The Ministry of Justice’s interest seizure plan: A threat to law firm stability?

The Ministry of Justice (MoJ) has unveiled controversial plans to seize a significant portion of interest earned on lawyers’ client accounts – a move that could have far-reaching consequences for the legal sector.

Under the proposals, 50% of interest from individual client accounts and 75% from pooled accounts would be redirected to the MoJ’s central fund. The stated aim is to “strengthen the justice system,” but critics argue the scheme is both counterproductive and potentially catastrophic for many firms.

Why this matters

Interest income has become a vital revenue stream for law firms, particularly in recent years. According to the Law Society’s Financial Benchmarking Survey, average interest receipts soared to £500,000 per firm last year. For some practices, this income represents a substantial share of profitability.

Andrew Allen, Partner and Head of Legal Sector at PKF Francis Clark, and Chair of the survey working group, warns that the proposals amount to a “backdoor tax raid”. He explains:

“NatWest’s own benchmarking survey in 2025 told us that for 50% of law firms, interest profits represented at least 21% of their profits, and for 25% of firms it represented over 35%. For up to 10% of UK law firms, interest income represented over 50% of their profits.”

The risks

Andrew predicts that if implemented, the scheme could:

• Force law firms into financial failure, causing hardship for consumers and employees
• Increase legal fees, as firms attempt to offset lost income
• Overburden the Solicitors Regulation Authority (SRA), which would need to intervene in failing firms to protect client interests

He also notes that firms may seek alternative arrangements with banks to avoid earning interest on client funds, such as negotiating lower banking charges or better borrowing rates. This would render the scheme ineffective in raising revenue, while still destabilizing the sector.

What’s next?

The consultation is ongoing, but the implications are clear: this proposal could reshape the economics of legal practice in the UK. Law firms, regulators, and clients alike should pay close attention to developments.

Featured in the Law Society Gazette

Andrew Allen’s insights on this issue were recently featured in the Law Society Gazette. You can read the full article here.