- Tenth edition of the NatWest Legal Report finds growth in fee income and profitability
- South-West & Wales as the most profitable region while private client teams identified as strongest performers
- Nearly half of respondents see the attraction and retention of talent as a key challenge
NatWest has today published their tenth legal report analysing the financial performance of law firms across the UK following a survey of nearly 100 participants.
Optimism in the legal sector has increased to 90% in 2024, up from 87% the previous year, with firms referencing strong growth in both fee income and profitability.
The report focuses on firms that operate at the commercial and mid-market level across England, Scotland and Wales, with turnover ranging from £1 million to £200 million, and an average turnover of £20 million.
Firms surveyed experienced growth in fee income and profits per equity partner (PEP), a common measure for law firm profitability, over the past year. Overall, median PEP increased by 10%, to £274,000, in 2024. Small firms enjoyed a significant increase of 16%, to £136,000, while large firms saw an increase of 6%, to £309,000.
A regional breakdown shows that firms in the South-West & Wales reported the highest median PEP of £379,000 for 2024, followed by the North & Scotland (£266,000) and London & the South-East (£260,000).
The survey also asked firms for expectations of fee growth in 2025, with the data showing that 88% of firms expect their fee income to further increase.
David Weaver, Head of Professional and Business Services, NatWest, said:
“An optimistic legal sector is a good barometer of overall business confidence within the UK economy, and it’s great to see this building as demand for legal services remains strong.
“While margins continue to be tight, leaders are focusing on increasing fee income to offset wage inflation while also controlling costs and boosting productivity and recruitment.”
The report identifies the key factors and themes driving change in the industry as well as significant challenges faced by firms.
The labour market in the legal sector remains a critically concerning issue with 44% of respondents citing the attraction and retention of talent as the biggest challenge they face over the next 12 months. Pressure on margins (17%) and improving productivity (15%) have also been recognised as the most significant challenges by firms.
Neil Lloyd, Managing Partner at FBC Manby Bowdler took part in the survey and commented:
“Whilst our staff retention rate is very high this relies on continually maintaining the right package for people, including salary, holiday and work environment.
“We are seeing very high demand for our services and potential growth across the board and the only way we can fuel this is through increased people capacity, so recruitment is the key to that.”
The report also breaks down fee performance by teams and found the strongest performers to be private client and commercial litigation teams. 28% of respondents reported private client teams as the most buoyant area in 2024, followed by commercial litigation (13%) and corporate and transaction work (10%). Residential conveyancing was noted as the lowest performing area at a fee income level this year, with just 8% of respondents citing this as their best performing area.
Andrew Allen, author of the report and Partner at PKF Francis Clark, said:
“With nearly 100 firms of all sizes taking part in this year’s survey it provides us with an up-to-date assessment of the finances in law firms in 2024 and a useful insight into wider factors affecting the sector today.
“The talk in law firm boardrooms has shifted away from recruitment and towards margins and efficiency. Dependence on interest income is creeping into the financial discussions in firms and perhaps one of the most revealing factors was the extent to which AI is now being deployed in firms of all sizes and the impact law firm leaders expect this to have on their business in the future.”
