Ministry of Justice consultation: Interest on lawyers’ client accounts scheme

The Ministry of Justice has launched a major consultation that promises to reshape the way law firms in England and Wales manage and use interest on client accounts, with potentially material financial and operational consequences for firms of all sizes. 

This consultation represents a key milestone for the legal market, making it essential that firms understand the implications and engage with the process. 

The consultation proposes that a proportion of interest earned on the Lawyers’ Client Account Scheme (ILCA) be remitted to the Government, with that interest used to fund and strengthen the justice system. Whilst there is certainly a wide acknowledgement that there is the pressing need for more funding in the justice system, particularly around Legal Aid, there are question marks as to whether this is the right way to approach it.

Under the proposals, 50% of the interest generated on individual client accounts would be returned to the Ministry of Justice Central Account, increasing to 75% for pooled accounts.

The consultation opened early this month (7 January) and will close on 9 February 2026. This is a relatively small turnaround time for such a significant proposal. Understandably, there has already been high levels of engagement with this consultation given the significant potential impact.

The consultation has been criticised by The Law Society, saying it would put high street law firms at financial risk, forcing them to raise fees to survive.

The Law Society president Mark Evans said: “The MoJ has decided to take money from the interest earned on law firms’ client accounts to boost its own budget. 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.”

This leads to understandable questions about how the SRA would be able to deal with numerous failing firms and the resultant increase in consolidation in the market given their current resource issues.

Questions too have been raised as to how banks will respond, with the suggestion that interest rates on client accounts will fall. If it did, it would raise serious doubts as to whether the proposals will indeed achieve what the government hopes. 

Additionally, the data used within the consultation to justify the reforms has been pulled into question. Certainly, the comment that “94 percent said losing the interest would have little/no impact on their firm” is not representative of our client base or wider anecdotal evidence. This finding is difficult to reconcile with our experience advising law firms, particularly small and mid-sized practices where client account interest remains a meaningful income stream.

Whilst the 34 questions require detailed response, we would urge law firms to respond to this consultation. As part of this process, internal finance teams and/or COFAs should spend time evaluating the likely impact to their firm should the proposed changes go ahead, both in terms of financial implications and increased administrative burdens. There would likely be an increased need for robust financial management and cashflow forecasting.

Click here to view the to consultation and how to respond.

If you would like to discuss the consultation, please reach out to your client contact or our professionals services team.