Prime Minister Andy Burnham is pressing ahead with a controversial £100million plan to redirect interest earned by law firms on their clients’ money to the Treasury.
The move has been branded a “stealth” tax raid by the legal profession, with warnings that the plans could put thousands of jobs at risk and hit property law firms particularly hard.
The Interest on Lawyers’ Client Accounts (ILCA) scheme would change what happens to interest generated on money temporarily held by solicitors on behalf of their clients.
Law firms regularly hold client funds during transactions such as property purchases and the administration of wills.
Under the current system, solicitors can retain the interest generated while that money sits in client accounts.
The proposed changes would instead redirect that income to the Exchequer, with the scheme expected to raise around £100million.
The policy was first proposed in February by David Lammy when he was justice secretary under Mr Burnham’s predecessor.
Despite Mr Lammy’s departure from the Government, the new administration appears to be pushing ahead with the plans.
A recruitment advert appeared on the Ministry of Justice website last week seeking officials to help “shape policy from primary legislation through to implementation”.
The position offers a salary of up to £70,725 a year and has been viewed by the legal profession as a sign that work on introducing ILCA is continuing.
A recruitment advert appeared on the Ministry of Justice website last week
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GETTYThe Law Society of England and Wales has strongly opposed the proposals, describing the scheme as “flawed” and warning that it faces “near-universal opposition” across the legal profession.
Brett Dixon, vice-president of the Law Society, accused the Government of “moving forward with stealth”.
He said: “We are disappointed to see the MoJ advertising a role that appears to indicate the ILCA scheme is moving ahead despite near-universal opposition from the legal profession.”
Lawyers have warned that taking away income generated from client account interest could have serious consequences for firms, potentially putting thousands of jobs at risk.
The Law Society of England and Wales has strongly opposed the proposals
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GETTYProperty law firms are expected to be particularly exposed because many rely on interest from client funds to support their margins as conveyancing fees have steadily declined.
Mr Dixon described the proposal as “a raid on clients’ money to generate an unreliable source of revenue for the justice system and to address general budget shortfalls.”
The criticism adds to pressure on Burnham’s Government over whether it will continue with the £100million scheme despite the scale of opposition from the legal sector.
The Ministry of Justice pushed back against suggestions that the job listing signalled a policy decision, with a spokesman stating: “This is a routine hiring practice for an existing role, which will include responsibility for responding to the ILCA consultation. It is not an indicator of government policy.”
The scheme draws on precedents in the United States, Canada and Australia, where similar levies on client account interest have been deployed to finance legal aid provision.
However, the legal sector has raised doubts about whether the policy would generate reliable income, while arguing it would effectively transform the MoJ into a tax-raising department funded through users of legal services.