The UK’s 100 largest law firms increased profit per equity partner (PEP) by an average of 13% during the last financial year, with near across-the-board hikes coming despite the rising costs of associate salaries.
On the back of double-digit revenue growth for more than half of the LB100 during 2023-24, average PEP rose to £844,000 after profitability had remained effectively flat during 2022-23.
Profit per lawyer (PPL) was also up, from an average of £100,800 last year to £116,200 this year – an increase of over 15%.
While Slaughter and May does not formally disclose its financial results, it is understood that the firm’s PEP now sits at £4m after a 14% increase in 2023-24. It is the only firm in the LB100 with PEP above £3m, with a further six reporting PEP above £2m and a further nine above £1m.
The increase in profitability this year was even more significant than the 11% achieved by Global 100 firms – a clear signal that the UK legal market has shaken off the post-Covid slump that saw profits stall in 2022-23.
Top ten LB100 firms ranked by PEP
| Firm | PEP | YOY change |
|---|---|---|
| Slaughter and May | £4m | +14% |
| Macfarlanes | £2.9m | +37% |
| DLA Piper | £2.5m | +17% |
| Freshfields | £2.4m | +14% |
| Hogan Lovells | £2.2m | +19% |
| Allen & Overy | £2.2m | +21% |
| Clifford Chance | £2m | +2% |
| Linklaters | £1.9m | +7% |
| Stewarts | £1.4m | +16% |
| Ashurst | £1.3m | +14% |
In last year’s LB100 report, 39 of the 83 firms for which LB published profit data recorded a decrease in PEP, while this year, by contrast, only 10 firms of the 80* which disclosed profitability data recorded a decrease.
A total of 66 firms recorded increases in PEP this year, with three staying flat. Of those, 40 recorded double-digit percentage increases, with one firm even managing a triple-digit increase.
That firm, Kingsley Napley, saw PEP skyrocket by 106% to £466,000, the highest in the firm’s history. Managing partner Linda Woolley said the result was ‘particularly pleasing’ as the firm had ‘held its nerve’ after PEP fell 33% last year on the back of ‘a period of deliberate and significant investment in the business’.
‘Following our move to new offices in 2021, we embarked upon a new growth strategy which involved investment in infrastructure and partner hires to lead various new adjacent service lines,’ she explained. ‘We knew this would impact profits in the short term but held our nerve and our 2024 figures show that this was the right decision because our investment is now bearing fruit.’
Several of the other fastest growing firms followed a disappointing 2022-23 with a return to form this year, with Burges Salmon riding a 42% boost to £661,000 after a 10% drop to £466,000 last year, with Macfarlanes up 37% this year to £2.9m after slipping 15% to £2.1m last year.
Top five firms by year-on-year % change to PEP
| Firm | PEP | YOY change |
|---|---|---|
| Kingsley Napley | £466,000 | +106% |
| Hill Dickinson | £500,000 | +17% |
| Burges Salmon | £661,000 | +42% |
| Gowling WLG | £562,000 | +41% |
| Macfarlanes | £2.9m | +37% |
LB100 firms undoubtedly made more money in 2023-24 than they did in 2022-23, with a 10% boost to topline turnover. But this does not account for the outsized growth in profit. There is also no sign of a significant decrease in costs, as in 2020-21 when the pandemic reduced events and travel expenses to near-zero, and with any AI cost-cutting revolution very much over the horizon.
Profit has also surged despite significant increases in staff costs, with the best-paid newly qualified (NQ) lawyers in London now taking home an eye-watering £180,000, and the top homegrown UK firms paying £150,000.
‘You look at the headline NQ salaries at some of the major London firms, and they’re really striking’, says Womble Bond Dickinson UK managing partner Paul Stewart. ‘There was huge pressure on pay coming out of Covid.’
According to Blake Morgan managing partner Mike Wilson, this pressure on salaries ‘is starting to tail off’. But if this is the case, it is unlikely to have a notable impact on law firm financials until the coming years.
So how did law firms increase profit so much in 2023-24? Much of the answer lies in rate increases. According to PwC’s annual law firm survey, the top ten UK-headquartered firms increased their UK hourly rates by nearly 40% over the past five years, with increases of 14% for the firms ranked 11-25, and 24% for the bottom 50.
‘Clients look at some of the NQ salaries that have been bandied around with a degree of shock’, says Bristows joint managing partner Stephen Smith. Another managing partner at another UK firm goes further: ‘Some clients and referrers that we deal with are saying, “We’re not prepared to pay these rates for NQs.”’
A third managing partner, meanwhile, comments: ‘Constant salary increases aren’t sustainable unless law firms really work on the value proposition. You can’t just pass on the increases to clients.’
Some in the UK mid-market argue that this environment presents opportunities. ‘We increasingly see that clients are facing cost pressures’, continues Smith. ‘They look to a firm like ours, a premium firm that can offer competitive prices, often at times lower than our peers.’
If tolerance of rate increases does begin to wear thin, LB100 firms may struggle to continue to boost their profits in the coming years, but on the strength of this year’s results, top UK firms have every reason to be confident.
alexander.ryan@legalbusiness.co.uk
*Note: LB does not report PEP or PPL for firms with different corporate structures, such as listed firms and those under private equity ownership.