Owen: Strength and resilience
City law firms are outperforming their regional counterparts, with partner profit pools rising by 12% in London but falling by 11% outside of it, according to new research.
This was despite the fact that regional firms recorded bigger rises in revenue than City firms, 12% compared to 10%.
“This suggests that City firms have maintained tight control over their cost bases, possibly through operational efficiencies, technology adoption, and disciplined resource management,” said accountancy firm Crowe.
For regional firms, however, fee growth was no longer sufficient to offset rising costs—such as salary inflation, office overheads and investment in infrastructure.
“It also underscores the challenges regional firms face in balancing growth with profitability, particularly in a market where clients are more price-sensitive and competition is intensifying.”
At the same time, there was a 3.7% increase in headcount across respondents, focused on fee-earners rather than support staff, despite rising salaries and National Insurance contributions.
Crowe’s annual law firm benchmarking survey [1], conducted in association with the Institute of Legal Finance & Management, surveyed 43 firms with a turnover ranging from £1.6m to £250m.
It said the Solicitors Regulation Authority’s recently decision not to take immediate action to end client accounts or interest on them came “as a relief to many in the profession”.
Nine in 10 of the firms surveyed said they could not operate without client accounts, and almost half reported an increase in client account interest income this year, despite falling rates.
“This suggests that firms are either holding larger balances for longer periods or benefiting from more favourable banking arrangements.”
But Crowe went on: “Only 23% of firms are currently using long-term client deposit accounts, which may indicate a missed opportunity to maximise interest.
“Some firms may be intentionally avoiding efforts to optimise returns in order to ensure that the interest remains incidental, a classification that helps with partial exemption calculations for VAT purposes.”
Other findings included that 22% of firms had experienced a cyber incident in the previous 12 months, while 73% did not yet have a clear strategy or vision for how artificial intelligence (AI) could support them.
“The potential benefits of AI are significant but the reputational risks of getting it wrong are equally substantial,” Crowe said.
“A single error, especially in client-facing work, could lead to loss of trust, regulatory scrutiny, and long-term damage to a firm’s reputation. As a result, many firms are choosing to proceed cautiously, prioritising governance.”
Over 80% of the firms had a net-zero plan in place or expect to implement one soon – an increase from 62% last year.
Nicky Owen, head of professional practices at Crowe, said: “The legal sector continues to show strength and resilience, with solid financial foundations and optimism for achieving future growth targets…
“The next big trend disrupting the sector is private equity investment. Private equity interest in the sector remains high, as firms are viewed as scalable and investable businesses. For firms, the appeal of external capital injection could clearly prove useful in the pursuit of ambitious growth and innovation targets.”