Law Society: Current fee levels not sustainable
Practising fees for solicitors are to increase by 10%, or £10.4m, in the next year, with the practising certificate fee (PCF) to rise £20, the Law Society and Solicitors Regulation Authority (SRA) have proposed.
Following separate consultations, their joint application to the Legal Services Board is to collect £114.7m from the profession in 2022/23, up from £104.3m in the current year.
Firms will pay 60% of this – £68.8m, up from £62.6m – and individuals 40%, £45.9m up from £41.7m.
Of this, £60.5m (53%) will go to the SRA and £32.8m (29%) to the Law Society, with the remaining money (£21.4m) covering the compulsory levies from the Legal Ombudsman, Legal Services Board, Solicitors Disciplinary Tribunal and the Office for Professional Body Anti-Money Laundering Supervision.
The rise will be offset to some extent by reductions in contributions to fund the SRA Compensation Fund, which are treated separately from practising fees, with the fee for individuals £10 lower at £30 and for firms holding client money down £70 to £690.
The Law Society had consulted on a PCF of £284 for next year, compared to £266 this, but has increased it slightly because of the levies rising more than expected. The figure is based on the equivalent of 161,000 solicitors paying a full PCF.
This is ahead of further rises over the next two years as the Law Society looks to boost its income by £8.4m to £36.9m in 2024/25.
Though practising fees largely pay for the regulatory structure, the Legal Services Act 2007 allows the Law Society in its representative guise also to use them for ‘permitted purposes’ – certain prescribed non-regulatory activities, such as law reform.
It has to fund activities not covered by permitted purposes from other income. Its overall budget for the coming year is £44m, up £5.4m – of which £4.1m will come from practising fees. It intends to raise the rest by increasing income from ‘member experience and services’ and corporate sales.
Solicitors do not have to be members of the Law Society to practise but are obliged to pay for it through the PCF.
The application said: “TLS [the Law Society] in 2019/20 reduced its overall collection by 10% recognising the difficulty faced by the profession through Covid 19. This reduced fee was maintained in 2021/22 as the pandemic continued to impact the UK economy. TLS made use of its reserves to ensure it could deliver services to its members.
“This position is not sustainable in 2022/23 and so TLS has consulted on an increase of 15%.
“From an SRA perspective we were mindful of the need to balance any increase in our funding requirement against the need to continue to regulate effectively.
“We recognise that any increase in costs is unwelcome, however the impact of inflation within the wider economy and increased regulatory activity necessitate an increase this year. We consulted on an increase of 6.5%.”
The society said the continuing increase in the solicitor population allowed it to mitigate the impact on individuals, with the fee only rising by 7.5%.
“We were also aware that the individual compensation fund contribution is expected to reduce by £10 per person, therefore the combined effect of both fees is an increase of £10 or 3.3% per individual.”
The PCF has either fallen or stayed the same for the last nine years. The society noted that it was still below the 2016/17 level and, had the fee risen in line with inflation, it would now be around £350, “indicating the efficiency savings that have been made in recent years”.
The SRA is now a separate legal entity and the application revealed that its reserves were £15.4m, of which £14.7m was uncommitted (ie excluding fixed assets).
The regulator’s reserves policy is for a level of free reserves of between £15.7m and £22.5m – which represents between three and five months’ expenditure – and the proposal for 2022/23 includes an £700,000 increase as it moves to increase the amount held in the coming years.
The Law Society has reserves of £42m, made up of £12.7m in committed reserves, £15.5m in uncommitted reserves, and £13.8m in ‘non-permitted reserves’, which can pay for activities not covered by section 51. The society plans to draw £1.5m from the latter in 2022/23.
Both reported support for their budget proposals from their consultations.
The Law Society received 1,461 responses, both directly and through focus groups. Two-thirds backed the proposals – 17% of members were opposed – with 57% agreeing to PCF increases in the next two years as well.
An impact assessment said there was “a small potential impact” of the proposed fee increase on solicitors who were overrepresented in small firms and firms in less profitable legal services such as criminal law.
This included men, solicitors from a Black, Asian and minority ethnic background, Muslim solicitors, those from a lower and intermediate socioeconomic background and older solicitors.
The assessment said: “Considering the positive impact of the equality diversity and inclusion work both the SRA and the TLS are planning to take forward in 2022/23 and the steps we have taken to mitigate the impact of the proposed fee increase on individuals, we are satisfied that our proposal for the small increase in the PC fee is proportionate and justified.”
The Legal Services Board will now decide whether to approve the application.
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