The Ministry of Justice (“MoJ”) has launched a consultation proposing that law firms in England and Wales hand over a large portion of the interest earned on client accounts to the government.

This policy, labelled an Interest on Lawyers’ Client Accounts (ILCA) scheme, is being justified as “fair” and modelled on similar schemes abroad.  It’s our view that this claim – and the policy itself – is wide open to interpretation and fundamentally inequitable for both law firms and their clients.

What the MoJ are proposing

Under the MoJ’s consultation:

• 75% of interest earned on pooled client accounts could be claimed by the government,
• 50% of interest on individual client accounts would also be diverted.

The stated aim is to strengthen the justice system, but there is no guarantee that the funds will be ring-fenced for legal aid or access-to-justice initiatives.

A potential double-whammy for law firms

The legal profession is already under significant pressure:

1. Many firms operate on thin margins, particularly in legal aid work.
   
   Research shows that nearly half of family legal aid providers cannot cover costs, and in fact all housing legal aid providers in a sample study made a loss.
   
   
2. A substantial number of firms rely on legal aid and also handle client funds.
   
   As of mid‑2025, there were almost 2,000 providers across more than 3,200 offices delivering civil or criminal legal aid in England and Wales, many of whom also operate client accounts.
   
   

These firms often use client account interest to cross-subsidise legal aid work or maintain low fees, meaning diverting these funds risks destabilising already fragile practices.

Professional bodies are sounding the alarm

Unsurprisingly, the Law Society has warned that the proposals could:

• Push smaller firms out of business
• Increase costs for clients, and
• Create significant administrative burdens in our already heavily regulated sector.

Why international comparisons don’t justify the proposal

The MoJ claims that similar schemes exist abroad and operate successfully, including in the U.S. and Canada, but these comparisons are misleading:

• In the U.S. and Canada, interest on lawyers’ trust accounts is administered by independent law foundations and directly funds legal aid, public legal services, and education, rather than being diverted into general government budgets.
• The UK’s legal aid system and regulatory environment are very different, with centralised funding, national eligibility criteria, and strict SRA rules on client account management.

Administrative burden and regulatory conflict

Implementing the ILCA scheme would require firms to:

• Track and report client account interest to the MoJ,
• Ensure compliance with existing Solicitors Regulation Authority (SRA) rules,
• Potentially reconcile interest already owed to clients under regulatory obligation
• Implement new systems for calculating, tracking, and remitting interest at the proposed rates
• Update their policies, client care letters, retainer agreements, and internal guidance

This adds a significant bureaucratic headache for firms already grappling with AML, compliance, and financial reporting duties.

Potential long-term implications

While the consultation does not explicitly aim to reform legal aid, there is concern in the profession that this could be a first step toward undermining the legal aid system, forcing firms to subsidise justice funding indirectly rather than the government funding it properly.

The MoJ’s approach risks:

• Diverting funds away from access-to-justice priorities,
• Increasing pressure on small and medium-sized law firms, and
• Reducing transparency and professional autonomy in the management of client funds.

Our view

The ILCA proposal is structurally flawed, inequitable, and poorly justified. Law firms, particularly those delivering legal aid, face real financial and administrative challenges if the scheme is implemented. The profession’s consensus is clear: funding justice is the government’s responsibility, not the profession’s.

If central government believes legal aid and the wider justice system are underfunded, it is for the UK Government to meet those costs directly, not for law firms – or their clients – to foot the bill through diverted interest revenue.

Essentially, the proposals act as a stealth tax on clients who use law firms, rather than a fair redistribution.

This is fundamentally wrong. The government should fund legal aid properly, not extract money from firms and clients under the guise of fairness.

Finally, we would like to remind clients that client account interest and client account balances are two very different things – our latest advice about client balances can be found here.

The consultation closes on 7 February and we’d encourage our clients to have their say!