Interest on Lawyers' Client Accounts Scheme
- James Markham
- Jan 19
- 2 min read
A rare hot topic on a cold winter's day
Within Background to the current consultation (link below), the MoJ paints a picture of client interest being somewhat inconsequential to law firms, particularly with reference to 94% of 604 surveyed legal services providers claiming that losing the interest would have little/no impact
But this stands in stark contrast to:
- Adil Taha's recent analysis in the Financial Times citing £350m of client interest income in 2024 (i.e. that doesn't sound inconsequential!)
- The Law Society's Financial Benchmarking Survey 2025 stating "[T]here is the very real prospect of firms experiencing real financial stability problems without client interest", and
- The Solicitors Regulation Authority 2024 consultation on Client Money in Legal Services which highlighted increased risks of law firm failure, along with potential negative impacts for consumers when it comes to fees and reduced choice
At risk of sweeping generalisation, it will be smaller firms that suffer most from the proposal, and legal aid work is particularly vulnerable given it tends to be cross-subsidised from interest earned in other practice areas
That said, and irrespective of the merits of the current proposal, it seems to me only a matter of time before client interest is reduced or removed
The direction of travel has been clear for some time and I don't think the sector does itself any favours by crowing about the financial success of City firms (NQs are paid how much? Fee income has gone up again?) rather than advocating for a remedy to the parlous state of the courts and legal aid
If your firm's profitability or PEP is materially exposed to losing client interest, you broadly have four options to compensate:
- Increase prices
- Increase case loads and fee earner billable hour targets
- Increase fee earner leverage models, and/or
- Cost control
The first three of these typically sit within the control of individual partners and fee earners, and the fourth within central management or business services teams
It would be prudent to start looking at these options in any case, and certainly in advance of any changes to client account interest
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The Interest on Lawyers' Client Accounts Scheme is open for consultation until 9 February, further details at the link below:
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