Hourly rates for partners at leading commercial law firms have risen in real terms from as much as £598 in 2003 to at least £775 an hour with some lawyers charging £1,000 an hour, a report from the Centre for Policy Studies think-tank found.
Jim Diamond, a UK legal cost analyst who compiled the study, said the biggest firms are now charging almost the same figure — except in sterling — as their US counterparts.
He claims the high costs could restrict access to justice particularly for small business clients who can be deterred from bringing cases.
The report points to three factors that have pushed up billing rates. These include the increasing complexity of the UK tax and legal systems, which has prompted more clients to seek advice. The British tax code has more than trebled in size since 1997 and is now 22,000 pages long.
The study also says lack of transparency by firms on legal costs and the similarity in hourly rates charged by top firms has contributed to rising billable rates.
Rates charged by partners in City firms rose to up to £700 an hour in 2007 bolstered by a flurry of M&A deals before rates fell to £450 an hour in 2009, according to the report.
The prolonged financial downturn and fall in revenues meant that law firms were forced to cut swaths of jobs even among senior partners in 2009.
However, since then profits at the biggest law firms have rebounded and, by 2013, some partners at the UK’s 10 biggest law firms were receiving about £1m. Research by Deloitte published in December showed the UK’s top 10 firms had increased their fee income more than 6 per cent, mostly by raising their billing rates.
A rise in US firms opening offices in London has also sparked a war for talent, prompting rising salaries. Last year it emerged that US law firm White & Case increased its pay to qualifying solicitors in London by 20 per cent to £90,000 and that some US firms are offering as much as £100,000 for new lawyers.
In his report, Mr Diamond said law firms needed to look again at the method they used to charge for their services — the so-called “billable” hour — which he calls “outdated” and “unsustainable”.
Participants in big-ticket lawsuits, particularly involving banks and other FTSE 100 companies, will typically look to instruct top law firms from London’s so-called magic circle.
Recent court cases have highlighted the rising cost of commercial litigation — despite attempts to make lawsuits more cost effective after a review by Lord Justice Jackson, one of the most senior judges in the country. The judge recently proposed that firms move to alternative billing methods, including a fixed fee basis.
However, litigation costs can still be huge. Last year it emerged that Royal Bank of Scotland was expected to spend £90m on legal fees defending a civil lawsuit brought against the bank and former directors by thousands of shareholders claiming they were misled into signing up to the £12bn rights issue in 2008, months before the bank's near collapse.
Copyright The Financial Times Limited 2016.
