Fee income across the UK’s law firms rose by 6.1% last year against a jump in profit per equity partner (PEP) of 20.7%, although most of this increase was due to interest from client funds, according to research published today by the Law Society of England and Wales.

The Law Society’s latest Financial Benchmarking Survey, which is based on data collected from mid-sized law firms, shows resilience and growth amid rising costs.

While median growth of 6.1% in fee income among the 145 firms that took part in the survey represented a slight fall from the 6.8% growth recorded in 2023, the 20.7% surge in PEP followed a fall of 0.7% in 2023.

However, the report noted that when client interest is removed from the PEP calculation “underlying performance has more or less flatlined in 2024, with a small rise of just 1.2%”.

It warned: “Whilst this shows early signs of encouragement for firms after a couple of years of slipping profits, it is important that firms look to wean themselves off client interest and do not view it as part of a sustainable growth strategy.”

Employment within the legal sector also increased, with the number of solicitors and other legal professionals growing by 3.4%. This growth has increased total salary costs, which rose by 1.1% as a percentage of fee income.

Median cost per legal professional increased by a significantly higher margin, rising by 6.1% to £67,476 from £63,614 in 2023. This reflected an increase in business costs of just under 7%.

The time it took to collect payments – known as lock-up days – increased from 143 to 146 days.

Richard Atkinson, president of the Law Society, said: “Despite rising costs and a slowing growth rate, law firms are still performing well. The legal sector remains healthy, continues to be a powerhouse of the UK economy and a significant employer.

“Solicitors and law firms are committed to helping to build a robust economy that competes internationally while contributing to the country’s prosperity and supporting local communities.”

While Hazelwood, which conducted the research, estimates that the bulk of the fee income reported in the survey is domestic, international UK law firms were estimated by research published last December to have generated £9.5bn in overseas income in 2023.

This week, Atkinson, a criminal litigation partner at Tuckers in Kent, has joined UK Foreign Secretary David Lammy MP on a trade visit to Japan to encourage openness in legal services following a relaxation in practice regulations last July. The Japanese legal market is estimated to be worth $5bn.

Welcoming the initiative, Colin Passmore, chair of the City of London Law Society (CLLS), said: “City law is a significant contributor to the economy in so many ways – not merely in terms of income, employment and taxes paid, but in keeping the economy going and ensuring millions of transactions complete every year.

“It is good to see the government’s focus on economic growth, an objective for which our member firms continue to make a significant contribution. However, if growth is slowing, as I suspect it is for many reasons, we need to see the government tap more into the knowledge of City law firms, for example through the CLLS specialist committees, who have unparalleled insights into restraints on our economic growth.”

The CLLS recently took the Solicitors Regulation Authority (SRA) to task for its proposals to change the rules governing law firms’ holding of client money by expressing concerns about potential overregulation. It argued that it was “unrealistic for the SRA to seek to change practices central to commercial life in England and Wales”.

It added that “the purported justification [the SRA gave] for further action was based on an instinct to overregulate the profession which was inconsistent with its statutory obligations. Such overregulation will hamper economic growth within a sector that is an important part of the UK economy”.