High street heartache

With traditional work drying up, Alison Laferla reports that small firms are set to suffer.

Perhaps more than any other area of the profession, high street practitioners are praying that a recession does not hit.

High street practices tend to earn the bulk of their income from legal aid work and residential conveyancing. Many fear that while government cutbacks and the introduction of block contracting will badly affect the former, the latter is likely to be badly hit in a recession.

Add the increases to Solicitors' Indemnity Fund (SIF) contributions to the picture and it is easy to understand why many high street practitioners are worried about their future.

Vice-chairman of the Sole Practitioners' Group (SPG), Paul Boucher, who runs a high street practice in Manchester, says that although he has not seen much evidence of a recession, the prospect of one is very worrying.

Sole practitioners were not particularly hard hit by the last recession, he says, because they could cut their overheads and concentrate on areas of work not damaged, such as legal aid. But, he says, this might no longer be an option.

“Conveyancing makes up a lot of my work. A recession, coupled with the legal aid situation, where I don't know if I am going to be able to do legal aid work any more, is very worrying,” he says.

It could spell disaster for sole practitioners working in deprived areas who do not have a legal aid franchise, he warns.

Monty Martin, an executive member of the SPG who runs a back-to-back consumer credit practice, says sole practitioners are far more worried about increased SIF contributions, which could well put them out of business before a recession has any effect.

The last recession is believed to be the worst ever for the English property market. Within property practices, most high street practitioners believe a new recession will be as serious.

At the start of the 1990s conveyancing fees had already been driven down for some years and many solicitors were reliant on high-volume conveyancing work. When the crash came, conveyancing work dried up and many went out of business or entered into enforced mergers.

Richard Green, executive officer of the Solicitors Property Group, says although that recession did create work for lawyers, most high street practices were unable to diversify sufficiently t'o exploit the opportunity.

“It is very difficult to judge how the property market will be affected this time, but most people are reasonably optimistic,” he says. “Interest rates are half what they were at the worst of the last recession and are on the way down.

“I suspect most practitioners are hoping that the recession in the housing market is not going to be that severe. They might be wrong.”

One way to prepare for a recession, says Green, would be to increase fees now, because firms cope better with financial ups and downs when profitability is higher. But this is only possible if market forces allow it.

In fact, the conveyancing market is becoming increasingly competitive. “The recession is obviously a threat,” Green says, “but the greatest threat to high street practices is the entry of large firms and major institutions, under Hambro-type arrangements, into conveyancing.

“The two together would be even worse.”

The question for high street practitioners at the moment is whether they can actually do anything to better weather the storm. The answer coming from most quarters is “do not close your eyes to it”.

In the words of one practitioner, law firms must make sure they are leaner and keener than last time around, before a recession starts to take its toll.

Earlier this year, the Law Society sent a self-help guide, Cashflow & Improved Financial Management, to all firms with 10 or less partners. The guide encouraged firms to pay closer consideration to the financial management of their affairs and to become more financially competitive.

It came with a foreword saying: “This guide is not compulsory reading – like survival it is optional.”