Quarterly pulse survey Q3 (July to September 2023)

Key findings

General activity levels remained stable, with a continued increase in the percentage of firms reporting growth in chargeable hours. Billing also saw an increase on Q2.

The overall proportion of firms reporting an increase in matter starts (25%) was slightly higher than for conveyancing (21%).

Total expenditure increased or remained the same for most firms (84%). However, the proportion reporting an increase in expenditure continued to decline (41%) in Q3 compared to 58% in Q2.

Headcount remained stable, with 15% of firms increasing their fee-earner headcount over the last quarter.

42% of participating firms expected their standard inflationary pay rise to be between 5% and 7.5%. Around a quarter of firms expected their total fee earner costs to increase by more than 7.5%.

Cash positions have improved or remained stable for almost three-quarters of firms (71%), and most firms expect the same for Q4 (89%). 11% of firms expect cash position to worsen in Q4.

93% of firms anticipated firm’s fees would either increase or remain the same over the next 12 months. 44% predicted profitability would increase over the next 12 months; 16% expected profitability to worsen.

The average interest rate firms are getting on the majority of client funds held is 3.11% – an increase on the 0.65% reported in Q3 2022. The range of interest rates varies between and within the range of client funds held, suggesting some firms could be negotiating a better rate.

Less than half of funds are aware of the full range of government support schemes available to assist SMEs in the legal sector. Except for legal apprenticeships through the apprenticeship levy, levels of use are low.

Survey results

Skip to:

• income, expenditure and new work
• staffing
• cash position
• business confidence
• interest rates on client funds
• standard inflationary payrise
• government support schemes

Income, expenditure and new work

• The number of matter starts remained stable for around two-fifths of firms. For the remainder, a higher proportion reported a decrease, than an increase
• More change had been experienced by residential conveyancing firms: 21% reported matter starts had remained the same, 58% had experienced a decrease
• Total expenditure increased for 41% of firms; 16% experienced a reduction in costs

Staffing (headcount and working arrangements)

Headcount

• Headcounts remained stable
• 47% of firms had half or more of their fee-earners operating under hybrid arrangements, down on the 59% in Q2
• Similarly, 28% of firms reported having half or more of their support staff working under a hybrid arrangement compared to 37% in the previous sweep

% of staff working in some form of hybrid arrangement

Cash position

• 40% of firms reported an improved cash position compared to the previous quarter. A similar proportion reported either no change (31%) or a worse cash position
• Looking forward to Q4, 53% anticipated their cash position would remain the same, 36% anticipated an increase, and 11% a decrease

Business confidence

• Most firms anticipated fees would increase, or remain the same over the next 12 months. 7% of firms expected fees to decline
• 44% of firms expected profitability to improve, 16% expected a decrease over the next 12 months
• Firms expecting profitability were more likely to report that fees would either increase or remain the same over the coming year

Interest rates on client funds

To identify whether firms have been able to negotiate more favourable rates, firms were asked about the value of client accounts and the interest rate being applied:

• just under two-fifths of firms held less than £5 million in their client fund accounts
• the average interest rate firms are currently getting on the majority of client funds is 3.11%, which is an increase on the 0.65% reported in Q3 2022
• the range of interest rates varies between and within the range of client funds held, suggesting some firms could be negotiating a better rate

% of respondents by amounts held in client accounts

Interest rates paid on the majority of client funds, by range of client funds held

Average range of client funds held	Minimum	Mean	Maximum	Number of firms	Mean Q3 2022
Less than £5 million	0.00%	1.77%	6.00%	20	0.42%
£5-£10 million	0.50%	2.93%	5.10%	13	0.65%
£10-£20 million	1.70%	3.57%	5.10%	10	1.33%
£30-£50 million	2.00%	4.45%	5.15%	12	0.95%
All	0.00%	3.11%	6.00%	57	0.65%

Standard inflationary payrise

• 42% of responding firms expected their standard inflationary pay rise in 2023 to be between 5% and 7.5%
• 27% of firms expected fee earner total payroll costs to increase by more than 7.5%

Expected standard inflationary pay rise in 2023

Anticipated total payroll cost increase in 2023 (fee earners only)** low cell counts

Anticipated total payroll cost (fee earners only) increase in 2023

Awareness and use of government support schemes

There is a range of government support schemes available to assist SMEs in the legal sector. Awareness of these schemes varies.

There are higher levels of awareness and use in relation to legal apprentices and the Recovery Loan Schemes.

There is lower awareness of the Prompt Payment Code, the Energy Bill Discount Scheme, regional schemes and Help to Grow.

Have you heard of or used any of the following? (n=54)

Thanks to participating firms

We appreciate you taking the time to complete the pulse survey.

In early January 2024, we’ll be contacting firms to ask about their experiences of Q4 (October to December 2023).

If you have suggestions on how we can improve the survey or have any ideas about what topics you would be interested in, email joanne.cox@lawsociety.org.uk.