Could hit high street firms hardest, Law Society warns
The government has set out bold plans to help fund the justice system by taking up to three-quarters of the interest earned on law firms’ client accounts, a move that has sparked warnings about the impact on smaller high street firms.
Under a new consultation on an Interest on Lawyers’ Client Account (ILCA) scheme, the Ministry of Justice wants to claim a hefty 75% of the interest generated on pooled client accounts and 50% from individual client accounts. The money would be paid into the MoJ’s central budget.
For those unfamiliar with how this works, client account interest is generated when law firms temporarily hold clients’ money, for example during property transactions, probate matters or while legal fees are pending. While the interest technically belongs to the client, small amounts are often not returned and are instead used by firms to cover the cost of running compliant client accounts. It is this interest, rather than firms’ profits, that the government now wants to take a cut of.
Launching the consultation, Lord Chancellor David Lammy described client account interest as “unearned income”, saying that firms benefit from a strong justice system and should therefore play a role in funding it. “Law firms thrive when the system is strong,” he added, “so it follows that they should contribute to strengthening justice.”
In contrast to similar schemes overseas, where the money is often used to support legal aid or access to justice projects, the MoJ does not plan to ringfence the funds. Instead, it says the income should be used flexibly across the justice system to address the areas most in need.
The consultation is open for just five weeks and will close on 9 February.
The proposals have already drawn criticism. The Law Society warned that the scheme could force some high street firms to close and push legal fees higher. Its president, Mark Evans, said the MoJ lacked a clear plan for how the scheme would work in practice and had underestimated the damage it could cause to access to justice.
The MoJ points to its own research to argue that most firms would be unaffected. A 2024 survey of more than 600 legal service providers found that 92% said they were not reliant on client account interest to keep their business running. Most firms also reported that clients generally do not expect to receive interest, often because funds are held for short periods.
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