Two legal events from last week highlight our national wealth inequality, a frequent topic of political commentary. Some people hope for a wealth tax.
On the one hand, two of the big law firms announced blockbusting annual results.
Clifford Chance (pictured) reported that partnership profit rose 11% in the year to 30 April on revenue up 9% to £2.6bn. Profit per equity partner (PEP) rose 9% to £2.3m.
At almost the same time, newly merged Herbert Smith Freehills Kramer reported that the firm made a profit of £633.9m, with PEP at £1.5m.
Clifford Chance said that there had been strong activity in private equity/M&A, funds and investment management, restructuring and private credit and associated product lines. Demand would continue in areas such as technology and AI, healthcare and life sciences, defence, renewable energy and infrastructure – including data centres and other digital infrastructure. (Boo! to data centres, but that sentiment belongs to a different article.)
HSF Kramer is looking at global growth in the energy sector, private capital and defending class actions.
The Gazette has a live updated table of the financial results of the Top 50 law firms as they come in. Linklaters has a higher PEP (£2.48m) and A&O Shearman a higher total revenue (£2.8bn) than Clifford Chance.
Many will say: good for them! These kinds of results show why our profession was part of the last government’s plans for growth, and why UK legal services play so strongly internationally.
At the same time, the Law Society marked the start of the new Burnham government by pointing out the parlous state of the legal aid system. President Mark Evans stated the obvious: ‘Legal aid has been underfunded for too long … the government should urgently review the means test and regularly increase legal aid fees at least in line with inflation. This will ensure everyone can access the legal support they need.’
This is not the place to debate our national economic problems. But what are the consequences of economic inequality in the profession?
It does not arise because some work harder than others. We know that lawyers in City firms work long and unsocial hours. The all-night sessions in the City during a major case are famous, although compensated by the pay.
Yet the underfunded side of the profession works just as hard. When the Law Society submitted evidence about criminal legal aid solicitors and their pay, some heartbreaking cases were cited over the financial and personal toll caused. One solicitor had a nervous breakdown about how to keep the firm going. Another solicitor left home at 8am to go to court; had eight duty calls between 2pm and past midnight the following morning; did not go to sleep until 2.30am; was awake by 6.30am, to work flat out until about midnight, with a mix of duty calls and other work. Her duty slot officially ended at 1pm that day and so overran by about 11 hours. We can be sure that such stresses are repeated elsewhere in the legal aid sector, without an annual profit that runs into millions of pounds.
It is not the social value of the work undertaken by the two ends of the profession which makes a difference, either. Of course, the City work is essential to economic growth and the smooth running of our and other economies, and is very valuable. But so is criminal legal aid work, or the work of those undertaking divorce or probate in small country towns.
The difference in profit arises not from the amount of work put in, or in the social value of the output, but from what clients are able and willing to pay.
The big City firms are alive to this inequality. They each have impressive pro bono programmes focusing on several issues, including access to justice.
It is 11 years now since City firms protested when former lord chancellor (Michael Gove) proposed that they make a greater contribution to the justice sector, given their wealth. They rightly pointed to their existing pro bono programmes. They also made clear that they did not have expertise in the area where legal help is needed, such as in criminal legal aid. Many other people have pointed out over the years, when such a proposal has resurfaced, that doctors do not contribute financially to the health service nor plumbers to national drainage.
Yet the country is short of money for welfare services, and it is easy to predict that legal aid will not receive the resources it needs in the foreseeable future. As mentioned, there are calls for a wealth tax.
It seems to me that big City firms should consider early action to focus their pro bono programmes on national legal aid needs, if they want to avoid something worse, like a future levy on their profits.
Jonathan Goldsmith is Law Society Council member for EU & International, chair of the Law Society’s Policy & Regulatory Affairs Committee and a member of its board. All views expressed are personal and are not made in his capacity as a Law Society Council member, nor on behalf of the Law Society
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