In a small victory for the Law Society, the government has dropped plans to use the interest from firms’ client accounts to bolster the legal aid budget.

In its response to the green paper consultation, published after yesterday’s publication of the Legal Aid, Sentencing and Punishment of Offenders Bill, the Ministry of Justice said it would not be pursuing the idea.

The Ministry of Justice said it had ‘given considerable weight’ to the Law Society’s response to the proposal, which pointed out that many firms already use the interest generated on client account in other ways that benefit their clients. Some also put the money towards pro bono or other charitable work.

Head of legal policy at the Society Richard Miller said: ‘In all the bad news it is at least good that the government has decided not to continue with this proposal, which we had considered misguided and liable to cost more than it would generate.’

However, the Society has roundly criticised a separate measure disclosed in material accompanying the bill which will see the government take 25% of all general damages awarded to claimants in receipt of legal aid.

Miller said the proposal is in marked contrast to conditional fee arrangements available for non-publicly funded parties, where firms will be entitled to take a success fee that is proportionate to the costs of the case, up to a maximum of 25% of the damages.

He said: ‘The effect of this is that where a legally aided claim is settled for a sum of £10,000 and the costs are £1,000, the success fee taken by the supplementary legal aid scheme will be £2,500, or 250% of the basic costs.

‘The Law Society considers that this is deeply unjust. Moreover, it will mean that it is in a client's interests to spend thousands of pounds more on a case in order to generate a few hundred pounds in additional damages. It will therefore discourage settlements.'

Bill Montague, co-chair of the Legal Aid Practitioners Group, said the proposal was an 'irrational windfall for the legal aid fund'.