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As Prime Minister Theresa May continues to negotiate the UK’s exit from the European Union (EU), there is still minimal detail on the terms in which the UK is expected to leave EU—and the basis of the relationship between the UK and EU member states post-Brexit.
The uncertainty generated by Brexit has consequently fuelled much debate about the future legal and regulatory landscape, and whether it might lead to changes in the market and practice.
To provide insight into the economic impact of Brexit on the UK legal services sector, research was conducted by Oxford Economics in partnership with Thomson Reuters and the Law Society of England and Wales, to produce a new report: Helping to Understand the Impact of Brexit: the economic outlook UK legal services.
According to the research, the EU referendum vote in 2016 helped to accelerate the growth of the UK legal services sector, in the short-term, but it portends a significant decline in turnover in the event of a ‘no-deal’ Brexit.
The research indicates that the output of legal services, as measured by value added to the sector, increased by £1.2 billion [5 percent] in real terms between June 2016—December 2017, while real UK GDP increased £56.6 billion [3 percent] over the same period.
The uptick in the legal sector’s growth is largely attributed to the increased demand for legal advice as a result of the uncertainty generated by the Brexit referendum vote, and the UK’s likely departure from the EU.
However, despite the recent growth, the UK legal services sector’s turnover could be 2.1 percent smaller by 2025 if no agreement is reached in the negotiations and there is to be a ‘no-deal’ Brexit—the equivalent of £840m in real terms, according to the research. This would also reflect 2.1 percent fewer people employed in the legal sector, which equates to 7,400 people.
The report also revealed a bleak outlook on the impact of Brexit among the 257 legal professionals which were surveyed as part of the research.
Over half of the survey respondents suggested they were ‘not well prepared’ to counter threats related to Brexit, including the possible decline in London’s status as a financial centre or impediments created to the cross-border supply of legal services, while 63 percent said ‘Brexit represented more of a threat than an opportunity’.
Jim Leason, Vice President of Market Development and Strategy, Legal UK & Ireland, said: “The findings of the report reveal there is a wide gap between what the turnover of legal services could be in the event of a Brexit agreement and in a ‘no-deal’ scenario. Such are the complexities of the potential risks and why legal professionals see Brexit as more of a threat than an opportunity. Crucially, there is a risk that Brexit could result in UK law firms being locked out of pan-European work, potentially knocking London off its perch as the ‘one stop shop’ for legal services”.
Leason said a ‘no-deal’ Brexit could hit large law firms the hardest as they derive a larger proportion of their revenues from international companies, adding: “The risk is that this could result in large firms relocating jobs and practices abroad, which could have wider knock-on effects on the economy”.
Download the report here.