Every 1% of growth in the legal services market creates 8,000 jobs – and every policy decision that hits the sector by 1% would have a near-opposite effect.
That is one of the headline findings to emerge from what the Law Society says is the first study of the contribution that legal services makes to the wider UK economy.
Economic Value of the Legal Services Sector, published by Chancery Lane today as the government prepares to announce its proposals for a dramatic extension of fixed fees in civil claims, says that sales of legal services added up to £25.7bn in the UK in 2015.
The sector has grown by an average of 3.3% a year over the past decade, more than twice as fast as the economy as a whole.
However new analysis of government figures suggests that this is only part of the picture. The report presents findings from two different studies based on input-output analytic tables published by the Office for National Statistics every five years.
These demonstrate the extent to which the legal sector supports activity elsewhere in the economy. In 2010 this 'output multiplier' was 2.39 – every extra £1 in demand for legal services supported £2.39 in spending across the economy. For every 100 extra jobs created in the sector, 167 jobs across the entire UK economy would have been created.
These multipliers are similar to those in other professional service sectors but generally lower than those in manufacturing or construction.
Based on these figures a 1% 'positive shock' to the legal services market would add £379m in gross value (GVA) added to the UK economy and 8,000 extra jobs. Conversely, a 'negative shock' would result in a £242m loss in gross value added in the initial year.
The report notes that 'interventions that reduce sector GVA are already in evidence'. One example is the current proposal to raise the limit for small claims from £1,000 to £5,000. Another is the reduction in civil legal aid spending following the implementation of the Legal Aid, Sentencing and Punishment of Offenders Act in 2013, which the report says is equivalent to its hypothetical '1% GVA shock'.
Introducing the report, Law Society chief executive Catherine Dixon (pictured) says: 'It is important that any changes to the regulatory and legislative environment for the legal services sector are fully considered to avoid any unintended consequences of change which could put our position as the jurisdiction of choice at risk and so jeopardise future success.
'We will continue to represent the interests of the public, buyers of legal services and solicitors to support a vibrant legal profession which delivers for its clients and contributes to growth in the wider economy.'