• Zep Bellavia

What does Brexit mean for the legal sector?

THERE has been no shortage of words written and spoken about Brexit in the three years since the United Kingdom voted via a referendum to leave the European Union.

Indeed, many would say fewer words and more action might have been preferable.

So it was with some trepidation that I took a look at what kind of impact Brexit might have on the legal sector in the UK.

Firstly, it is worth remembering the sector is important for the UK economy.

We have the largest legal services market in Europe, and the second largest in the world behind the US.

Most recent figures show the legal sector employs and trains more than 380,000 people in the UK and contributes more than £26bn to the economy.

Many businesses, particularly larger ones, have employed specialist lawyers to advise them of the potential impacts of Brexit, both in the event of deal or no-deal scenarios. And this means short-term growth for the legal sector.

But what of the future of the sector? What might Brexit mean for a market that delivers 1.2 per cent of the UK’s GVA?

No-one really knows the answers to these questions, of course, because no-one really knows what kind of Brexit will happen on October 31, or even if it will happen on that date.

The Law Society has modelled the potential impact of a ‘hard’ or no-deal Brexit on the legal sector and, at the risk of being accused of peddling Project Fear, it does not make pretty reading.

Forecasts by the society’s research unit released late last year are already out of date because the UK did not leave the EU on March 29. Nevertheless, they are worth considering.

The forecast predicts that, this year, legal sector revenue would grow by 2.3% under a soft Brexit to £29.8bn. Under a free trade agreement (FTA), the growth rate is only 1.3%, taking revenue to £29.4bn, while under a WTO or no-deal it falls to -0.6%, with turnover shrinking to £28.8bn.

Next year predicted growth rates are 2.6% under soft Brexit, 1.6% (FTA) and 1.2% (WTO).

By 2025, the damage from a hard Brexit would still be obvious. The growth rate under a soft Brexit is estimated to be 2.1%, compared to 1.6% (FTA) and 1.4% (WTO).

The society’s research unit estimated that by 2025 employment in the legal sector could be cut by 4,000 to 5,000 compared to a soft Brexit in the event of an FTA scenario, or 8,000 to 10,000 less under a WTO scenario.

It all sounds pretty scary but there are sound reasons for the forecasts. Firstly, there is currently a mutual legal market across the EU.

That means professional qualifications are recognised from nation to nation, and it is relatively simple for UK firms to set up practices elsewhere in the EU. Of course, it also means European firms can set up in the UK and many have done so – particularly in London.

A no-deal Brexit could put an end to all that, and to the ability of UK legal firms to attract the brightest talent from across Europe thanks to freedom of movement.

UK lawyers are currently able to serve their clients elsewhere in the EU on a ‘fly in, fly out’ basis.

UK lawyers also enjoy ‘rights of audience’ across EU courts. These rights may go in a no-deal scenario.

It is a complicated and worrying situation and some legal firms are already making contingency plans to move out of the UK in the event of a no-deal.

Like every other business sector, the legal industry is desperate for certainty on Brexit.

Whether it will get it following the change of prime minister and decision on how to leave the EU on October 31 remains to be seen.

Zep Bellavia is Managing Director of Newport-based solicitors and accountants Bellavia & Associates.

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