards for damages paid to the LAA attract interest after a qualifying period.

Crown Court Means Testing

Contributions may be payable to the LAA towards the cost of Crown Court proceedings in those cases that have been subject to means testing. The LAA places these funds on deposit and accounts for them as funds held on behalf of third parties, therefore they are not recognised in the Statement of Financial Position. Once the final judgment and costs have been determined, if the applicant is found guilty, the value of the funds up to the cost limit are due to the LAA. If the applicant is found not guilty, contributions paid to the LAA are refunded including interest calculated at 2% per annum from the date of payment.

The movement in third-party funds is reported in third-party assets (note 18) to these financial statements.

y) Events after the reporting period

In accordance with the requirements of IAS 10 ‘Events after the Reporting Period’, events are considered up to the date on which the financial statements are authorised for issue, which is interpreted as the date of the certificate and report of the Comptroller and Auditor General.

Note 2 – Segmental analysis

The LAA divides net operating costs into three segments for making operational decisions and reporting to the LAA Board: Legal Aid Fund, Central Funds and Administration.

The Legal Aid Fund is further subdivided into:

• Civil Representation – legal aid in relation to representation by barristers and solicitors in civil cases that could go to court
• Legal Help – legal aid in relation to advice and support provided for a legal issue
• Crime Lower – legal aid in relation to representation of those accused of criminal offences at police stations and Magistrates’ Courts
• Crime Higher – legal aid in relation to representation in Crown Courts, the Court of Appeal and the Supreme Court

Central Funds reflects spend on orders made to acquitted defendants who have privately funded their legal representation, while Administration reflects the costs of running the LAA.

The following table presents the net operating cost by segment:

2023‑24 2022‑23
£000 £000
Legal Aid Fund
Civil Representation 841,749 897,614
Legal Help 124,537 104,298
Crime Lower 306,494 272,728
Crime Higher 867,330 643,999
Central Funds 56,189 59,659
Administration 89,947 89,731
Net operating costs 2,286,246 2,068,029

Note 3 – Income under the legal aid schemes

2023‑24 2022‑23
£000 £000
Civil Representation    
Contributions by funded clients 3,041 3,621
Recoveries from damages and statutory charges 7,164 6,167
  10,205 9,788
Criminal cases    
Crown Court recoveries 23,570 21,678
Recovery of defence costs 19 –
Public Defender Service income 202 312
  23,791 21,990
Total 33,996 31,778

Note 4 – Expenditure under the legal aid schemes

2023‑24 2022‑23
£000 £000
Civil Representation    
Solicitors’ charges, counsel fees and disbursements (provided in year – note 14)    
Bills submitted in year 855,219 837,864
Provision for work in progress movement (2,639) 74,246
Refund of contributions 351 725
Costs of successful unassisted parties 489 796
Movement in fair value reduction for statutory charge secured debt 1,135 (225)
Movement in fair value reduction for statutory charge interest debt 1,207 1,001
Debt impairment and write-offs 430 (4,156)
Discount of debt (104) 1,340
  856,088 911,591
Legal Help    
Solicitors’ charges, counsel fees and disbursements (provided in year – note 14)    
Bills submitted in year 110,220 97,972
Provision for work in progress movement 7,187 1,772
Direct services 6,752 4,899
Debt impairment and write-offs (19) (718)
Discount of debt (1) (26)
  124,139 103,899
Crime Lower    
Solicitors’ charges, counsel fees and disbursements (provided in year – note 14)    
Bills submitted in year 295,089 252,654
Provision for work in progress movement 4,484 14,253
Direct services and Public Defender Service 5,143 4,195
Debt impairment and write-offs (37) (125)
Discount of debt (2) (3)
  304,677 270,974
Crime Higher    
Solicitors’ charges, counsel fees and disbursements (provided in year – note 14)    
Bills submitted in year 776,331 617,076
Provision for work in progress movement 96,528 29,092
Direct services and Public Defender Service 319 267
Debt impairment and write-offs 10,858 13,841
Discount of debt 3,265 2,178
  887,301 662,454
Central Funds    
Central Fund expenditure (provided in year – note 14)    
Bills submitted in year 673  
Defence cost orders awarded in Crown and magistrates’ courts 46,489 42,424
Provision for work in progress movement (7,817) 3,268
Interpreters and other 16,844 13,966
  56,189 59,658
Subtotal 2,228,394 2,008,576
Depreciation expense 94 95
Total 2,228,488 2,008,671

Note 5 – Staff and other costs

2023‑24 2022‑23
£000 £000
Staff costs    
Wages and salaries 41,176 36,030
Social security costs 4,122 3,714
Other pension costs 9,782 9,021
  55,080 48,765
Other operating expenditure    
Accommodation and related costs 2,197 2,216
Property rentals not falling within IFRS 16 101 253
Office, IT and service running costs 1,001 1,711
Staff and committee member related costs 543 736
Legal and professional costs 1,218 1,141
Service level agreements with HMCTS 83 106
Lease interest expense 44 119
Other administration costs 405 539
Non-cash costs    
Notional recharge from MOJ 28,908 33,058
Notional external audit fee 330 290
Movement in provision for legal costs and dilapidations (522) 269
Loss on disposal of assets – –
  34,308 40,438
Depreciation, amortisation and impairment charges    
Amortisation of intangibles 5,268 5,028
Depreciation of property, plant and equipment 179 108
Amortisation of right-of-use assets 1,249 1,150
  6,696 6,286
Total 96,084 95,489

Note 6 – Intangible assets

Computer software Assets under construction Total
£000 £000 £000
Cost or valuation      
At 1 April 2023 86,876 146 87,022
Reclassifications 3,872 (3,872) –
Additions 6 122 128
Disposals – – –
Transfers from MOJ – 3,562 3,562
Revaluations 1,087 – 1,087
At 31 March 2024 91,841 (42) 91,799
Amortisation      
At 1 April 2023 63,954 – 63,954
Charged in year 5,268 – 5,268
Disposals – – –
Revaluations 811 – 811
At 31 March 2024 70,033 – 70,033
Net book value at 31 March 2024 21,808 (42) 21,766

The Revaluation Reserve of £2,591,000 at 31 March 2024 includes £1,958,000 (31 March 2023: £2,148,000) relating to intangible assets.

All intangible assets are owned by the LAA.

Computer software Assets under construction Total
£000 £000 £000
Cost or valuation      
At 1 April 2022 83,549 146 83,695
Reclassifications 870 (870) –
Additions 1 – 1
Disposals 80 – 80
Transfers from the MOJ – 870 870
Revaluations 2,376 – 2,376
At 31 March 2023 86,876 146 87,022
Amortisation      
At 1 April 2022 57,095 – 57,095
Charged in year 5,028 – 5,028
Disposals 80 – 80
Revaluations 1,749 – 1,749
At 31 March 2023 63,952 – 63,952
Net book value at 31 March 2023 22,924 146 23,070

Note 7 – Property, plant and equipment

Information Furniture and equipment Assets under construction Total
£000 £000 £000 £000
Cost or valuation        
At 1 April 2023 8,004 579 479 9,062
Reclassifications – – – –
Additions – 8 – 8
Disposals – – (479) (479)
Transfers – 42 – 42
Revaluations 92 11 – 103
At 31 March 2024 8,096 640 – 8,736
Depreciation        
At 1 April 2023 8,004 140 – 8,144
Charged in year – 179 – 179
Revaluations 92 5 – 97
At 31 March 2024 8,096 324 – 8,420
Net book value at 31 March 2024 – 316 – 316

There were no capital accruals included at 31 March 2024 (31 March 2023: £479,000).

The revaluation reserve of £2,591,000 at 31 March 2024 includes £633,000 (31 March 2023: £627,000) relating to property, plant and equipment.

All property, plant and equipment are owned by the LAA.

Information Furniture and equipment Assets under construction Total
£000 £000 £000 £000
Cost or valuation        
At 1 April 2022 7,785 309 787 8,881
Reclassification – 319 (319) –
Additions – 24 11 35
Revaluations 219 (73) – 146
At 31 March 2023 8,004 579 479 9,062
Depreciation        
At 1 April 2022 7,785 21 – 7,806
Disposals – – – –
Charged in year – 113 – 113
Revaluations 219 6 – 225
At 31 March 2023 8,004 140 – 8,144
Net book value at 31 March 2023 – 439 479 918

Note 8 – Leases

Right-of-use leased assets

2023‑24 2022‑23
£000 £000
Cost or valuation    
At 1 April 9,653 5,995
Additions 149 3,658
Transfers 205 –
Disposals (244) –
Remeasurement – –
At 31 March 9,763 9,653
Amortisation    
At 1 April 2,043 787
Charged in year 1,249 1,256
Disposals (244) –
Reclassifications – –
At 31 March 3,048 2,043
Net book value at 31 March 6,715 7,610

LAA’s right-of-use leased assets are all building leases.

Lease liabilities

31 March 31 March
2024 2023
£000 £000
Not later than one year 928 928
Later than one year and not later than five years 5,599 3,895
Later than five years – 2,548
Gross cash flows 6,527 7,371
Less interest element (44) (244)
Present value of obligations 6,483 7,127

Amounts recognised in the Statement of Comprehensive Net Expenditure

2023‑24 2022‑23
£000 £000
Depreciation 1,249 1,256
Interest expense 47 122
Low value and short-term leases 101 253
Total 1,397 1,631

Amounts recognised in the Statement of Cash Flows

2023‑24 2022‑23
£000 £000
Repayment of principal on leases 1,295 1,758
Interest expense 47 122
Total 1,342 1,880

Note 9 – Financial risk identification and management

IFRS 7 ‘Financial Instruments: Disclosures’, requires disclosure of the role that financial instruments have had during the year in creating or changing risk an entity faces in carrying out its business. As the cash requirements of the LAA are met through funding provided by the MOJ, which is itself funded through the Estimates process, financial instruments play a more limited role in creating and managing risk than would apply to a non-public sector body of a similar size. The LAA is exposed to minimal market, liquidity or interest rate risk: exposure to financial risk is mainly in respect of credit risk in relation to receivables.

The LAA’s financial risk management process seeks to enable the early identification, evaluation and effective management of key financial risks facing the LAA. Systems have been put in place to review and reflect changes in the legal aid market and the LAA’s activities.

Interest rate risk

The LAA is not exposed to significant interest rate risk.

At 31 March 2024, £95.3 million (31 March 2023: £94.0 million) of statutory charge debt was due, the principal of which carried a fixed rate of interest.

Money received by the LAA on behalf of funded clients is held on deposit until the case is concluded. Interest is paid to funded clients by reference to the London Inter Bank Offered Rate, at the rate of 0.5% per annum less the rate payable on damages on deposit in the general account.

Money received by the LAA in relation to Crown Court Means Test contributions is held until the final judgement and costs of the case have been determined. Refunds of contributions are paid to applicants that have been found not guilty including interest calculated at 2% per annum from the date of contribution receipt by the LAA. The balance of contribution monies is held as cash.

Credit risk

Credit risks arise from the LAA’s financial assets, which comprise cash and cash equivalents, trade and other receivables and other financial assets.

The LAA’s exposure to credit risk arises from potential default of a counterparty on their contractual obligations resulting in financial loss to the LAA. The LAA is exposed to credit risk when dealing with funded clients, suppliers and from certain financing activities.

Fair values

In accordance with IFRS 9 each financial asset is classified at initial recognition, or at the point of first adoption of IFRS 9, into one of three categories:

• financial assets at fair value through profit and loss
• financial assets at fair value through other comprehensive income
• financial assets at amortised cost

For assets at amortised cost, the amortised cost balance is reduced where appropriate by an allowance for amounts which were considered to be impaired or uncollectible.

Financial liabilities are classified into one of two categories:

• financial liabilities at fair value through profit and loss
• financial liabilities at amortised cost

The LAA considers that the carrying amounts for cash and cash equivalents, trade payables and other liabilities approximate to their fair value due to the short-term maturities of these instruments. Cash and cash equivalents comprise bank balances held with commercial banks, including those administered through the Government Banking Service, with original maturities of three months or less.

An explanation of the treatment of receivables is provided in note 10, trade and other receivables.

The carrying value of financial assets and liabilities is as follows:

31 March 2024 31 March 2023
£000 £000
Cash and cash equivalents 51,837 49,244
Trade and other receivables – current 51,123 52,751
Trade and other receivables – non-current 121,453 121,365
Trade and other payables – current (215,001) (211,005)
Lease liabilities – current (928) (928)
Lease liabilities – non-current (5,599) (6,199)
Total 2,885 5,228

As at 31 March 2024 there were no financial guarantees or third-party obligations, other than amounts held as damages on deposit and Crown Court means contributions, that increased the credit risk of the financial assets set out above.

Note 10 – Trade and other receivables

31 March 2024 31 March 2023
£000 £000
Amounts recoverable within one year    
Statutory charge 6,288 6,338
Statutory charge interest 4,998 5,042
Contributions due from funded clients 994 959
Costs to be recovered 285 315
Damages 100 108
Recovery of defence costs 5,255 5,081
Amounts due from service providers 25,739 28,813
Prepayments and accrued income 163 201
Intra-departmental debtors 3,394 4,877
Other receivables 3,907 1,017
  51,123 52,751
Amounts recoverable later than one year    
Statutory charge 44,391 43,544
Statutory charge interest 41,256 40,782
Contributions due from funded clients 3,337 4,420
Costs to be recovered 1,094 1,088
Damages 257 254
Recovery of defence costs 31,118 31,277
  121,453 121,365
Total 172,576 174,116

Under the Legal Aid Act 1974, the Legal Aid Act 1988, the Access to Justice Act 1999 and the LASPO Act 2012, where funded clients have recovered or preserved property rather than obtaining damages, recoverable costs may be secured by a charge against the property. Under the Community Legal Service (Financial) Regulations 2000 as amended by the Community Legal Service (Financial) (Amendment) Regulations 2005 and the Civil Legal Aid (Statutory Charge) Regulations 2013, some of these debts are interest bearing debts which have interest due on the outstanding balance at 8% per annum.

The income for statutory charge, statutory charge interest, contributions due from funded clients and recovery of defence costs are initially recognised under IFRS 15 ‘Revenue from Contracts with Customers’.

Valuation

The valuation of trade and other receivables includes an element of estimation.

The LAA provides for impairment of receivables based on historical cash collection experience and management assessment of likely recoveries, for each category of debt. This analysis is also used to inform the expected cash flows for trade and other receivables which are measured at fair value. Trade and other receivables have been discounted over the period from the reporting date to the expected date of collection, to reflect the effect of the time value of money. This has a material impact on their present value. Each class of receivable is discounted over periods commensurate with historical cash flow patterns, at a rate of 2.05% nominal and (-1.05% and -0.05%) in excess of RPI real until February 2030 and post February 2030 respectively (31 March 2023: 1.9% nominal and (-1.1% and -0.2%) in excess of RPI real until February 2030 and post February 2030 respectively). The LAA uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

• Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
• Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly
• Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data

All of the financial assets and liabilities measured at fair value fall within level 3.

Gross and net receivables balances, grouped by expected timing of recovery, are as follows:

31 March 2024 31 March 2023
£000 £000
Current    
Gross debt 145,598 138,704
Provision for impairment and cumulative fair value losses (94,475) (85,953)
  51,123 52,751
Non-current    
Gross debt 274,255 283,223
Provision for impairment and cumulative fair value losses (152,802) (161,858)
  121,453 121,365
Total 172,576 174,116

Gross and net receivables balances, grouped by component, are as follows:

31 March 2024 31 March 2023
Gross receivables Provision for impairment and cumulative fair value losses Total receivables Total receivables
£000 £000 £000 £000
Fair value through the profit and loss        
Statutory charge (secured) 71,061 (22,030) 49,031 48,170
Statutory charge interest 61,323 (15,069) 46,254 45,824
Amortised cost        
Statutory charge (unsecured) 4,141 (2,493) 1,648 1,712
Contributions due from funded clients 25,403 (21,073) 4,330 5,379
Costs to be recovered 5,190 (3,811) 1,379 1,403
Damages 2,526 (2,169) 357 362
Recovery of defence costs 177,140 (140,767) 36,373 36,358
Amounts due from service providers 65,605 (39,866) 25,739 28,813
Prepayments and secured income 163 – 163 201
Intra-departmental debtors 3,395 – 3,395 4,877
Other receivables 3,907 – 3,907 1,017
Total 419,854 (247,278) 172,576 174,116

The movement in receivables in the financial year was as follows:

Held at amortised cost Held at fair value through the profit and loss Total
£000 £000 £000
At 1 April 2023 80,122 93,994 174,116
Repayment of gross fund debt 44,349 (7,992) (52,345)
New gross fund debt 49,213 5,228 54,441
Fair value adjustment of fund debt through Statement of Comprehensive net income (2,923) (2,578) (5,501)
Increase in impairment of fund debt through Statement of Comprehensive Net Expenditure (3,522) 6,633 3,111
Movement in prepayments, accrued income, intra-departmental receivables and other receivables (1,250) – (1,250)
At 31 March 2024 77,291 95,285 172,576

Receivables held at fair value through profit and loss include both interest and non-interest bearing secured statutory charge debt, all other receivables are held at amortised cost.

Financial risk identification and management

The LAA has an inherent risk within trade and other receivables, as these are not predisposed to straightforward cash collections.

The LAA recognises this risk and mitigates it in the case of statutory charge debts, where enforcement of the debt may be deferred, by securing land charges and using active credit management policies to recover unsecured debts. In some cases the debt collection activities are outsourced to commercial debt collectors.

The size of the risk is reflected in the receivables impairment provision and cumulative fair value losses which total £247.3 million (31 March 2023: £247.8 million).

The majority of the LAA’s trade and other receivables are the result of a statutory charge: £95.3 (31 March 2023: £94.0 million) out of a total receivables balance after impairment of £172.6 million (31 March 2023: £174.1 million).

A high proportion of these are secured on property and settlement is deferred until the property is sold. Secured statutory charge debt is measured under IFRS 13 and reductions in carrying value are classed as fair value adjustments rather than impairments.

The LAA provides for impairment of receivables based on historical cash collection experience and management assessment of likely recoveries, for each category of debt. This analysis is also used to inform the expected cash flows for trade and other receivables which are measured at fair value. This assumes that future performance will be reflective of past performance and there will be no significant change in the payment profile or recovery rates within each identified group of receivables. To address the risk that this assumption is incorrect, the LAA undertakes a rollback review to compare previous estimated repayment profiles with the actual experience in subsequent years, to assess the accuracy of the profile and resulting impairment, adjusting assumptions where required. There have been no material adjustments to the assumptions as a result of this review at 31 March 2023.

There is no adjustment in the impairment of the LAA’s receivables at 31 March 2024 to reflect the potential future impact of current levels of inflation. Based on the experience from previous recessions we do not consider this will have a material impact on the fair value of receivables, and in particular secured debt, recognised in these accounts. The impact of a recession has historically resulted in a delay in the cash receipts on secured debt, due to the impact on the property market and delays to property sales which result in the repayment of the debt.

The impact of a 10% reduction in cash receipts across both secured and unsecured debt is shown below.

The LAA’s impairment model uses historical recovery profiles by debt category to estimate the provision required against debt balances. The impairment model is underpinned by specific assumptions including: the life of debt, the expected remittance profiles, and the discount rate is 2.05% nominal and -1.05% and -0.05% in excess of RPI real until February 2030 and post February 2030 respectively (2022-23: 1.9% nominal and -1.3% real).

The impact of the following reasonable possible alternatives to these assumptions has been considered:

• cash received evenly throughout the year rather than at the end of the year
• predicted cash receipts used to calculate the impairment provision cashflows +/- 10%
• discount rate +/- 1% (this rate is set by HM Treasury)

31 March 2024 31 March 2023
Increase/(decrease) in net financial assets
Assumptions tested Assumption £m £m
Income received Evenly through the year 1.2 2.4
Expected cash inflows based on historic repayment profiles +10% 9.1 9.7
Expected cash inflows based on historic repayment profiles -10% (9.3) (10.3)
Discount rate +1% (10.0) (9.1)
Discount rate -1% 11.9 10.5
Highest change   22.2 22.6
Lowest change   (19.3) (19.3)

Assumptions are reviewed annually and changed if management believe alternative assumptions are a better reflection of the underlying trends.

Note 11 – Cash and cash equivalents

2023‑24 2022‑23
£000 £000
At 1 April 49,244 36,903
Net change in balances 2,593 12,341
At 31 March 51,837 49,244

The balances were held at:

31 March 2024 31 March 2023
£000 £000
Government Banking Service 28,254 37,031
Commercial banks 23,583 12,213
Total 51,837 49,244

Note 12 – Trade and other payables

31 March 2024 31 March 2023
£000 £000
Amounts due to solicitors, counsel and advice agencies 72,970 70,841
Contribution refunds due to funded clients 2,065 2,048
Taxation and social security costs 902 842
Intra-departmental creditors 22,567 8,582
Other payables 8,852 7,831
Accruals for solicitors, counsel and advice agencies 107,645 120,861
Total 215,001 211,005

All trade and other payables fall due within one year.

Note 13 – Other financial liabilities

31 March 2024 31 March 2023
£000 £000
Lease liabilities – current 928 928
Lease liabilities – non-current 5,599 6,199
Total 6,527 7,127

Further information on lease liabilities and the related right-of-use assets is provided in note 8.

Note 14 – Provisions for liabilities and charges

Funded cases Central Funds Legal costs Dilapidations Total
£000 £000 £000 £000 £000
At 1 April 2023 830,311 28,731 353 1,293 860,688
Provided in year 2,142,418 38,672 – 97 2,181,187
Utilised in year (2,036,859) (46,489) (52) – (2,083,400)
Not required and written back – – (70) (452) (522)
At 31 March 2024 935,870 20,914 230 938 957,952
At 1 April 2022 710,947 25,463 107 1,206 737,723
Provided in year 1,924,930 45,692 281 252 1,971,155
Utilised in year (1,805,566) (42,424) (35) (165) (1,848,190)
Not required and written back – – – – –
At 31 March 2023 830,311 28,731 353 1,293 860,688

Provisions for work in progress on funded cases, by scheme category, are as follows:

Civil Representation Legal Help Crime Lower Crime Higher Total
£000 £000 £000 £000 £000
At 1 April 2023 298,891 47,460 46,296 437,664 830,311
Provided in year 852,580 117,407 299,573 872,859 2,142,419
Utilised in year (855,219) (110,220) (295,089) (776,331) (2,036,859)
At 31 March 2024 296,252 54,647 50,780 534,192 935,871
At 1 April 2022 224,643 45,687 32,043 408,574 710,947
Provided in year 912,112 99,745 266,907 646,166 1,924,930
Utilised in year (837,864) (97,972) (252,654) (617,076) (1,805,566)
At 31 March 2023 298,891 47,460 46,296 437,664 830,311

The expected timings of discounted cash flows are as follows:

Funded cases Central Funds Legal costs Dilapidations Total
£000 £000 £000 £000 £000
Not later than one year 935,870 20,914 232 216 957,232
Later than one year and not later than five years – – – 598 598
Later than five years – – – 124 124
At 31 March 2024 935,870 20,914 230 938 957,952
Not later than one year 830,311 28,731 353 499 859,894
Later than one year and not later than five years – – – 584 584
Later than five years – – – 210 210
At 31 March 2023 830,311 28,731 353 1,293 860,688

Funded cases

The LAA funds legal aid across four main schemes: Civil Representation, Legal Help, Crime Higher and Crime Lower. At any point in time there will be unbilled costs for each of these schemes, pertaining to live cases. The value of unbilled work and costs is estimated each year using complex models and based on the latest data available. The resulting work in progress (WIP) provisions are estimates of the expenditure required to settle any obligation in existence at the end of the reporting period. As per IAS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’, WIP liabilities are recognised as provisions, rather than as payables, due to the estimation uncertainty.

As all liabilities for funded cases are expected to be settled within the next 12 months, no discounting of provisions for the time value of money is applied.

In recognition of the uncertainty inherent in estimates, a sensitivity analysis is performed for each major class of funded WIP provision. Reasonable changes are made to the key assumptions in the models and the impact on the final WIP balance calculated. Assumptions have been changed to either represent those which would have been used by the model based on historical data trends or flexed by a percentage that is considered appropriate by management to show the impact on the provision. For each assumption which is being analysed for sensitivity, only that assumption is changed: if two or more assumptions are changed at one time, the actual sensitivity of a change in assumption is obscured because of the potential interaction between the assumptions.

Overarching assumptions

Underlying the estimates of liabilities for unbilled work across all of the legal aid funding schemes, and Central Funds, is the modelling assumption that costs accrue at a constant rate throughout the lifetime of cases. This is a simplifying modelling assumption. In reality, it is accepted that costs are generally concentrated towards the beginning and the end of legal matters. The LAA have demonstrated, however, that over a sufficiently large population of cases, this concentration of costs averages out to be equivalent to the assumption used within the modelling, that costs accrue at a constant rate.

Civil Representation: sensitivity analysis

The Civil Representation work in progress provision is calculated on a case-by-case basis using past patterns of activity, with multiple potential duration and cost outcomes. The calculations are segmented between the different expenditure streams and between different milestones in a case’s lifecycle. The model estimates activity to the next financial event in each expenditure stream, reflecting the business realities of billing timing.

The reasonable alternative assumptions below have been arrived at by observing the maximum historical high and low points within the actual source data of the respective models, adjusted for projected future trends.

The impact of the following reasonable alternatives to these inputs has been quantified:

Increase in net financial liability (Decrease) in net financial liability
Assumptions tested Assumption £m Assumption £m
Duration profile[footnote 1] Max duration +1 year 20.4 Max duration -1 year (20.4)
Final billing duration[footnote 2] +15 days 0.9 -15 days (0.9)
Average final bill value +15% 46.8 -15% (45.2)
Profile variance[footnote 3] -15% 20.7 +15% (31.0)

The above inputs are case data driven, with an overlay of management judgement, for example choosing the number of years’ historical case data to use in creating historical profiles. It should be noted the inherent sensitivity of the civil representation WIP provision is such that relatively small percentage movements in the above inputs could lead to the estimate crystallising at a materially different amount. All assumptions are reviewed periodically to ensure they remain appropriate. Using these reasonable alternative assumptions, the fair value of the financial liabilities at 31 March 2024 could be higher by up to +21.8% (£88.8 million) or lower by up to -24.0% (-£97.5 million).

The LAA uses complex valuation models to estimate the value of unbilled amounts on live cases. Each assumption within the provision models has been identified, a reasonable change identified and the impact on the final WIP balance calculated. Assumptions have been changed to either represent those which would have been utilised by the model based on historical data trends or flexed by a percentage that is considered appropriate by management to show the impact on the provision. For each assumption that is being analysed for sensitivity, only that assumption is changed. If two or more assumptions are changed at one time, the actual sensitivity of a change in assumption is obscured because of the potential interrelation of the assumptions. Where no override to the model has been made, sensitivity of that assumption has been manually applied where appropriate.

Based on the analysis completed, the following sensitivities are to be disclosed:

Increase in net financial liability (Decrease) in net financial liability
Assumptions tested Assumption £m Assumption £m
Forecast spend[footnote 4] 2.3% 1.4 -10.2% (6.5)
Case durations[footnote 5] 7.7% 13.9 -10.2% (18.4)
Price profiles[footnote 6] 5.6% 4.3 -4.9% (3.8)

Using these reasonable alternative assumptions, the fair value of the financial liabilities at 31 March 2024 could be higher by up to +10.9% (£19.7 million) or lower by up to -15.9% (-£28.7 million).

Crime Higher: valuation methodology

The Crime Higher Graduated Fee Scheme WIP estimates are calculated by considering cohorts of case starts and modelling their progress through the legal aid system, considering when the case completes, when the work is done on the case and the different types of bills that may be incurred in order to reflect the way the scheme operates as closely as possible. A separate calculation is then done to estimate the amount that has already been paid on these cases through interim payments.

Crime Higher: sensitivity analysis

Below are the reasonable alternative scenarios modelled. These relate to the flexing of certain assumptions, such as the number of cases expected to close or the amount of time a case takes to go through the system.

Increase in net financial liability (Decrease) in net financial liability
Assumptions tested Assumption £m Assumption £m
Price profiles[footnote 7] +10.0% 47 -10.0% (47.0)
Completion rates[footnote 8] +2.5% 44.4 -2.5% (40.1)
Case durations[footnote 9] -10.0% 40.2 +10.0% (40.4)
Transfers[footnote 10] -20% 8.1 +20% (8.1)

Relatively small changes in these inputs could lead to a material difference in the work in progress realised. Assumptions are reviewed annually to ensure they remain appropriate.

Using these reasonable alternative assumptions, the fair value of the financial liabilities at 31 March 2024 could be higher by up to +26.7% (£139.7 million) or lower by up to -25.9% (-£135.6 million).

Provision is made for legal costs associated with ongoing litigation, where it is probable that an outflow of resources will be required to settle a current obligation.

Dilapidations

Provision is made for estimated dilapidation costs on leasehold buildings. The provision has been estimated with reference to the condition and location of the buildings and the requirements of the relevant lease. The costs of the dilapidations provisions are expected to be incurred between 2024 and 2029 as each lease expires.

Note 15 – Commitments

2023‑24 2022‑23
£000 £000
Not later than one year 132 32
Later than one year and not later than five years 424 –
Later than five years – –
Total 556 32

Commitments include property rentals not falling within IFRS 16 and other non-property contracts.

Note 16 – Contingent assets and liabilities

At 31 March 2024, the LAA has two contingent assets in relation to costs orders from legal proceedings. While recovery continues to be pursued, due to the uncertainty over the recoverable value it is not considered practicable to quantify these assets (31 March 2023: two with a total value of £29 million).

Note 17 – Related party transactions

The LAA is an executive agency of the MOJ, which is regarded as a related party. During the year the LAA had various material transactions with the MOJ. The LAA has also had various material transactions HMCTS, an agency of the MOJ, relating to work provided by HMCTS on behalf of the LAA.

In addition, the LAA has had a number of transactions with other government departments and central government bodies. The most significant of these transactions have been with HMRC and PCSPS.

During 2023-24 no board members or other related parties have undertaken any transactions with the LAA (2022-23: no transactions). Compensation paid to management, including taxable benefits, is disclosed in the Remuneration and Staff Report.

Note 18 – Third-party assets

The LAA holds awards for damages and Crown Court Means Test contributions on behalf of funded clients (see note 1x).

The total third-party assets held as cash by the LAA are summarised below:

31 March 2023 Gross inflows Gross outflows 31 March 2024
£000 £000 £000 £000
Damages[footnote 11] 1,658 707 (1,245) 1,120
Crown Court Means Test[footnote 12] 18,396 20,893 (15,937) 23,352
Total 20,054 21,600 (17,182) 24,472

Note 19 – Events after the reporting period

In accordance with the requirements of IAS 10 ‘Events after the Reporting Period’, events are considered up to the date on which the financial statements are authorised for issue, which is interpreted as the date of the Certificate and Report of the Comptroller and Auditor General.

There are no subsequent events to report.

Footnotes

  1. Duration profile: In order to estimate the provision, profiles outlining the timing and magnitude of costs on civil representation cases are calculated. There is a degree of uncertainty in the calculation of these profiles, particularly due to the inherent time lag. We therefore make the assumption that the level of variance could be equal to the variance if this year's profile was extended by one year. ↩

  2. Final billing durations: It can take some time for Legal Aid providers to compile and submit their bills to us once work has completed on a case. The estimate of the provision assumes that the average delay will be equivalent to that seen in the preceding quarter, however, this does vary to a small degree over time. We therefore make the assumption that this delay could vary by up to 15 days in either direction. ↩

  3. Profile variance: In estimating the provision, we have made an adjustment to calculated billing profiles to account for recent changes in value and billing duration. These adjustments are based on emerging trends and therefore are subject to some uncertainty, which this variance represents. ↩

  4. Forecast spend: only for those estimates driven by forecast expenditure. There is an inherent level of uncertainty in the expenditure forecast used to derive the provision estimate. The potential level of variance is derived through an assessment of the accuracy of prior forecasts in the relevant area. ↩

  5. Case duration: there is a degree of uncertainty in assuming that case durations and billing delays will follow historical patterns, as they vary to a small degree over time. Sensitivity to this assumption has been reflected through assuming that durations could be as high as the maximum 3-month mean from the preceding 12-month period, or as low as the minimum 3-month mean from the preceding 12-month period. ↩

  6. Price profiles: there is a degree of uncertainty in assuming that future prices will follow historical patterns, as prices vary to a small degree over time. The sensitivity analysis considers that prices could vary by as much as the maximum monthly variance from the mean over the preceding 12-month period, or that they could take a value derived as the mean of a longer or shorter period. ↩

  7. Price profiles: there is a degree of uncertainty in assuming that future prices will follow historical patterns, as prices vary to a small degree over time. The sensitivity analysis considers that prices could vary by as much as 10% in either direction. ↩

  8. Completion rates: a number of representation orders never attract a bill, and so do not close. The model uses historical data to determine the likely proportion that these cases represent of the live case population. There is inherent uncertainty in assuming that the proportion will be similar to that seen historically, which this sensitivity represents. The proportion is flexed by 2.5% in either direction, representing the variance that we see in the proportion over time. ↩

  9. Case durations: the estimate of the provision assumes that average case durations will be consistent with those seen in recent prior periods, however, durations do vary to a small degree over time. We therefore make the assumption that durations could vary by up to 10% in either direction. ↩

  10. Transfers: an adjustment has been applied to the provision model at Q4 to account for the fact that a proportion of subsequent payments relate to transferred cases, rather than redeterminations. This sensitivity assumes that the proportion of subsequent claims that fall into this category could vary by as much as 20% from historical levels. ↩

  11. The LAA receives awarded damages awaiting the final settlement of a case and contributions from clients towards legal costs. ↩

  12. The LAA receives contributions towards costs awaiting the final judgment and calculation of the total costs of the case. The outcome of the case will determine whether the third-party asset transfers to the LAA or is returned to the third party. ↩

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