Individual solicitors will be shielded from significant fee increases next year but most firms will pay more.
The Law Society today agreed that its net funding requirement for 2014 will be £116.8m, an increase from £103.5m the previous year. The funds cover the Society, Solicitors Regulation Authority and external bodies such as the Legal Services Board and Legal Ombudsman.
The increase is attributable to the need to bolster reserves ahead of the closure of the assigned risks pool for firms that can no longer secure indemnity insurance.
Individual solicitors will pay total fees of £440, an increase of £4 from 2013. This consists of a £384 practising certificate fee (up from £344) and £56 compensation fund levy (down from £92).
Practising fee increases for firms will depend on their turnover: those with up to £10,000 revenue will pay £198 – 6% more than in 2013. Firms with a turnover up to £85,000 will pay £673 in 2014, compared with £604 in 2013.
All bigger firms will pay between 11% and 13% more in fees next year depending on their size, with the biggest firms (those with turnover of at least £200m) paying fees of £443,333 – an increase of £55,633.
In total, £46.7m will be collected from individuals and £70.1 from firms.
Law Society chief executive Desmond Hudson said the increases announced were ‘absolutely necessary’ to add £5m to reserves hit by capital expenditure projects in recent years.
‘These costs have got to be met as all the value has moved out of the balance sheet,’ said Hudson. ‘Maintaining a level of cash reserves we think is prudent and we want to maintain reserves of £50m which is roughly six months’ expenditure. If calamity struck we have a responsibility to keep things running for six months.’
The terms of the closure of the ARP are that the profession absorbs the first £10m of claims against affected firms, with qualified insurers covering the next £10m. Each sector shares costs until they reach £50m.
‘Claims are beginning to be notified and we need to start providing now for that liability,’ said Hudson. ‘It is almost like running a mini insurance company - we need to hold monies to cope with the claims.’
Hudson emphasised that the Society had done all it could to bring costs down, including reducing its workforce and asking staff to maximise their efficiency.
For 2014, the Society’s net funding requirement is £25.2m, compared with £52.8m for the SRA and £22.4m for LSB and Legal Ombudsman.
Hudson said: ‘The problem we’ve got is the law says we have to collect and contribute to the cost of these two bodies.
‘We exercise what influence we can to keep costs lower but we are seeking to open discussions with colleagues at the SRA to see what we can do to set medium-term targets to reduce group costs over the coming year.’
The Society is likely to propose a more regimented system of annual fee increases in the future using the retail prices index minus 1.5%.