Legal services would be harder hit by Brexit, LSEW research reports
Legal services in the UK would suffer "disproportionate disadvantage" if the UK were to come out of the European Union, according to an analysis carried out for the Law Society of England & Wales.
The study, by Oxford Economics, modelled three scenarios to look at the potential effects of UK withdrawal, to show the range of possible economic effects on the legal sector specifically.
It reports that the adverse effect on legal services would be greater than that on the UK economy as a whole, due to the profession's reliance on intermediate demand from sectors likely to be adversely affected by withdrawal, particularly the financial services sector and other professional services, and from the subsequent lower levels of business investment.
The scale of the impact would depend on economic drivers shaped by the UK's withdrawal negotiations and subsequent UK Government policy actions.
Effects of withdrawal would be felt over the decade from 2020-2030, reaching their full impact by the latter year. Compared with baseline projections, output and employment would shrink by between 1.4% (the "upside" projection) and 4% (the "downside" projection). The upside scenario implies an annual loss of £225m legal services output in 2030, or approximately the current annual income of the 10th largest law firm ranked by UK revenue; the downside scenario envisages annual output loss by 2030 of £1.7bn in 2011 prices, or approximately the current combined annual UK revenue of Linklaters, Freshfields Bruckhaus Deringer, Clifford Chance and Allen & Overy (on a constant price basis).
This would follow "a gradual erosion of legal services output (versus the baseline forecast) over time, such that the cumulative loss of output and employment in the legal services sector (and UK economy as a whole) would be greater than simply the value of lost output in 2030 itself", the report states.
"Moreover the loss of output compared with the status quo (the UK remaining a member of the EU) may persist for a relatively long period if the UK fails to achieve sufficient economic integration with other trading partners to be able to offset the impacts following withdrawal."
The effect would be "marginally worse than the economic consequences for the UK as a whole", the report predicts.
It adds that the framework used is not designed to allow analysis of how the effects of EU withdrawal would be distributed across different areas of the legal services market, or by size of firm.
The Society will publish a more detailed report in mid-autumn which looks at the EU and the legal sector, the potential business impact on the UK legal sector of a UK withdrawal, and the impact of the EU on specific areas of law and associated rights.