Hourly Rates in 2024 – What does this mean in practice?
The Master of the Rolls confirmed last month that the Guideline Hourly rates (GHR) will increase from 1 January 2024.
The effect of that increase looks like this:
| 2021 Guideline Hourly Rates | 2024 Guideline Hourly Rates | 2024 increase on 2021 Guideline Hourly Rates | ||||||||||||||
| Grade A | Grade B | Grade C | Grade D | Grade A | Grade B | Grade C | Grade D | Grade A | Grade B | Grade C | Grade D | |||||
| London 1 | £512.00 | £348.00 | £270.00 | £186.00 | London 1 | £546.00 | £371.00 | £288.00 | £198.00 | London 1 | 107% | 107% | 107% | 106% | ||
| London 2 | £372.00 | £289.00 | £244.00 | £139.00 | London 2 | £398.00 | £308.00 | £260.00 | £148.00 | London 2 | 107% | 107% | 107% | 106% | ||
| London 3 | £282.00 | £232.00 | £185.00 | £129.00 | London 3 | £301.00 | £247.00 | £197.00 | £138.00 | London 3 | 107% | 106% | 106% | 107% | ||
| National Band 1 | £261.00 | £218.00 | £178.00 | £126.00 | National Band 1 | £278.00 | £233.00 | £190.00 | £134.00 | National Band 1 | 107% | 107% | 107% | 106% | ||
| National Band 2 | £255.00 | £218.00 | £177.00 | £126.00 | National Band 2 | £272.00 | £233.00 | £189.00 | £134.00 | National Band 2 | 107% | 107% | 107% | 106% | ||
But, is an increase to GHR a good thing?
GHR and Solicitor/Client Relationships
Where the nature of the funding arrangement between a solicitor and a client is on a conventional costs basis (i.e. hourly rate/time spent) then an increase in GHR essentially means clients will probably end up paying solicitors more in respect of legal fees. As we know, legal fees based on a conventional costs structure are a function of two things; the time spent and the agreed hourly rate. The time solicitors spend on any piece of work does not change by virtue of a GHR increase and so any time spent by solicitors will be charged out at a higher hourly rate resulting in the overall legal costs to the client being higher.
The increase in hourly rates is by virtue of the SPPI (the Services Producer Price index). In short, the rise of GHR by the rate of inflation is supposed to recognise that the cost of a service provider providing the service increases over time (due to increased overheads and other increased expenses) such that without the increase in GHR, profit is diminished, and it becomes more difficult for the service provider to provide the service. But some make the argument that businesses, and specifically law firms, have the opportunity to reduce their overheads and other business expenses (perhaps by implementing remote working) such that overheads either remain the same (where other business costs increase) or even reduce thereby increasing the profitability within legal fees where increased GHRs are applied.
So, do the increases in GHRs enable firms to simply stand still profitability-wise where business expenses are increasing or do they mean firms can increase their profitability by, in turn, lowering their overheads? We suppose the answer will vary from firm to firm depending on the way the legal services are provided.
Enhanced Hourly Rates
Many firms charge their clients (and in turn on an inter-partes basis) hourly rates that are higher than GHRs to reflect factors like complexity, specialism and importance. Enhanced hourly rates are often considered as a percentage of the Guideline Hourly Rates. For example, if a solicitor charges 20% above the GHRs, 20% above the 2024 GHRs is going to produce an overall higher hourly rate than 20% above the 2021 GHRs. So, with the GHRs increasing, it logically follows that where enhanced hourly rates are charged/claimed, they too will increase.
Increased GHRs and Fixed Recoverable Costs
There is a real risk, however, that increased GHRs has a detrimental impact on firms who operate within the fixed recoverable costs regime or their clients. Firms operating in this area tend to either (i) charge their clients on a conventional costs basis and treat any fixed recoverable costs merely as a contribution to those conventional costs; or (ii) limit their solicitor/client fees to those fixed recoverable costs recovered on an inter-partes basis.
Where a solicitor charges a client on the former basis, the effect of an increase in GHRs means any solicitor/client shortfall between the solicitors’ legal charges and those fixed recoverable costs recovered will increase.
However, where a solicitors’ charges are limited to the fixed recoverable costs recovered, an increase in GHRs means the solicitor simply has less time to do exactly the same work. If GHRs represent a reasonable and proportionate hourly rate for solicitors to charge for doing work, and a fixed fee is exactly that…fixed…then by dividing a higher hourly rate into a fixed fee leaves less time to do the same piece of work.
So, whether or not an increase in GHRs is a good or bad thing depends very much on whether you are a solicitor’s client or a solicitor and if you are the latter, it will depend on the nature of the funding arrangement they have in place and the nature of the work they are instructed to do (and which costs regime it falls into).
Author Nick McDonnell
