The Ministry of Justice has just opened a consultation on a significant proposal: redirecting interest earned on lawyers’ client accounts to fund the justice system. Traditionally, law firms hold client money in general and designated client accounts, and any interest generated is either returned to the client or retained under strict regulatory rules. However, with mounting pressure on public finances and the need to sustain access to justice, the Government is exploring alternative funding streams.
This concept isn’t new globally. In jurisdictions such as the United States and Australia, similar schemes, often called “Interest on Lawyers’ Trust Accounts” (IOLTA), have successfully funded legal aid and community justice programs for decades. The UK is now considering whether a comparable model could provide a sustainable solution without imposing additional costs on taxpayers or clients.
Summary of What is Being Proposed
The Ministry of Justice is proposing a scheme whereby a significant proportion of interest earned on client money held by law firms will be redirected to fund the justice system. Under the proposal, 75% of interest earned on general client accounts and 50% of interest earned on client designated deposit accounts would be paid into a central fund. These funds would be directly taken from the client account and transferred to a scheme administrator.
This approach would also extend to third-party managed accounts, ensuring that interest accrued on these arrangements contributes to the scheme. The remaining interest would stay with the firm or client, depending on existing arrangements, but the bulk would support legal aid and access-to-justice initiatives.
How Will It Work in Practice?
The success of this proposal hinges on:
- Efficient Administration: A streamlined process for collecting and distributing funds to avoid undue burden on firms.
- Robust Governance: An independent body to manage funds transparently and allocate resources where they are most needed.
- Stakeholder Engagement: Collaboration with law firms, regulators, and consumer groups to ensure the scheme is fair and practical.
Who is Affected and How Will It Work?
The proposed changes will have a direct impact on law firms and their clients. Whilst the consultation notes that 94% of the 604 firms that they consulted said that losing the interest would have little or no impact on their firms, this is unlikely to be the case for many firms.
Clients will also be affected, as they will no longer receive the same amount of interest on funds held on their behalf. Additionally, third-party managed accounts will fall within the scope of the proposal, meaning that any interest generated through these arrangements will also contribute to the central fund.
Consultation Deadline and How to Respond
The consultation on the Interest on Lawyers’ Client Accounts Scheme opened on 7 January 2026 and will close at 11:59 am on 9 February 2026. Firms, clients, regulators, consumer groups, banks, providers of client or third-party managed accounts, and other stakeholders are invited to submit their views. Responses can be sent by email or post to the Additional Funding Team at the Ministry of Justice, 102 Petty France, London SW1H 9AJ, or via email to additionalfundingconsultation@justice.gov.uk. In addition to written submissions, the MoJ is hosting stakeholder meetings—interested parties should contact the Additional Funding Team for dates and participation details.