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Price of City law restricts access to justice

Charging by the hour is 'inefficient' and a 'productivity drain on the UK economy', says costs expert

5 February 2016

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The hourly rates of top partners in the City's biggest law firms are 'punitive' and risk restricting access to justice, a new report has claimed.

The Price of Law, published by the Centre for Policy Studies think tank, found that the hourly rates charged by London firms for top partners can exceed £1,000, the highest level ever recorded.

The report's author, costs expert Jim Diamond, said that those seeking to comply with UK regulations are forced to pay costs high enough to restrict access to the law, particularly for smaller businesses for which bills can be prohibitive.

Charging by the hour, rather than by the result, was described as inefficient and a productivity drain on the wider economy. The salaries associated with leading firms attract the best graduates who could instead be employed 'in a more productive industry', said Diamond.

The hourly rate for newly qualified solicitors (NQs) was found to have risen to between £350 and £400. NQs were estimated to bill between 1,600 and 1,800 hours annually, generating in excess of £500,000 a year in fee income.

According to the author, hourly rates for partners in the mid-1980s were in the region of £150 to £175, reaching £250 by the end of the decade. An as yet unpublished 2016 survey of partner rates is set to reveal that top partner rates are now as high as £1,100.

Total annual revenue of the top 28 UK firms stood at £15.2bn in 2015, a figure that has increased by 34 per cent over the last four years. Diamond remarked that though the top commercial City firms are some of the best legal practices in the world, they are also some of the least transparent in terms of pricing.

'While they do publish yearly statistics on the performance of their firm, from turnover to profit per partner, they do not publish information on the hourly rates charged to their clients.'

The report's author added that steps should be taken to ensure fair practice in legal procedure: 'The "billable hour" is an outdated and unsustainable billing method for legal services to continue.

'Alternative billing methods must be considered and legal procedure must be simplified to ensure that the legal market place thrives in the long term, and the price of law is not punitive.'

The report also found that the three main causes for the rapid increase in hourly rates include the increasing complexity of the UK tax and legal systems, the lack of transparency on legal costs, and a shortage of competition between elite firms.

The similarity in the rates charged by the Magic Circle suggests a shortage of competition between them, Diamond said. The differential between hourly rates was calculated at around 5 per cent.

While falling short of suggesting collusion between big firms, such close price similarity, Diamond said, was indicative of a 'less-than-perfectly functioning market'.

It was recommended that the Legal Services Board or the Law Society collect and publish charged hourly rates and have the Office of Fair Trading or Competition Commission investigate any evidence of perceived or alleged collusion.

Alternatively, Diamond suggested the Solicitors Regulation Authority insist on all firms publishing hourly rates of their fee earners on their own websites.

In January Lord Justice Jackson put forward proposals for moving to a fixed fee basis for all litigation work, suggesting that fees are capped in all civil claims, including personal injury cases up to a value of £250,000, irrespective of complexity.

'Remuneration on a time basis rewards inefficiency,' he said. 'Unrestrained costs shifting drives parties to leave no stone unturned: the more costs mount up, the more determined each party becomes to ensure that the other party pays them. The result is inevitable - a civil justice system which is exorbitantly expensive.'

Diamond said that the Lord Chancellor, Michael Gove, should give full consideration to the Jackson proposals to ensure the legal market thrives in the long term, and that the price of law is not punitive.

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