What the NatWest Law Firm Survey Tells Us About the Future of the Legal Sector

The latest NatWest Annual Law Firm Survey confirms what many leaders across the profession have been sensing: despite sustained cost pressures and structural change, the UK legal sector is proving notably resilient.

Median fee income growth reached 12% in 2025, up from 10% the previous year. Importantly, this growth was broad-based rather than driven by a handful of standout firms. Half of surveyed firms reported income growth between 7% and 19%, suggesting that the sector has adapted effectively to recent market conditions.

What distinguishes the strongest performers, however, is not growth alone. The survey highlights a clear pattern among top-performing firms: a deliberate, long-term “Future Fit” mindset, supported by sustained investment in people, technology, and operational resilience.

Productivity, not price, is rebuilding margins

After several years of margin compression, 2025 marked a turning point. Core profitability improved for the first time since 2021, driven less by fee rate increases and more by productivity gains.

Better time capture, clearer scoping, and more disciplined matter management are starting to deliver tangible financial benefits. This shift is critical. With increases in Employer’s National Insurance on the horizon and limited appetite for unchecked headcount growth, future profitability will depend far more on how efficiently firms deploy their people, rather than simply adding more of them.

Income growth is translating into partner returns

Improved margins and stronger fee income resulted in a 23% increase in median profit per equity partner, rising to £340,000. Larger firms, in particular, benefited from tighter financial discipline and better control of overheads.

The message here is clear: growth without control is no longer sufficient. Firms that combine income momentum with operational rigour are the ones seeing meaningful and sustainable improvements in partner profitability.

Resilience is evident on the balance sheet

Despite the impact of basis period reform, balance sheets across the sector remain robust. Modest improvements in lock-up, disciplined working capital management, and conservative borrowing levels have allowed most firms to absorb change without resorting to additional debt.

While interest income remains material – accounting for 21% of median PEP – its relative importance is declining as fee income strengthens and regulatory and compliance expectations increase.

Technology is moving from optional to essential

Perhaps the clearest signal of future direction is the rapid acceleration in AI adoption. Around half of firms are now actively deploying AI, primarily within administrative and matter management functions. This reflects a shift away from experimentation towards operational necessity.

As client expectations evolve and margin pressure persists, the firms that succeed will be those that embed technology into the way work is delivered, rather than treating it as an add-on.

Disciplined optimism for the years ahead

Overall, the survey points to a sector that is cautiously confident. Practice areas such as private client and residential conveyancing continue to perform strongly, while others remain more challenging.

As growth returns and confidence improves, now is the moment for firms to ask some harder questions:

• Are productivity gains sustainable?
• Are we investing in the right capabilities for future profitability?
• Are operating models aligned with where client demand is heading?

The firms that will lead the next phase of the market will be those that act deliberately now — sharpening strategy, embedding technology, and building resilient, future-ready organisations, rather than relying on favourable conditions alone.

If you would like to discuss any of these themes, please contact me, I’d be delighted to help!