This was against a backdrop of falls in conveyancing, growth in non-solicitor probate, and largely static volumes of criminal and family proceedings, but a growth in the number of solicitors’ firms. Changes to legal aid pay rates mean that some firms have seen an increase in funding while others have seen substantial decreases. Though cash expenditure has remained largely constant, there has been a real terms decrease in fixed fees. This environment gives rise to challenges to all types of firms: legal aid and non-legal aid alike. Of the firms that responded, 31 per cent undertook legal aid work in 2010/2011. Just over one-half of these reported that 50 per cent or more of their clients were legally aided, and just over one-quarter reported that 90 per cent or more of their clients were legally aided.

The research is both backward looking – at how this sector of the market has responded so far – and forward looking so that, in 2015, we understand how this sector has changed. This will assist in evaluating the impact of reforms. There is much in the report for those interested in the role of legal aid on this part of the supply side. Decisions about allocation of resources against priorities are matters for democratically elected governments rather than regulators. Yet the more the legal market is understood in terms of supply and demand, the more effectively access to justice can be secured at any particular level of government or consumer spending.

Nearly one in five of those firms that responded to the survey were new within the past three years, 50 per cent of which were single solicitor firms and 40 per cent of which undertook more than 90 per cent of their work in just one area. These new firms are more likely to be working in immigration, but not legal aid. They are also no more likely to be members of networks and more likely to outsource particularly accounting/finance and IT. They were more likely to have a majority of black and minority ethnic (BME) or female partners.

Underlying these changes, the research highlights the different approaches taken by firms responding to competition and seeking to innovate. However, it also shows that there is no single successful approach, suggesting that some firms have implemented strategies more effectively than others (see Table 2).

To a certain degree, changes in turnover were associated with the areas of work. Firms with a reasonable exposure to personal injury, employment and commercial/corporate work more often reported increases in turnover, in contrast to those working in the areas of wills, trust and probate, property, family and crime.

Firms delivering personal injury services tended to operate in very different ways to those delivering legal aid, for example. Having 50 per cent or more work in personal injury related to significantly higher productivity (measured here as turnover per fee earner), ie, 32 per cent higher than other firms, while having 50 per cent or more work in crime or immigration related to significantly lower productivity of 33 per cent and 37 per cent respectively compared with other firms. Firms delivering personal injury services also reported greater levels of competition. The analysis shows that criminal practice was reported to be less productive than most other areas of law, but also criminal practitioners appeared less capable of or interested in developing exit strategies from criminal legal aid work.

Accounting for different areas of work, advertising and outsourcing IT were associated with higher productivity, with media advertising activity being associated with an increase in turnover of over ten per cent. In other words, controlling costs and getting more customers helped to increase turnover. Looking solely at size, smaller does not mean performing less well in terms of productivity. A higher proportion of sole practitioner firms saw an increase or no change in turnover compared with those with two to five partners. While 43 per cent of sole practitioner firms have seen a decrease in turnover, 57 per cent have seen income stay the same or increase during an unprecedented period of double-dip recession.2Figures available at: https://research.legal servicesboard.org.uk/news/data-sources/. Overall, 58 per cent of firms have faced problems with costs, financing, regulations, legal aid changes or competition over the preceding 12 months, but single solicitor firms and large firms were less likely to report these problems than other firms.

It is not unreasonable to say that firms which have a narrow practice scope – deriving more than 90 per cent of their income from one area – are at risk of shocks because of reliance on income from one source. However, firms undertaking substantial volumes of commercial, employment or wills, trusts or probate work were least likely to report ‘problems’ (p21).

The survey also shows that the provision of legal services by solicitors’ firms is not static. Between 2007/2008 and 2010/2011, eight per cent had moved into one or more new areas of work, while nine per cent reported that their firm had moved out of one or more areas of work. Those firms that undertook at least ten per cent of their work in family were more likely than others to have withdrawn from an area of practice. In contrast, those firms that undertook at least ten per cent of their work in immigration were more likely than others to have moved into a new area.

The survey also highlights areas that warrant specific further investigation from the regulators, with firms undertaking property work most likely to report problems concerning complying with regulations. That BME majority partner firms were also more likely to report problems concerning competition from other firms and complying with regulations is one specific area of concern. It provides more evidence about links between diversity and firm ownership, and the financial status of these firms with both gender and ethnicity continuing to relate to a significant reduction in productivity. This is, in part, driven by the coincidence of other factors associated with diversely owned firms. However, it also underlines the dominance of white, male-owned firms in the more lucrative commercial segments.

Despite protestations about an oversupply of new and trainee lawyers, we know that millions of individual consumers’ legal needs are not being met every year.3See, for example, 2012 individual consumers legal needs report, available at: https://research.legalservicesboard.org.uk/reports/consumers-unmet-legal-needs/. It may well be the case that this increases as legal aid is withdrawn or reduced in many areas for many consumers. For many law businesses, this level of latent demand is an opportunity to grow their business, even if it is no longer funded by legal aid. It seems obvious that the current structure of service delivery, access and pricing is going to be different if this demand is to be turned into a profitable flow of consumers. The challenge for law firms is very simple: given the fact of changing circumstances, can they innovate to meet consumer need or will they leave that to others?