Profit boost for overwhelming majority of UK’s top law firms

Of the Top 100, 81 per cent reported increases in profit in the 2024 fiscal year compared to just 56 per cent last year, according to the Big Four firm’s annual law firms’ survey for 2024.

The report says fee increases and cost-cutting measures, including cuts to staff numbers, helped to deliver increased profitability.

Almost all firms surveyed (97 per cent) posted UK fee income growth in 2024, including 100 per cent of the Top 50 firms, for whom profit growth “was reasonably consistent with the rise achieved in fee income”.

However, cash performance “was less successful, with many firms seeing total lock up deteriorate over the course of the year and little progress made in addressing poor working capital practices”, the report states.

PwC also warns of continued market uncertainty, with around 55 per cent of Top 100 firms stating that they are “extremely or somewhat concerned about macroeconomic volatility and geopolitical instability”.

This year’s survey also asked firms a number of questions about generative AI, with just under half of Top 100 firms saying they expect the technology to generate savings in chargeable hours of at least 10 per cent.

The top firms are among the most enthusiastic about AI, while some mid-tier firms “now believe GenAI will have a negative impact on their business, fearing that clients will expect the same or reduced volume of work at lower prices”.

Kate Wolstenhome, leader of PwC’s law firms’ advisory group, said: “Financial performance in the legal sector has been overwhelmingly positive in the last 12 months. Global and UK fee income growth exceeded expectations, with just over half of top 50 firms posting double digit fee income growth, and measures to control costs have also had a positive impact on profitability.

“However, there’s been little progress in addressing poor working capital practices, with average lock up days remaining stubbornly high.

“As it becomes harder for firms to sustain the rate increases that have helped them absorb rising costs in recent years, fundamental productivity and growth challenges must be addressed.

“Firms will need to embrace innovation through technology, cloud, data and GenAI and then adapt quickly to capitalise on the opportunities.

“We anticipate that firms will need to undertake transformation of their operating models and rethink the size and shape of the future workforce.

“And they’ll need to build greater resilience against growing risks from cyber attacks, geopolitical instability and the impact of climate change and ESG expectations.”