New justice secretary Michael Gove is set for a tussle with City lawyers after floating a plan to impose a multimillion-pound tax on commercial law firms to pay for the abolition of a controversial criminal court charge on guilty defendants.
Gove’s plan has been proposed as a means to replace the revenues generated by the court charge that was supposed to bring in between £65m and £90m annually. A report in The Times in October said that a 1% levy has been floated as a means of appeasing the Treasury. Such a levy on the top 100 UK firms, which have combined revenues of £20.64bn, would potentially generate more than £200m annually but promises to ignite controversy over arbitrary taxation of one industry.
A Ministry of Justice spokesperson said in a statement: ‘Resources are rationed at one end while there are huge rewards at the other. Those who have benefited financially need to do more to protect access to justice for all and we are discussing with the profession how this can be taken forward.’
Any such move will be highly unpopular among City law firms, who are already unimpressed with rising court fees in civil cases. It may also stoke resentment among the City’s commercial profession following what was widely regarded as a misconceived attempt by the government to back the profession in this year’s Global Law Summit. As such, a delegation of Legal Business 100 firms met with Gove days after the proposed plan was unveiled in the press to register their unease with the proposal.
One disputes partner at a Magic Circle firm told Legal Business: ‘In terms of the nature of this tax, if you can imagine applying this to accountants, will you levy a special tax on them to fund HMRC? Will you have a special tax on estate agents to fund sheltered housing? It’s a hypothecated tax. It may sound as if it will have popular appeal, but I would be concerned as to where it’s all leading.’
Another City disputes partner told Legal Business: ‘Top law firms already pay lots of tax on their income. What can I say? It’s absolutely outrageous.’
And a City-based disputes head at a US firm added: ‘For a long time, governments have been trying to make up for the fact that they have been eroding away the legal aid system. We and every other City firm give pro bono hours but that isn’t a replacement for legal aid. It’s like beating up on bankers – you’re never going to lose on that. You won’t lose votes beating up on well-heeled City lawyers, it’s a cheap point for them.’
Gove has been pushing for lawyers to ‘look into their consciences’ and do more work for nothing in the justice system, though there is widespread scepticism regarding using pro bono to fill the gap left by state funding. Whether the City legal industry can this time generate anything like a united front or robust lobbying position with the government, though, will be open to question.
sarah.downey@legalease.co.uk