Legal Business Blogs

Comment: The moment of truth arises – will the profession stand up to Gove?

In business as in life, if you want respect you have to start by expecting it and not putting up with its absence. Perhaps the ludicrous attempt to bully the commercial legal profession into taking on more pro bono with the threat of a levy on the UK’s largest law firms will make that point sink in.

For years the government has treated the commercial legal profession with neglect and disinterest unless it needed something, despite its status as a world-leader, major tax contributor and role in helping carry English law around the globe. Far too often the profession rolled over then queued up like a grateful child when the government wanted the great and good to pitch in for something. The policy wheeze by incoming justice secretary Michael Gove has only made explicit what has been obvious for years.

Where do you start with the idea of having a levy on the income of major law firms? Well, redistribution and income inequality are entirely valid matters for policy-makers and there may be entirely appropriate measures to increase redistribution in the UK, even leaving aside that the biggest contributor to inequality in this nation is the dysfunctional housing market that politicians have avoided addressing for decades.

But in a properly functioning liberal democracy the place for such measures is through the mainstream tax regime. Proposing expedient industry-specific levies to fill a funding gap on a daft policy by your predecessor has the scent of banana trees in the air.

Aside from formulating crass policy on the basis that it’s politically easy, you get into practicalities. What’s the cut-off? Does it impact on foreign law firms? ABSs or New Law providers? The barristers that Gove seems intent to play off against the far larger solicitors’ profession? How will this stand up to a legal challenge?

And the logic of the move? Major commercial law firms derive relatively small parts of their revenues from court work (and civil court fees are rising anyway) being essentially commercial beasts. They also play a major role in training solicitors. And the full-distribution profit model and high remuneration of City law firms mean they are proportionately high contributors to state coffers. They largely don’t engineer their finances to minimise tax. So why should Linklaters – already paying considerably more in tax than Amazon in the UK – have to stump up further?

Perhaps the Ministry of Justice has misread the profession this time. The mood is that it will fight tooth and nail on this and even if the government manages to force the levy through it had better be prepared for the law of unintended consequences as law firms restructure their operations or downscale pro bono efforts. Pro bono is a matter of goodwill, you can’t legislate for it. The profession may also find a taste for the tax creativity so popular in other sections of the economy.

Still, if this proves a turning point for how the profession approaches government, ushering the hard-headed negotiation tactics adopted by other industries, some good may come of the affair.