DASLS has prepared a robust and comprehensive response to the latest proposal by the Ministry of Justice to use interest generated by law firms on deposits of client funds.
Due to the large balances that solicitors hold in their client accounts, law firms are able to take advantage of better rates of interest creating a modest surplus after accounting to their clients. This surplus is subject to the usual rules of taxation. These proposals suggest that clients will lose out on interest currently paid to them.
Although law firms are not typically dependent on client interest for survival, it does contribute to overall profitability. The consultation itself recognises that firms vary significantly by size and practice area and that smaller firms operate on tighter margins.
That profitability supports recruitment, training, rural branch viability, technology adoption and service expansion.
Any reduction in revenue inevitably leads to contraction. The most likely areas of reduction are training budgets, innovation, staffing and regional presence.
These proposals risk accelerating the creation, or expansion, of advice deserts particularly in rural and non-metropolitan areas.
Solicitors do not rely on this income to run their firms and question whether it is appropriate to fund a government department in this way. The MoJ gives no assurance that this money would be ring fenced for legal aid projects or in pursuit of access to justice.
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