Never mind the burgeoning national debt or spiralling unemployment; when lawyers are forced to start cutting their rates to attract custom, it’s a fairly concrete indicator that the economy is in bad shape.
And according to Jim Diamond, an independent legal costs consultant, that’s just how things are shaping up. Partners at London’s top five law firms – or the so-called ‘magic circle’ – are now charging an average of ‘only’ £450 an hour, down by a third from £675 a year ago, in order to drum up business. And you can bet your bottom dollar that if lawyers are feeling the crunch, fellow professional service types – accountants and consultants - will be too…
Before the economic crisis, magic circle legal fees had been steadily rising, and were criticised by (no doubt less well-paid) in-house lawyers who said that such gargantuan fees were unsustainable. And it seems they were right. A partner from any of the top five - Allen & Overy, Clifford Chance, Slaughter and May, Freshfields Bruckhaus Deringer or Linklaters - can now be instructed for the ‘bargain’ price of £400 per hour.
It’s just a pity no-one told the Government – it paid a whopping £22m to Slaughter & May for advice during the credit crunch, as we reported earlier in the summer.
Outside the magic circle, meanwhile, price cuts have been less pronounced. Partner rates for London firms fell by 15% during the last year to £375, while the average hourly charge for a partner outside the capital is now £325 – just £75 less than at a magic circle firm. Diamond told The Lawyer that the magic circle’s reduction in prices has an overall impact on the market. ‘Gone are the days when a mid-rank firm can justify its rates on the basis that the magic circle’s are 50% more.’ So now you can have the legal equivalent of a Ferrari for a Ford Mondeo price.
Before you go feeling too sorry for our lawyer friends - don’t bother. In spite of heavy discounts for many types of work, there is plenty of counter-cyclical business to keep some of their number in clover: it is reckoned that the top insolvency partners can earn up to £900 an hour. Bankruptcy isn’t bad news for everyone, it seems.
But despite the opprobrium heaped onto bankers recently, it seems we do have something to thank them for - they’re partly responsible for driving down legal fees. Apparently, banks are driving the hardest bargains because they are big magic circle customers with plenty of clout - and they could do with saving a few pennies themselves.
Talking of saving pennies, don't forget to post your ideas for our Public Sector Spending Cuts competition. There are bottles of bubbly for the best funny and serious suggestions posted by the end of the week.
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