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Executive summary
The Chancellor’s Spring budget statement has set out next steps for the country, mapping out areas where budget cuts will be made and where there will be additional investment. Now is the time for law firms to scrutinise their budgets too, setting new fiscal policies and targets for this year and beyond.
The current position for law firms in the UK in 2023 is not straightforward. The cost-of-living crisis is impacting on all areas of business. Energy bills have risen sharply, materials and services are more expensive, and lawyers are demanding bigger salaries as they feel the pinch at home.
The talent shortage remains one of the greatest challenges in the sector, driving higher salaries and benefit packages to attract new employees. Retention is also a concern and there is a risk that top fee-earners may be tempted to jump ship to a rival firm.
Recent years have seen a reduction in the number of UK law firms, and the Solicitors Regulation Authority (SRA) has reported a spike in the number of firms of all sizes facing financial difficulties. If these trends continue it may be a concern for the sector, although they also present growth opportunities for other, more resilient firms. Fortunately, it’s not all doom and gloom in the legal sector. At the end of 2022 the Law Society Gazette reported that despite the economic downturn, profits-per-lawyer were 17.6% above their pre-pandemic levels. Many areas of law are seeing increase in activity; litigation, employment law, insolvency, and even in commercial property as many businesses are downsizing or relocating in response to increased levels of hybrid working.
Other legal specialisms such as domestic conveyancing may be on the verge of decline as higher household bills, increased mortgage rates impact on people’s motivation to move. Government figures show there were 96,650 house sales in January 2023, compared to 99,260 in the previous month. However, the UK’s biggest mortgage lender, Halifax, reports that property prices are continuing to rise with 2.1% year-on-year increases November to February, indicating that demand for conveyancing will remain. Areas such as criminal and family law are also likely to remain steady although the massive backlog in court dates stemming from lockdown closures continue, putting specific pressure on some firms.
As we enter the new budget period, it’s time to consider the meticulous cost-saving and investment decisions that can boost productivity for law firms of all sizes, helping them maintain staffing levels and client relationships through the unpredictable year ahead.
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