Long Live the Law: A look at the legal industry’s impact on the economy

March 12, 2020

3 min read

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What's going on here?

The Law Society commissioned a report from KPMG detailing the legal industry’s impact on the UK’s national economy and how the sector has grown since the last commissioned report in 2016.

What does this mean?

This report provides an in-depth analysis of the social and economic effects for which the legal industry has been responsible, quantifying these effects with data generated in 2018. It was noted that legal services generated a net positive £4.29bn for the UK’s balance of trade and contributed an overall £59.93bn Gross Value Added (GVA) to the national economy. Interestingly, in the pro-bono sphere, solicitors in private practice, on average, outperformed those working in both the in-house and government sectors by 34% and 20% respectively in terms of the number of hours spent on pro-bono work.    

These statistics depict a picture of a healthy, growing legal sector. It is evident that the legal sector remains highly profitable and the demand for such services remains high, in spite of the rise of alternative legal service providers, such as Axiom, in recent years (for more information on Axiom, see our article on that here). The overall increase in productivity of 17% from 2013 to 2018 underscores how law firms have continued to maintain their competitive edge. It does not appear that these upward trends of profitability are likely to falter in the near future; the legal sector stands to remain a major contributor to the national economy.

What's the big picture effect?

The knock-on effects of a thriving legal industry have also been analysed. The GVA contribution of professionals working in the “legal activities” sector (including non-legal professionals) and legal professionals outside “legal activities” increased by 22% and 15% respectively. Both these statistics are well above the national average of 11% in the same period, denoting how the legal sector continues to outperform much of the rest of the economy. Furthermore, the industry indirectly generated employment of an additional 150,000 full-time employees through the legal sector’s supply chain with a further 43,000 employees through the spending of the legal industry’s direct and indirect employees. 

It is also worth noting the legal sector’s socio-economic impact with regards to pro-bono activities. The cumulative 1,446,000 hours spent on pro bono work by legal professionals has done much to narrow the “access gap” to justice for underrepresented groups and mitigate the adverse effects of the government’s cuts to legal aid. Such work (while not quantified as part of the UK’s GDP) is estimated at a value of £439m, demonstrating the scale at which the legal sector has attempted to bring about substantive social change. Despite these efforts, the government’s reforms have only increased the pressing need for free legal services, exposing a still widening information and outreach gap in vulnerable communities.

It is clear that the legal industry has made, and continues to make, significant contributions to the UK’s national economy. As negotiations over the UK’s future relationship with the EU continue, the UK government arguably would do well to ensure the legal sector’s continued access to the EU’s single market. Safeguarding this highly profitable sector would generate positive consequences not only for those employed in the legal industry itself, but also supporting industries. Maintaining simple procedures for law firms to do business in EU member states will be critical for the maintenance of existing European clientele. While the loss of EU free movement rights is inevitable, optimism still remains for the UK and the EU to reach a favourable agreement on equivalence for regulations concerning professional services activities. Until then, the full impact of Brexit on law firms (and its trickle-down effects on the rest of the economy) remains unpredictable, but it is hoped that the sector’s consistently strong performance will withstand the present volatility.

Report written by Debra Lim

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