The government has set out proposals to use interest on lawyers’ client accounts as “a crucial source of funding” to support and enhance services in the justice system. Funds would be directed to “areas of greatest need”, the Ministry of Justice said in a statement.
The Interest on Lawyers’ Clients Accounts Scheme (ILCA) will see a proportion of the interest earned on client accounts in England and Wales, including third party managed accounts, remitted to the government. Firms would retain a portion of the remaining interest, which would continue to be subject to existing sectoral rules on client interest.
The Ministry of Justice said it is also considering whether individual client accounts should be included within the scope of the scheme, “to avoid creating a loophole”.
A consultation has been launched which sets out the proposals in detail, and the government is seeking views from legal service providers and practitioners, regulators, professional bodies, clients and consumer groups, the banking sector and companies providing client money accounts or third party managed accounts for legal firms, advice organisations, and “all those with an interest in the proposal”.
Writing in the foreword to the consultation document, David Lammy, the secretary of state for justice, said law firms should contribute to strengthening justice.
He added:
“We are carrying out this consultation to understand how the legal profession can support our shared goal: a justice system that is fair, accessible and fit for purpose.
“Currently, many firms retain interest generated on client accounts as income. We believe that unearned income could be better invested in strengthening our justice system. This is a tried and tested idea, with similar schemes operating successfully for decades in countries like the United States, Canada, Australia, and France. These models have delivered measurable impact by funding access to justice and legal aid services.”
Under the proposals, law firms would be required to hold client money in accounts that meet stipulations set out under the scheme, managed by a scheme administrator, which the government proposes should be the Ministry of Justice. “Delivering the scheme ‘in-house’ ensures timely implementation and minimises unnecessary complexity and cost to the public purse,” the consultation document explains.
Requirements for firms include periodically collecting appropriate interest from the client account to send to the scheme administrator, calculating interest daily and crediting it to the account periodically, and offering a rate of interest comparable to other interest-bearing banks.
The legal service provider will be required to provide account information to the scheme administrator as required for enforcement activities, and the client account may be required to be held with a provider that is able to host an administrator account within the same bank or institution.
Sanctions would be introduced for providers that do not adhere to the scheme’s requirements.
All legal service providers in England and Wales who are regulated under the Legal Services Act 2007 and hold funds in client accounts would fall within scope of the scheme, irrespective of legal structure.
The Law Society of England and Wales was quick to condemn the plans, warning that the “raid on client accounts” will lead to increased fees and force some firms to close.
“The MoJ has decided to take money from the interest earned on law firms’ client accounts to boost its own budget,” Law Society president Mark Evans said.
“Yet, as its own consultation reveals, it has no clear idea how this proposal will work in practice and no understanding of the serious consequences this will have on high street firms and access to justice throughout England and Wales.
“Firms will close, fees will rise and clients will be impacted if the MoJ goes ahead with the proposal.
“The cost of doing business in the legal sector is already high, with recent rises to National Insurance contributions meaning businesses are paying more. The proposal comes at a time when small firms will have to manage new regulatory burdens on anti-money laundering supervision and tax adviser registration. High street law firms will face a perfect storm of new bureaucracy, undermining the UK government’s efforts to achieve growth and revitalise local economies.
“Despite the short timeframe for the consultation and the MoJ’s efforts to keep the proposal under the radar, the Law Society will be consulting widely with its members across the country.”
The Conveyancing Association was similarly critical of the plans: “The Conveyancing Association does not support the approach set out in this consultation,” Nicky Heathcote, non-executive chair at the CA, said.
“Client account interest is not a spare source of funding that can be taken without consequence. For many firms, this income helps cover the real and rising costs of running compliant client accounts, including banking charges, systems, audits and controls that protect consumers. Removing or redirecting that income risks pushing costs back onto clients or making some conveyancing service models unworkable.
“We are also concerned by the very short timeframe provided to respond. Meaningful consultation needs time for firms to assess the impact on their businesses and on consumers, and to respond properly. While the sector has engaged constructively on this issue, and the CA has already fed into the MoJ, the pace of this process makes it harder for firms to provide full evidence and practical insight. We will consider our response carefully, but it is vital that the real world experience of conveyancers is fully reflected to avoid unintended harm.”
The consultation is open until 9 February.
Open consultation: Interest on Lawyers’ Client Accounts Scheme
One Response
The Ministry of Justice’s consultation begins with the assertion that “law firms thrive when the system is strong, so it follows that they should contribute to strengthening justice.” This framing is deeply troubling. It implies that the legal profession bears responsibility for the state of the justice system and should therefore be expected to subsidise it. That is a fundamental mischaracterisation of both the constitutional role of the profession and the state’s duty to maintain a functioning system of justice for all.
The reality is well known across the sector: the civil and criminal courts are under unprecedented strain. Chronic underfunding, repeated IT failures, court closures, and unsustainable listing delays have left the system barely able to meet its basic obligations. These are structural issues arising from long‑term policy decisions, not from any failure on the part of solicitors or their clients.
Against that backdrop, the proposal to appropriate client account interest as a revenue stream for government is not only misconceived but constitutionally unsound. Client money is held on trust. The interest generated on those funds belongs to the client. To divert that interest to the state is, in effect, to impose a selective tax on individuals who happen to be engaged in legal processes—often at moments of vulnerability, dispute, or personal difficulty. It is arbitrary, regressive, and wholly inconsistent with the principle that justice is a public good funded by society as a whole.
The consultation relies heavily on solicitor survey data suggesting that client account interest has limited impact on firms. It is unclear when that data was gathered. If it reflects the period of historically low interest rates, it is no longer representative. In the current environment, interest on substantial balances is significant. Many firms are holding large sums for extended periods while complex matters—such as disputes involving capacity, trusts, estates, or matrimonial property—are resolved. To divert the interest on such funds to government would be to penalise clients for the very delays caused by systemic underinvestment.
Professional bodies will recognise the wider implications. These proposals risk:
1 undermining the fiduciary relationship between solicitors and clients
2 eroding public trust in the independence of the profession
3 distorting the operation of client accounts and the regulatory framework that governs them
4 setting a precedent for further incursions into client money under the guise of “system funding”
The suggestion that the profession should “contribute” because it “benefits” from a strong justice system is particularly concerning. The justice system is not a commercial service from which lawyers derive advantage; it is a constitutional safeguard that underpins the rights of every citizen. To imply that lawyers owe a special financial duty to the state because they operate within that system is to misunderstand the very nature of legal independence.
These proposals are ill‑conceived, misinformed, and incompatible with the principles that govern both client money and the rule of law. If the Ministry wishes to strengthen justice, it must fund it transparently, sustainably, and through mechanisms that apply to society as a whole—not by appropriating client funds or shifting responsibility onto the profession.
Professional bodies should respond with clarity and unity: the independence of the legal profession, the integrity of client money, and the constitutional duty of the state to fund justice are not negotiable.