Government urged to review legal costs

Paul Reason, Managing Director of R Costings, has raised concerns that despite a recent increase in the hourly rates solicitors can charge, many firms are still grappling with escalating cost pressures. These financial strains often result in unavoidable losses even when litigation is successful, leading some firms to restructure or close entire departments. Reason emphasised the repercussions of the Fixed Recoverable Costs (FRC) regime, which imposes strict limits on the amount winning parties can recover in most civil claims valued up to £100,000. This system was last extended in 2023 and may face further extensions in 2028.

Reason stated, “Fixed recoverable costs are placing severe strain on large parts of the legal industry.” He elaborated, “I speak to firms on a daily basis who simply cannot afford to take on cases because they know the recoverable costs will not reflect the work required to run them properly.” The ramifications of this can be severe, as many firms are reportedly making losses even on successful cases, which is not sustainable for their operations.

Earlier this month, the Law Society called on the Government to exclude housing cases from any future expansions of FRCs in 2028. In light of these matters, the Ministry of Justice is currently collecting evidence to inform its next decision. However, Reason has suggested a more comprehensive approach, stating, “I would go one step further than the Law Society and say the fixed costs system itself needs an independent review.” He pointed out that the regime, initially intended for low-value, high-volume claims like road traffic cases, is increasingly applied to complex litigation that cannot be adequately managed under a fixed low-cost structure.

Adding to the conversation, Sir Geoffrey Vos, the outgoing Head of Civil Justice, announced a 2.28% increase in guideline hourly rates for solicitors. This increase, ranging from an extra £4 per hour for junior solicitors to £13 per hour for senior fee earners in top London firms, has been acknowledged by Reason as a positive development. However, he voiced his disappointment that it does not address the broader cost pressures faced by firms. “The uplift does little to address the cumulative impact of inflation, regulatory compliance, staffing costs and recent case law,” he noted.

The impact of the Mazur ruling last year further complicates this landscape by significantly restricting the tasks junior staff can undertake. As a result, more responsibilities are shifted to partner-level solicitors, leading to increased costs. Reason remarked, “That inevitably drives up costs and makes fixed recoverable fees even less workable in practice,” highlighting the urgent need for a reevaluation of the current cost framework in the legal sector.