The Ministry of Justice (MoJ) is facing warnings from the legal sector regarding a proposal that would divert funds generated from interest on lawyers' client accounts (ILCA) to the MoJ's budget. The Law Society of England and Wales has expressed strong opposition, stating that the move could jeopardize high street law firms and lead to increased legal fees for clients.
According to the Law Society's president, Mark Evans, the MoJ's consultation on the matter lacks clarity on how the proposal would work in practice and fails to acknowledge the potential severe repercussions for law firms and access to justice across England and Wales. He highlighted that firms might close, fees could rise, and clients would ultimately bear the impact.
Evans further noted that the legal sector is already grappling with high operational costs, including recent increases in national insurance contributions and new regulatory burdens such as anti-money laundering supervision and tax adviser registration. He described the proposal as a "perfect storm" that could undermine government efforts to foster economic growth and revitalize local economies.
Ahead of the Autumn Budget, the Law Society has alerted Chancellor John Healey to the risks associated with the proposed levy. Hywel Pegler, Head of Professional and Business Services at RSM UK, echoed these concerns, calling the ILCA scheme a "potentially seismic shift." He pointed out that while the levy aims to bolster investment in the UK legal justice system, it could significantly affect firms that rely on substantial interest income from client accounts, particularly smaller firms lacking the scale to absorb additional costs. Pegler also warned of potential impacts on investment activity, the need for firms to increase prices, and possible job cuts or closures.
