Society’s consultation response warns that diverting interest income will force firms to raise fees or exit the market
The Birmingham Law Society has issued a strongly worded response to a Ministry of Justice consultation proposing a new Interest on Lawyers’ Client Accounts (ILCA) scheme, warning it would act as a “stealth tax” on legal services and undermine access to justice.
In its formal submission dated 2 February 2026, the Professional Regulation Committee of Birmingham Law Society rejected the proposal in its entirety, arguing that it would impose significant regulatory and administrative burdens on law firms while increasing costs for consumers.
The response was submitted to the Ministry of Justice, which is consulting on plans to require law firms to surrender a proportion of interest generated on client accounts. Under the proposed scheme, between 75% and 100% of interest from pooled client accounts, and 50% from individual client accounts, would be retained by a central administrator.
The Law Society argued that compliance with the scheme would require firms to overhaul accounting systems, distinguish between reserved and non-reserved legal activities, and bear additional administrative costs. It warned that these costs would inevitably be passed on to clients, making legal services more expensive and reducing access to justice.
The response highlighted concerns that the proposals would disproportionately affect smaller firms. Citing Solicitors Regulation Authority data, the Society noted that solicitors from Black, Asian and minority ethnic backgrounds are significantly more likely to work in small practices. It said the scheme would therefore have a disproportionate impact on minority-led firms and the communities they serve.
The Society also raised equality concerns for vulnerable clients, particularly those who have received catastrophic personal injury settlements. It warned that law firms administering such settlements would be required to surrender 50% of the interest earned, despite those funds being intended to provide for lifetime care. The Society described this outcome as an injustice affecting clients with severe disabilities, a protected characteristic under equality law.
In addition, the Society challenged the consultation’s underlying assumption that interest earned on pooled client accounts constitutes client money. It argued that under the SRA Accounts Rules 2019, such interest belongs to the firm, not the client, and is paid into the office account. The Society said the Ministry would need to work closely with the SRA to avoid conflicts with existing regulatory rules.
The response further warned that the scheme could damage the competitiveness of England and Wales as a legal services jurisdiction. It said international clients might move cross-border work elsewhere, noting that legal services contributed £38 billion to the UK economy in 2024.
The Birmingham Law Society concluded that the most effective way to limit harm would be to abandon the proposal entirely.