City solicitors and personal injury lawyers say proposal risks becoming a “stealth tax” on legal consumers
The government’s proposals to harvest interest from lawyers’ client accounts face mounting opposition, with City solicitors warning the scheme could be unlawful and personal injury lawyers branding it a “stealth tax” on the vulnerable.
In blistering responses to the Ministry of Justice’s (MoJ) Interest on Lawyers’ Client Accounts (ILCA) consultation, both the City of London Law Society (CLLS) and the Association of Personal Injury Lawyers (APIL) have torn apart the economic and moral rationale for the policy, which targets up to 75% of interest generated on pooled accounts.
APIL warned the MoJ is treating the scheme as an unwarranted cash grab that will disproportionately harm consumers.
“It’s wrong to assume this is somehow ‘free money’,” said APIL’s John McQuater. “The MoJ taking a share of generated interest would amount to a stealth tax on the general public seeking legal advice, including vulnerable victims of negligence seeking redress.”
APIL highlighted that in the personal injury sector, retained interest is routinely used by firms to offset overdraft charges and subsidise funding models that directly benefit clients. Furthermore, McQuater noted there is “no commitment” from the MoJ that the seized funds would actually be ring-fenced to improve the beleaguered civil courts.
The CLLS launched an even more fundamental attack, warning that the complete absence of economic stress-testing makes the policy so procedurally flawed that “a decision to implement the scheme could be lawful.”
The City group pointed out the MoJ’s modelling ignores the fact that half of the targeted money is already captured by the Treasury through the taxation of law firm partners. By depressing firm profits, the CLLS warned the ensuing drop in tax revenue “is likely to exceed any additional net income the MoJ may gain.”
Like APIL, the CLLS condemned the scheme as an illogical penalty on consumers, who will be taxed on their own money “simply for using a regulated law firm.”
Both organisations raised the alarm over the extreme administrative complexity of calculating and remitting fractional interest on transient balances.