Burnham: Open letter
The SME and Boutique Law Firm Alliance is asking firms to sign an open letter to Prime Minister Andy Burnham, expressing its “profound alarm” at proposals to appropriate the interest generated on their client accounts.
Jade Gani, co-founder of the Alliance, said the interest on lawyers’ client accounts (ILCA) scheme would mean “pressure on fees, staffing, investment and ultimately the viability of some practices”.
The Ministry of Justice consulted on the scheme in January and the outcome is still awaited.
She said: “The profession should be deeply concerned by the principle behind this proposal.
“Law firms bear the cost of operating client accounts, the regulatory burden of safeguarding that money and the liability when something goes wrong, yet government proposes to step in and take 75% of the return those accounts generate.
“We take the risk, we do the work and we bear the cost. Government should not simply take the return.”
Removing “millions of pounds” from the sector, “particularly from smaller firms already operating on tight margins”, would mean “pressure on fees, staffing, investment and ultimately the viability of some practices”.
Ms Gani went on: “There is a bitter irony in taking money from the very businesses through which people access legal services in order to fund ‘access to justice’.
“The justice system desperately needs proper investment, but it is a public service and should be funded transparently and sustainably. The answer cannot be to identify an income stream connected with one heavily regulated group of private businesses and simply appropriate it.
“If government establishes the principle that it can take most of this income because solicitors depend upon a functioning justice system, where does that principle end?”
In the open letter [1], the Alliance noted how the ILCA scheme had been widely described as a stealth tax “and it is difficult to see it otherwise”.
“Government proposes compulsorily to appropriate a substantial proportion of a financial return generated on client money, not as part of the ordinary taxation system, but through a bespoke scheme applying specifically to users and providers of legal services.”
The Alliance went on: “We urge you to reject this proposal and instead engage with the profession on sustainable solutions to funding justice that do not threaten the survival of smaller firms or further erode access to justice.
“Given the profound questions raised as to the legal character of the proposed scheme, the treatment of client money, the adequacy of the consultation and impact assessment process, and the proportionality of the interference proposed, the Alliance expressly reserves its position as to any legal remedies that may be available should government proceed.”
The Alliance called for “an urgent meeting with ministers and officials” before any final decision on ILCA was taken.
We reported yesterday a prediction that banks would cut the interest they pay [2] on client accounts from up to 3.75% to 1% if the government pressed ahead with ILCA.
We will also be debating the future of client account, including interest, at our Regulation & Compliance Conference [3] on 3 December in London. Early bird tickets are still available.