RBS: legal profession carrying thousands of excess solicitor jobs

More than 5,000 solicitor jobs in the UK would need to go to deal with substantial over-capacity in the legal market, according to a new report by one of the leading law firm bankers.

A report released today (19 March) by Royal Bank of Scotland (RBS) argues that the legal profession is over-resourced in the face of a "permanent structural change in market forces in the UK" and has the "opportunity" to remove 5% of the fee earner base.

Such a move in England and Wales would constitute the loss of nearly 6,000 solicitor jobs based on the most recent figures, with Law Society research last year showing 117,862 practising solicitors. The bank estimates this would save around £280m in annual costs for the UK legal profession.

RBS argues that cuts to over-capacity will be needed to return the profession to more stable financial performance as the industry wrestles with a sustained period of low demand and the impact of new entrants under the Legal Services Act.

The report also forecasts that the profession should match reductions at fee earner level with cuts in equity and predicts that further partner reductions are set to continue. RBS is established alongside Barclays as one of the dominant bankers to the UK legal profession.

Commenting on his assessment, RBS law firm banking head James Tsolakis said: "We would see a good case to take out 5% of fee earners to put the profession on more stable levels of profitability."

Tsolakis also predicted that pressure on the legal sector will see an upsurge in law firms seeking scale through mergers, and that the introduction of so-called outcomes-focused regulation by the Solicitors Regulation Authority will put further pressure on small firms.

The veteran law firm banker added that many partnerships remain in denial about the scale of challenges facing the profession, though management is often far more alive to such issues.

"Managing partners have a view [of the market] that is not shared by the partnerships," said Tsolakis. "There is still a massive disconnect between managing partners and partnerships about the things that need to be implemented."

Tsolakis said that his relatively downbeat view has been based in part on historically poor recovery rates and billable hours in the profession.

RBS' assessment comes amid a three-year period in which the UK legal profession has struggled to sustain robust growth.

However, recent research from Deloitte found that the top 100 UK law firms continue to expand, with group seeing income rise by an average of 7.2% in the third quarter of the 2011-12 period.

The UK top 50 saw revenues rise by 5.3% in the full 2010-11 year, while profits per equity partner were up by 4.4%.

By Alex Novarese

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