Hourly rates at the richest law firms in the UK have doubled in the past 15 years, according to new analysis of the top-end legal market.

Costs expert Jim Diamond, whose new book The Legal Extortion Racket is out later this year, said rates for magic circle partners have now reached between £1,000 and £1,500. This compares with £625-£700 charged in 2007, according to Diamond, who has taken regularly annual snapshots of the sector over the past two decades (see table below). By comparison, according to the Bank of England, inflation has climbed 36% over the same 15-year period.  

Partners in US firms based in London charge between £950 and £1,350 an hour (compared with £450-£500 in 2007), while the top London firms outside the magic circle charge up to £900.

Newly qualified lawyers at magic circle firms and US firms in London charge up to £600 an hour, while their City equivalents outside the magic circle have rates of between £300 and £450.

The rates suggest that firms’ costs are far in excess of what the judiciary might think appropriate to charge. Last year the master of the rolls approved an increase in guideline hourly rates to £512 for London solicitors with over eight years experience (‘grade A’, up 25.2%), and to £186 for a paralegal or trainee (‘grade D’, an increase of 34.8%). Earlier this year, Lord Justice Males publicly questioned a firm’s £1,100 hourly rate in a judgment, saying that if those kind of sums were to be charged there needed to be a ‘clear and compelling justification’.

 CITY OF LONDON (MAGIC CIRCLE) LAW FIRMS - HOURLY RATES
   
 Year  NQ-2yrs PQE  5yrs PQE  Partner
 2003   £175-£185  £245-£280  £375-£450
 2005  £180-£215  £250-£300  £425-£525
 2007  £235-£250  £375-£450  £625-£700
 2008  £250  £350-£400  £600-£750
 2009  £250  £375  £450
 2010  £300-£350  £450-£550  £650-£725
 2013  £350-£425   £450-£550  £700-£850
 2015  £350-£500  £500-£575  £775-£850
 2022  £450-£600  £650-£850  £1,000-£1,500

Source: Jim Diamond

Diamond said: ‘Even with these increases GHR across the board are nowhere near charge-out rates, the rates that clients pay their own firms.’

Diamond pointed out that rates have increased significantly at the same time as firms have reported jumps in their turnover and have started to pay newly-qualified lawyers in excess of £100,000 a year.

Every one of the 22 top firms to have published figures for 2021-22 reported that turnover had increased; in all but one case by at least 5%.

The so-called ‘salary war’ has resulted in magic circle firms paying NQs around £125,000 while one US law firm has increased salaries to almost £180,000.

Diamond said: ‘The simple logic is these huge increases in salaries will be passed on to the law firms’ respective clients. This is not meant as a criticism of NQs themselves as the 24/7 work commitment is the price they pay. I just wonder how many of them are still in the legal industry in 10 years.’

In the last 20 years, the UK’s legal sector revenue has increased from £8.6bn to £41.6bn. More than two thirds of revenue is attributable to the top 100 law firms.

Diamond’s research was based on day-to-day work and discussions with buyers and sellers of legal services over the past 25 years. He also contacted all top UK law firms with annual turnover of more than £100m as well as the top 25 US law firms.

Diamond is a leading expert in legal costs and costs budgets and worked for the likes of Clifford Turner (now Clifford Chance) and Allen & Overy in the 1980s and 1990s before working independently.

 

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