Interest on lawyers’ client accounts (ILCA)

Our view

We are extremely concerned about the serious consequences these proposals could have for access to justice, the impact on clients, the lack of financial merit and lawfulness, increased regulatory burdens and operational and practical challenges.

• Lack of financial merits and lawfulness – we do not consider the scheme to be a justified or effective means of sustainably funding the justice system
• Legal aid providers will be significantly impacted – it could lead to firm closures or firms deciding that offering legal aid services is no longer viable
• Funding for pro bono projects and wider access to justice schemes will decrease - administrative costs will increase for firms under an ILCA scheme, which may force firms to divert resources away from pro bono and wider access to justice schemes
• The scheme will take away money from some of the most vulnerable clients – for example, for catastrophic injury damages claims, clients will lose out on interest they should be entitled to
• Costs for clients will likely increase – some firms legitimately use interest to go towards admin costs and overheads generally – firms will have to absorb these costs or increase fees
• Extra regulatory burden on firms – extra time and resources required will lead to increased costs which will particularly impact smaller firms
• Extra regulatory and financial burdens on small and rural firms in Wales raises further concerns about access to justice where the provider base is already precarious, and firms face additional overheads because of Welsh language provision requirements.
• ILCA schemes in other countries are not comparable – almost all share the common principle that some or all the interest is diverted into a fund used to contribute to the justice system which is not the case in the MoJ proposal. The comparative examples do not take account of how firms in England and Wales already contribute substantially to funding the delivery and regulation of legal services.
• The ILCA Scheme could have a greater impact on clients and lawyers with protected characteristics and the government’s equality assessment has not properly considered or provided mitigation against this risk
• Proposals would reduce funding for pro-bono work. Some firms donate interest from client accounts to pro-bono initiatives, and these funds would no longer be available if ILCA is implemented

We will continue to push back against the implementation of the ILCA Scheme and demonstrate to government the unworkability of their proposals.

Overview of the MoJ proposal

The MoJ proposes to claim 75% of interest on pooled client accounts, and 50% on individual client accounts. Interest would be taken by the MoJ first, and the remaining interest would be dealt with by firms in the ordinary way.

The money collected would not be ringfended for access-to-justice initiatives. Instead, it would be absorbed into the MoJ’s general funding.

The scheme would apply to “funds held in all client accounts pursuant to activities undertaken by legal service providers in England and Wales who are regulated under the Legal Services Act 2007” (reserved activities). The MoJ is still considering whether to include funds related to unreserved activities.

Client accounts would need to comply with new MoJ conditions, but banks would not be required to offer accounts that meet these requirements.

Agreements to waive interest in return for a waiver of bank charges on office account would no longer be permitted.

A scheme administrator employed by the MoJ would oversee compliance and be empowered to impose unspecified “appropriate sanctions” for non-compliance.

Key points to include in your response

We are encouraging members to respond to the consultation.

We have prepared a helpful summary of our position on the consultation, which you can draw on when preparing your response, as well as adding any specific evidence about the impact on your firm.

Law Society concerns

Interest on client accounts is client money. It is largely remitted to clients, or used to cover costs, like administrative or bank charges, when agreed with clients. Under the proposal, clients would have to cover these costs directly, resulting in higher fees and reduced availability of services.

The proposal is unclear on what this obligation is (is it a tax, a levy, or sequestration?), with firms already paying up to 54% tax on profits, and now 75% of client interest.

This adds another layer of oversight on top of existing regulators (SRA, FCA, LeO, LSB, and the Legal Aid Agency), effectively duplicating monitoring and regulatory burdens.

The proposal could breach client confidentiality, as compliance monitoring would require the MoJ to review records from every firm’s client accounts.

Where costs cannot be passed on, such as legal aid, the change would further undermine the economic viability of continuing to offer services.

There is a serious lack of evidence underpinning the proposal – there is no financial impact assessment – resulting in significant gaps in the MoJ’s knowledge. The consultation reveals a lack of understanding of how client money and interest operate in practice.

The practicalities have not been adequately considered, including:

• the scale of increased business costs or their consequences
• whether banks would offer compliant account products
• confidentiality implications of MoJ audits, and
• the impact on not‑for‑profit organisations that currently rely on donations funded through client account interest

What you could raise in your response

You may wish to use the following headings and information to support your response to the consultation.

The proposed ILCA scheme lacks merit and a clear legal basis

The scheme lacks a clear legal basis and resembles a new tax on clients’ money.

The MoJ has not provided any financial modelling or evidence to show the scheme will sustainably fund the justice system.

Revenue from the scheme will be unpredictable and the scheme will be costly to administer, with banks themselves raising concerns about feasibility.

The scheme will weaken access to justice

To date, some firms have been able to keep fees lower (for example, interest is sometimes used to cover banking administrative costs), however the MoJ’s proposals will increase administrative costs and remove interest used to cover those costs. Clients will likely face increased fees as firms will need to pass on added costs.

Legal aid providers, many already operating at a loss, could face closure, or further reduce their legal aid work thereby worsening legal aid deserts.

Firms will not be able to divert as much funding to pro bono work and access to justice schemes.

Damages for vulnerable clients, including those with catastrophic injury awards, will be reduced. The proposals will require interest gained on these awards to be remitted to the MoJ.

The equalities assessment is inadequate and fails to identify significant impacts on disadvantaged groups and geographic areas.

Further regulatory pressures will create complexity for firms

The scheme conflicts with Solicitors Regulation Authority’s (SRA) Accounts Rules requiring firms to pay clients a fair sum of interest.

Adding another regulatory requirement, alongside existing AML, compliance and banking requirements, will intensify existing regulatory pressures, especially for smaller firms.

Reporting requirements risk compromising client confidentiality and exposing commercially sensitive information.

Unregulated providers could gain a competitive advantage.

The operational and practical implications make the scheme unviable

Firms cannot easily separate client money linked to reserved vs unreserved activities, making the scheme unworkable in practice.

Increased administrative burdens, system changes and compliance checks will disproportionately affect small to medium firms.

A mandatory “comparable rate” will remove firms’ ability to negotiate better banking arrangements for clients.

Useful statistics

The evidence is clear that our members make a significant contribution to the justice system and economy.

You may wish to highlight the following key statistics in your response:

The legal services sector is a key contributor to the UK economy, contributing £38 billion to the economy and exports worth £9.8 billion in 2024.

The legal services sector contributed an estimated £15 billion overall in tax in 2023. Solicitors and firms pay business taxation, income tax, employee and employer national insurance contributions, and business rates.

Solicitors and their clients contribute significantly to the justice system through user fees paid to HM Courts and Tribunals Services (HMCTS).

In the 2024/25 financial year, HMCTS collected more than £830 million in fees, a large proportion of which came from solicitor and their clients.

Solicitors and firms already operate on thin margins with high costs of doing business.

The Law Society’s Financial Benchmarking Survey 2025 highlighted that the levels of profit per equity partner were just 1.2% in 2024 once client interest was removed.

In the same year, total expenditure on support staff as a percentage of fee income had already reached 16.7% and non-salary overheads had increased to nearly 30% of fee income.