Will the City learn from the recession of the early 1990s?

These troubled economic times spell danger for big City firms in more ways than one. Clearly there are short-term difficulties in certain sectors – most notably property – and rarely a day goes by now without news of redundancies somewhere.

Of course there are counter-cyclical fields, such as litigation and insolvency, but that is of little consolation to the four-year qualified real estate associate seeing ‘no vacancy’ signs across the Square Mile. That the lay-offs have come shortly after many firms unveiled double-digit increases in their average profits per equity partner (PEP) make it harder still to swallow.

There has been evidence for some time that PEP – despite Allen & Overy’s efforts to discredit it as a symbol of law firm success – is kept high by choking off the number of equity partners. That is a trend which is only likely to accelerate, but partnerships that only look after themselves may well be storing up trouble.

The question is whether the City will learn from the recession of the early 1990s – the last time there were widespread redundancies and deep cuts in trainee recruitment. When things picked up, there were not enough solicitors to go around – as those unable to find employment had left the profession, often laden with law school debt. That in turn fuelled the salary spirals and Commonwealth lawyer influx we have seen over the past decade. Can firms hold their nerve and not repeat past mistakes?