There will be plenty of Gazette readers who do not benefit from the scrapping of the 50p rate of income tax on earnings over £150,000 - though a decade spent covering the City and corporate parts of the legal market means I know very great numbers who are set to gain.

At a client event I attended at a Magic Circle firm yesterday, most of the guests and hosts will benefit, many earning a multiple of £150,000. A partner on £1m a year will gain some £42,500 on the £150,000 to £1m part of their income.

Should they be happy with the cut? Will it change what they can do, and will it boost their business? Should other lawyers, earning less, be happy for them, and look forward to a legal trickle-down effect?

These questions are not put in sarcasm. The micro-economics of the legal market may provide some answers as to the wisdom or folly of this cut. After all, just because the public do not like something, it does not mean that it is against the public interest.

But looking at the business plans of my hosts yesterday, I do not think a cut in income tax will affect the firm’s key strategic plans. The firm’s leadership views the UK as a still-profitable but mature market, and it is looking to international expansion plans to secure the impressive margins it has seen in the past. Many of its clients have comparable plans.

The firm estimates that 20% of its work could be outsourced to legal process outsourcers, and that in the future it may even have fewer lawyers than at present, but be active in more countries.

It is a vision that its competitors largely share, and when that 20% goes to LPOs in India, or wherever, that work will not have left the UK due to a 50p tax rate. This firm’s strategy was set before the 50p-rate was introduced, and has remained the same through the rate rise. I would be surprised if it changed now.

Perhaps the benefit will be less direct for this firm though - creating an incentive for potential clients to settle and invest in the UK.

I have to say though, from time spent in the City, the income tax rate has never been mentioned as a problem. Corporation tax, yes - but not income tax.

A couple of items figure higher up that list - our divorce and immigration rules.

As a private client lawyer once complained to me: ‘You know, this is a very friendly jurisdiction for high-net-worths. Apart from our divorce laws - people are afraid that if a spouse can divorce them here, they’ll lose half their assets.’ (My sympathy is not high on this last point, but I accept its significance here.)

And since 2003, the UK’s immigration laws have allowed the need for policies that sound hard-line to complicate life for investors and high-earners - removing, in many cases, any sense of certainty as to their immigration status and their security, and complicating the lives of family members.

The firm I spent yesterday with is not entirely composed of people fixated on their tax rate. It has also engaged very seriously with initiatives intended to promote diversity and social mobility - within its own ranks, and in the communities it engages with. There is substance to what they are doing on these issues.

And here, though I am sure in the short term its lawyers will enjoy a little extra pocket-money, they should be concerned about the effect of widening income gaps in the UK economy.

When Alan Milburn’s report on social mobility was published in 2009, this firm took its findings very seriously, and still does.

Taking data on two cohorts of lawyers, one set born in 1958 and another in 1970, the point in the report was simply made. Two in five of the ’58s grew up in families with above-average incomes; for those born in 1970, that figure rises to more than six in 10 (63%).

It is hard to see how such income gaps do anything other than damage social mobility. In very straightforward terms there can be no trickle-down effect when rich, poor and middling are competing for exactly the same things, the supply of which is finite.

Things with a finite supply include places at the leading university this firm recruits from, and the finite supply of training contracts currently on offer. An income gap too large produces an ever more deeply unfair contest for these.

The firm has some enlightened self-interest here - a profession that is not a meritocracy is an inefficient one. It has poorer productivity, and lacks the competitive edge needed in a global economy.

Seen like that, from the perspective of the legal economy, at best the income tax cut looks like an expensive gesture.

Eduardo Reyes is Gazette features editor

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