Interest on lawyers’ client accounts (ILCA)

The Ministry of Justice (MoJ) is consulting on proposals to divert interest from law firms’ client accounts to the MoJ budget. ILCA schemes (sometimes known as IOLTA schemes) vary in detail, but the basic principle is they channel interest earned on lawyers’ client accounts into a central fund.

12 Jan 2026

4 minutes read

The fund can then be used to support access to justice initiatives such as pro-bono work and legal education.

However, under the MoJ’s proposal, the funds will not be earmarked for specific access to justice projects, but would instead become part of the MoJ’s general funding “to help strengthen the justice system” .

ILCA schemes exist in foreign jurisdictions such as France, the USA, Canada and Australia.

In 2010 the government green paper ‘Proposals for the Reform of Legal Aid in England and Wales’ contained a proposal to introduce an interest on lawyers’ trust accounts (IOLTA) scheme, but it was dropped.

For England and Wales, the MoJ have been referring to prospective policy as an interest on lawyer client account (ILCA) scheme.

Our view

The proposals will put high street firms at risk and increase costs for firms that do survive.

The MoJ quotes 2024 research – we are concerned about the accuracy, as it conflicts with everything else we have heard from members about this issue
The funding will not be used for specific access to justice projects – instead, it will be used as general MoJ funding but there is no guarantee that funding will not be reduced as a result
75% of the interest will be taken – this will leave firms still liable to account to some clients for some interest, while also having the bureaucracy of the ILCA scheme
50% will be taken from individual client accounts – these accounts are commonly used for damages for critically injured clients: if the government takes this money, the client will be left undercompensated
The scheme would only apply to client funds in relation to reserved activities – the MoJ are asking for views on whether it could apply to unreserved activities – this distinction is highly problematic, as illustrated by the recent Mazur case
'Only’ taking 75% of interest – MoJ suggests taking 100% of the interest might lead to firms seeking to recover account maintenance and transaction costs, which might raise concerns about fairness and increase the costs of legal services for consumers. Why would this not happen if they ‘only’ take 75%? Firms have to meet these costs from somewhere
Regulation issues – it’s possible that regulators might require firms to account to clients for interest in excess of the amounts the ILCA scheme permits them to receive, adding additional administrative burdens, including demonstrating compliance to the MoJ
Sharing account information with the MoJ – sharing information with the scheme administrator, who will be an MoJ official, may breach client confidentiality and the firm’s own commercial confidentiality

Our president Mark Evans said: “The MoJ has decided to take money from the interest earned on law firms’ client accounts to boost its own budget.

"Yet, as its own consultation reveals, it has no clear idea how this proposal will work in practice and no understanding of the serious consequences this will have on high street firms and access to justice throughout England and Wales.

“Firms will close, fees will rise and clients will be impacted if the MoJ goes ahead with the proposal.

“The cost of doing business in the legal sector is already high, with recent rises to national insurance contributions mean businesses are paying more.

“The proposal comes at a time when small firms will have to manage new regulatory burdens on anti-money laundering supervision and tax adviser registration.

“High street law firms will face a perfect storm of new bureaucracy, undermining the UK government’s efforts to achieve growth and revitalise local economies.

“Despite the short timeframe for the consultation and the MoJ’s efforts to keep the proposal under the radar, the Law Society will be consulting widely with its members across the country.”

Next steps

Respond to the consultation by Monday 9 February 2026.

We will respond to the consultation in full and we encourage our members to submit their own responses.

We are hosting an urgent free webinar for our members on 22 January 2026.

We will be seeking feedback on how it will affect you and your business and make sure your views are heard.

We will share material to help you submit your own responses.

We are seeking urgent meetings with the justice minister and other key stakeholders.

What we’re doing

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Firms were invited to MoJ roundtables to discuss the proposals.

We advised that our members consider the following points when deciding whether to attend and what to say.

Provide hard evidence such as actual costs and figures from your accounts, as this is being collected for ministerial consideration.

This could apply to comments on issues such as:

the amounts of interest you receive
the effect such a proposal will have on your firm
the levels of administration involved

If you believe the proposals will increase your firm’s administrative burden, consider whether – and to what extent – the additional costs might affect your ability to continue offering legal aid services or undertaking pro bono work.

For example, would you reduce your legal aid and pro bono work and increase your private work to offset the costs of more administration?

Our long-standing position is to oppose IOLTAs because they:

are unlikely to generate enough money to justify the damage that they will cause to small firms
will not provide a certain income for access to justice initiatives
can be avoided by moving money offshore or taking business outside the UK
may reduce the level of pro bono work done by large firms
will reduce the level of interest, service and competitiveness of the sector
will add to the cost of business for small and medium enterprises (SMEs), negatively affecting overhead costs, which is significant for small firms already operating at the margins