Legal Business Blogs

Comment: Why it’s time for the Law Society’s levy to go

There is a reason that the slogan ‘No taxation without representation’ has echoed through history. The rally cry of the American revolution demonstrates a basic truth that institutions and figures of authority hitting up constituencies for money without broadly representing their interests are in the long run asking for trouble.

On that yardstick, the Law Society has been asking for trouble for many years and it looks like it has finally got it as the Conservative government threatens to finish the job Labour started with the Legal Services Act and end the body’s ability to levy fees on the profession.

The smart money is currently on a full split with its regulatory arm, the Solicitors Regulation Authority (SRA), which will likely end its ability to hit up the profession for about £35m a year to fund its trade union activities.

Few in the profession would mourn that defenestration, but particularly not the City lawyers who have long grown sick of being treated like a cash machine with very little to show for it. Chancery Lane doesn’t and never did care about the commercial legal sector. It didn’t understand it and was in no position to represent or advocate for it. City lawyers in the main don’t mind contributing a little more than other branches of the profession for the sake of professional solidarity, but there’s a limit and it was passed a long time ago.

That is not a sustainable position in the long term, even if the body scrapes a reprieve this time and it is plainly unhealthy for the industry as it has contributed to a fragmentation of the profession, weakening its bonds and ability to speak with a unified voice.

That lack of engagement was obvious in the society’s lack of response to Michael Gove’s ludicrous attempt to impose a tax on City firms (the threat has apparently receded, but that’s more due to the Treasury’s longstanding disdain for ministries inventing tax-raising powers as opposed to the profession’s advocacy).

True, the Law Society faces a huge challenge representing the profession’s different branches, which often have conflicting agendas, but Chancery Lane hasn’t even attempted to reconcile those tensions, it just ignored the City.

And the body, much as it likes to trumpet its independence in high-minded terms, remains as hamstrung as the BBC in relying on funding the government can cut off. The suspicion that the society plays it safe with government was at the heart of the discontent over its position on legal aid reform. Neither has it been able to effectively highlight the string of gaffes from the Ministry of Justice over the last three years.

It has been clear since the infighting of the 1990s that the absence of any need to persuade the profession to voluntarily engage and contribute to its budget has shaped an institution rife with bureaucracy, inefficiency and self-interest. The Law Society should look forward to a future as a leaner but revitalised and responsive body drawing far more of its revenues from commercial activities. That is the only way the reformists it has can ever sweep away the inertia and the dysfunctional council that kept it in its shoddy state for the last 20 years.

Ironically, at this moment of weakness the society has in Catherine Dixon the most credible figure heading it in recent memory but Chancery Lane will never be reformed without a structural shock to the system.

If you accept that the link with the regulator will be fully severed, the grey area will be around training and professional standards. On this one, the arguments look finely balanced. If the SRA and the Law Society could bury their differences and work together, there may be a workable compromise that sees the society retain some substantive role and the right to a reduced levy on the profession.

Where would that leave the City in terms of representation? The City of London Law Society is talked up, but the body is tiny and focused on technical consultation. In its current form, it has neither the resources nor ambition to take on a more meaningful role.

But rebooting it as a more muscular organisation is a practical and cost-effective option. A £1m-plus budget, a dozen staff and a heavyweight chair from the City and you’re off to a start. Bear in mind some of the largest City firms are contributing in the region of £250,000 a year for the Law Society (not counting the larger regulatory contribution) and there could soon be plenty of money in the pot.

TheCityUK is also emerging as a genuine alternative. The body has effectively courted the legal community, attracted credible figures such as Herbert Smith Freehills’ James Palmer and swung into gear on several issues important to the profession. The group also has the advantage of having wider links in the City, business and government. I suspect the body could easily become the default voice for City law if it pushed for it at this key moment.

Not that you would bet the profession will mobilise, even having been subjected to the indignities of Gove’s tax wheeze and the current attempt to turn the civil courts into a cash cow.

City lawyers have a remarkable ability to shrug their shoulders in these situations. Leadership on the issue may also have to come from a major firm outside the Magic Circle as London’s original elite have been reinvented in technocratic form and so rarely do leadership these days. But apathy should not save the Law Society from losing its power to tax the profession. It’s time it sang for its supper.

Subscribers can read more in this month’s cover feature: ‘Taxation without representation’