Tight profit margins mean partners in smaller law firms are no better off than they were two decades ago, research released this week has revealed.

A survey conducted by research company the Centre for Interfirm Comparison (CIFC) found that law firms are operating on 14% margins today, compared to 20% when the research was first carried out in 1985.

The survey - which garnered responses from more than 100 law firms - also found that profits per partner have risen no quicker than national average earnings.

Current figures stand at 114,000 for partners outside London and 187,000 for those in the capital.

Typical respondents were London firms with 20 partners and provincial firms with five to seven partners.

CIFC director Mike Moffat said: 'The public's perception over the past 20 years is that solicitors are fatter cats.

But surprisingly, the typical partner is no wealthier in relative terms than they were 20 years ago.'

The narrow profit margins are mainly a consequence of the amount being spent on fee-earning staff, the report said.

While firms are cutting back on support staff, average salaries for solicitors who are not equity partners stand at 62,400 in London and 37,200 outside - increases of 3.8 and 3.2 times the 1985 figures respectively.

Salary increases have not been matched by a hike in chargeable hours, however.

Despite talk of pressure to charge more hours, the average figure of 1,100 hours per year in London has remained constant throughout the 20-year period.

Giles Rubens, director at legal consultancy Hildebrandt International, said: 'The 1,100 figure is seen as the norm, with recruitment decisions made on that basis.

But it is not an economic model - if you can push it up to 1,250 there is a phenomenal impact on the bottom line.'

The survey also found that the mix of work has changed considerably in regional firms, with conveyancing plummeting in importance.

It now comprises less than a quarter of revenue, compared to 46% in 1985.

Partners' hourly rates are about three times 1985 levels at 250 in London and 150 elsewhere.

Julia Balfour-Lynn, chairwoman of the Law Society's law management section, said: 'The market for legal services has hardened over the last 20 years.

Firms are facing increasing pressures, whether from fee-earners for greater remuneration packages, from clients for specialist advice at highly competitive rates or from the ever-increasing costs of regulation and compliance in an increasingly sophisticated market.'

Nick Jarrett-Kerr, a partner at legal management consultancy Edge International, said: 'While medium-sized firms are operating on tighter margins, some big City firms are on margins as high as 30%-40%.

They are able to do this because they are more efficient, and have higher rates and good leverage.'

See Editorial, [2004] Gazette, 18 March, page 15

By Rachel Rothwell