Ministry of Justice research finds most firms could lose client interest with little impact
Interest earned on general client accounts has often been viewed as a quiet but important contributor to law firm finances. However, new research suggests this perception does not reflect the reality for most firms operating in England and Wales.
Independent research commissioned by the Ministry of Justice and conducted by Pye Tait Consulting indicates that the vast majority of law firms do not rely on interest from general client accounts to remain financially sustainable. According to the findings, 92 percent of firms report being either not at all reliant or not very reliant on this source of income.
The research draws on responses from law firms across a range of sizes and practice areas. While levels of reliance vary slightly by firm size, the overall pattern remains consistent. Medium and large firms show marginally higher reliance than micro and small firms, but even within this group, reliance remains limited and confined to a minority.
The findings are reinforced by firms’ own assessments of the potential consequences of losing access to interest earned on general client accounts. When asked what impact such a change would have, 94 percent of firms said it would have little or no effect on their business operations.
Only a small proportion of respondents identified more significant consequences. Four percent said they would need to consider cost-cutting measures or fee increases if interest retention were removed. One percent indicated they might need to increase borrowing, and a further one percent said their firm could be at risk of insolvency.
The research also highlights that concerns about financial dependency are not strongly linked to practice area or regulatory status. Solicitors and licensed conveyancers reported similar patterns of limited reliance, as did firms working in property and conveyancing compared with those operating in other legal service areas.
The report challenges assumptions that interest from pooled client funds represents a material pillar of financial sustainability across the legal sector. Instead, the evidence suggests that interest income plays a relatively peripheral role in most firms’ day-to-day viability.
Rather than modelling hypothetical scenarios, the study focuses on firms’ own assessments of their financial position. By documenting how firms describe their reliance on interest income, the research provides a data-driven snapshot of how embedded this income stream is within current business models.
The findings arrive amid ongoing policy discussions about the future treatment of interest earned on general client accounts. While the report does not recommend specific reforms, it provides evidence that widespread claims of financial dependency may be overstated. For policymakers, the data offers a clearer understanding of how firms currently view the role of client account interest in sustaining their operations.
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