Law firms show record growth as mid-tier practices shine

UK must secure position as leading global centre for legal services post-Brexit negotiations

UK legal services firms have recorded growth for the fifth successive year with mid-tier and niche practices showing greater revenue growth than their top-25 counterparts, the TheCityUK's latest report has found.

The report showed record growth, with gross fees of UK-based legal services firms had risen 1.3 per cent to £30.9bn in 2014/15, while net exports of UK legal services had climbed 11 per cent in 2014 to £3.6bn. The sector's contribution to the UK economy also increased to £25.7bn in 2015 (1.6 per cent of GDP).

Mid-tier and niche practices recorded increased revenue for the third year running with firms ranking 25-50 by revenue seeing a 6 per cent increase, while those in the top 25 saw a 2 per cent decline.

The report comes at a time of some uncertainty for the legal sector, with fears that other jurisdictions, such as New York and Singapore, will look to usurp the UK's position as jurisdiction of choice for dispute resolution.

Welcoming the findings, the president of the Law Society, Robert Bourns, said: 'The significance of our sector - worth £25.7bn in 2015 - is something to celebrate and something to promote especially in the wake of Brexit.

'The profession and our courts have a world reputation for independence, integrity, and expertise. Practitioners as well as our judges are held in high esteem internationally for their commercial nous and for the reliability of their decisions. It is important that nothing is now done to undermine that reputation.'

The performance of those firms outside the global elite exemplified the significant restructuring of the legal sector in recent years - partly as a consequence of the Legal Services Act 2007 - with new entrants to the market, including major accountancy firms, innovative smaller practices, and on-demand lawyers, offering alternative fee and service arrangements to the traditional law firms.

TheCityUK's report pointed to the PwC Law Firms' Survey 2015, which showed that among firms ranked 51-100, 38 per cent of total fees were fixed, compared with only 23 per cent for the top 25 firms.

Chris Cummings, TheCityUK's chief executive, said firms would have to rethink their business strategies to meet the demands of the current market.

'These changes are accelerating the need for law firms to innovate and reconsider their offering and potential client base. We're also seeing an increasing number of large firms choosing to locate operations in cities across the UK to take advantage of the skilled workforce and lower labour costs.

The latest estimates suggest the UK accounts for around 10 per cent of the global market for legal services, second only to the US. In Europe it accounts for a fifth of its legal services fee revenue.

The report claimed the UK is the leading international centre for dispute resolution as some 70 per cent of claims in the Admiralty and Commercial Courts in the first half of 2016 were international in nature. Furthermore, in 2015, over 22,000 commercial and civil disputes were resolved through arbitration, mediation, and adjudication in the UK.

Chairman of the Bar, Chantal-Aimée Doerries QC, said the findings 'sent a clear signal to the rest of the world that the UK legal services sector, not just in London, is open for business'.

'The report is a timely reminder that UK legal services make a major contribution to our economy. Barristers' earnings from international work have been rising steadily for over a decade,' she said.

'The growth in international work is a testament to the fact England and Wales remains a world class centre for international dispute resolution. It is, however, important in this era of increased international competition that the government invests sufficiently in the justice sector.'

Cummings added that securing the UK's position as the global centre for the provision of international legal services and dispute resolution should be a priority for forthcoming Brexit negotiations.

'This means maintaining the strongest possible trading links with the EU and beyond and ensuring the UK remains a globally attractive place in which and from which to do business,' he added.

'Other areas for attention should also include focusing on innovation and infrastructure investment to reduce the cost and improve the speed of litigation in the UK, ramping up efforts to export UK legal and regulatory standards to emerging markets and continuing to remove overseas barriers to trade in legal services.'