The Future Lawyer Weekly Briefing – W/C 24th April 2023

CLIMATE CHANGE v CAB RANK RULE

Briefing by Rudo Ushewokunze

Last month, over 120 lawyers, as part of the Lawyers Are Responsible organisation, pledged to neither prosecute climate activists’ peaceful protests nor provide fossil fuel companies with legal services.

Whilst some may see this active solidarity of lawyers as a positive act to help tackle climate change, others, such as Lord Wolfson, have seen this position as threatening the principle of a “right to representation” and the age-old “cab rank rule” that has governed the barrister profession since the 18^th century.

Critical issues

The United Nations (UN) defines climate change as “long-term shifts in temperatures and weather patterns”. Whilst climate change has occurred naturally over time, since the 1800s, humans have become the main drivers of climate change through activities such as the burning of fossil fuels.

According to the Met Office, the current effects of climate change include increasing worldwide temperatures and rising sea levels. To grasp the true impact of climate change, consider the fact that many Pacific residents, such as Tuvalu, need to flee their homes to the much larger New Zealand to escape severe flooding caused by the rising sea levels.

Once you consider the significant role that fossil fuel companies, including Shell and BP, play in the increase of climate change, one could argue that the Lawyers Are Responsible organisation can only be commended for taking such a strong position of disapproval by refusing to provide such companies with legal services. However, not everyone seems to think so. Some argue that barristers are bound by the cab rank rule in order to afford all fair access to justice.

The cab rank rule is an obligation imposed upon barristers to accept work in any field they are competent to practice, provided they are free to do so. This means that barristers cannot refuse to accept instructions based on factors such as the identity of the client or personal opinions they have formed regarding the potential client. As eloquently put by Nick Vineall KC, Chair of the Bar Council, the cab rank rule “prevents barristers from refusing work because they disagree with the actions or views of someone seeking their services”.

Therefore, it is very likely that the position taken by these lawyers, including the six KCs, is in direct contravention of the Bar’s code of ethics. This is further evidenced by the fact that some lawyers involved have already self-reported to the Bar Standards Board (BSB).

Broader social implications

The biggest fear with this campaign is the knock-on impact it may have on others accessing justice. If lawyers refuse to represent fossil fuel companies, how long before they decide to have personal opinions on other controversial clients? Whilst lawyers are entitled to have personal opinions, surely the point of the independent Bar is to ensure all have access to justice? This founding principle will inevitably be disrupted if these lawyers get their way.

Whilst some may argue this is simply an impossible slippery slope argument, such a reality is not impossible. As politics.co.uk notes, the same happened in the 1970S, when IRA attackers in the UK struggled to secure defence counsel. Clearly, allowing personal opinion to be a factor in whom to represent is a no-go.

The BSB reiterates these concerns in its statement published in response to the action, where it clarifies that the cab rank rule was designed so that “everyone can have access to legal advice”. Lord Wolfson echoed this sentiment, tweeting that everyone has a “right to representation” that should not be sacrificed.

How may this affect chambers?

As aforementioned, for barristers to refuse to represent anyone based on personal belief or opinion is a recipe for disaster – a disaster the cab rank rule was designed to prevent.

Current condemnation from the Chair of the Bar Council and other barristers, including The Secret Barrister, only highlights the divisions this pledge has created.

It is unlikely that solicitors’ firms could be affected as greatly since there are around 160,000 solicitors in England and Wales, meaning that fossil fuel companies have a plethora of options regarding legal advice.

However, the more minor nature of the Bar means that if barristers begin to pick and choose whom to represent, many “undesirable” individuals could soon be left struggling to find representation.

Whilst these are very possible outcomes, thankfully, only a fraction of the Lawyers Are Responsible group signatories are practising at the Bar, therefore, true dissidence from the cab-rank rule is unlikely to be seen.

Ultimately, although barristers are free to hold personal opinions, allowing such opinions to influence one’s practice is a dangerous game to play, however honourable the cause may be.

CAPITAL ALLOWANCE: FULL EXPENSING

Briefing by Aqua Koroma

The full expensing measure, a generous and comparatively simple capital allowance tax scheme, was introduced in the 2023 Spring Budget, active since 1^st April 2023, expiring on 31^st March 2026. It succeeds the super-deduction capital allowance, a 130% tax reduction on business capital expenditure introduced during the pandemic in 2021 and which expired on 31^st March 2023. The measure was introduced to build ‘on the success of the super-deduction, allowing companies to write off 100% of the cost of investment in one go’.

The measure permits all investment expenditure to be counterpoised against tax revenue, so long as this offset is actioned in the year the expenditure is made. Further, other ‘long-life’ capital assets and ‘integral features’, such as lifts and electrical systems, will be subject to a 50% writing down allowance within the first tax year of acquirement. For these assets to be eligible for writing down, they must provide an economic boost to a company for at least a year.

Most importantly, the scheme was introduced to mitigate the increase in corporate tax from 19% to 25% on 1^st April 2023, thereby sustaining and promoting investment and economic growth.

Capital expenses and corporate tax

Capital expenses involve purchasing a significant and fixed qualifying asset, such as a copyright, a stake in another company, vehicles, and office equipment. Capital expenses typically increase functional capacity and efficiency, help support innovation in a company, boost financial growth, support a company in remaining competitive and are oftentimes used as offsets for a company’s future financing, for example, through acquiring a loan.

Nonetheless, according to HM Treasury, despite these positive proclivities, ‘although investment is a key driver of productivity growth…business investment has been a longstanding weakness in the UK – UK business investment accounted for 10.0% of GDP compared to the OECD average of 12.5% in 2021’.

Corporate tax further magnifies this issue, especially with its recent increase from 19% to 25% on 1^st April 2023. Corporate tax is primarily payable by UK-incorporated companies and foreign companies with UK offices on profits of £250,000 or more at the ‘main rate’ of 25%, and on any gains made through the sale of assets so long as before the sale, those assets increased in value.

However, there are reliefs and alternate schemes available to help cushion the adverse impact of the increase, such as:

– The ‘small profits rate’ of 19% payable on annual profits of £50,000 or less.

– Marginal Relief, an incremental increase of tax payable on profits between the ‘small profits rate’ and ‘main rate’.

– Tax-deductible expenses, such as office and finance costs.

– The Annual Investment Allowance (AIA), a 100% capital allowance, which as of 1^st April 2023, stands at the permanent value of £1,000,000, up from £200,000. This scheme applies to businesses looking to invest £200,000 or more on qualifying expenditures on plant and machinery.

Applicability

The full expensing measure was thus instituted to help mitigate the effect of the increase in corporate tax. It subsists the momentum of the super-deduction capital allowance to maintain and increase investment activity within and amongst UK businesses, fundamentally minimising corporate tax liabilities for those businesses liable to pay corporate tax, thereby preserving the contingent cash flow of a business. Further, reduced corporate tax liabilities attract investors and instigate entrepreneurs due to lower running and start-up costs.

Contrariwise, it is a short-term scheme with a time limit of three years. Therefore, its positive effects will be temporary. This scheme also has a further applicability limitation; it only applies to companies subject to corporate tax and, thus, is inapplicable to unincorporated businesses such as sole proprietorships and partnerships. This limitation means businesses deemed in more urgent need of financial protection may be increasingly exposed to substantial economic threats, such as administration or liquidation.

Impact on the legal sector

Many law firms operate under a partnership model with no corporate tax liabilities; thus, the full expensing measure will be inapplicable to those law firms. Lubna Shuja, the President of the Law Society, denunciates this effect, stating that ‘extending full expensing to cover law firms would unlock further investment in one of the UK’s most productive sectors. Legal services add £60bn to the UK economy annually and employ 1.1% of the UK labour force’.

Conversely, there is bound to be augmented existing and newly generated business for lawyers and law firms. For instance, public policy and governance lawyers look set to have a busy transition period; ongoing adjustments and the potential amendments of the scheme, should it become permanent, are proactively required.

Corporate and tax planning lawyers will experience the same upturn regarding assessing and reassessing businesses’ financial position, understanding the applicability of the new tax rate, reducing tax liabilities and utilising as many applicable reliefs as possible in minimising initial and ongoing outputs. Business lawyers will also see an increase in queries from existing and new clients looking for best practices in investing and setting up new businesses, all of which means the generation of income for lawyers and firms, which may, in some ways, palliate the chagrin of firms and legal professionals being excluded from the financial relief granted by the full expensing measure.

Notably, however, the Chancellor has expressed that the measure may be considered for permanency, providing it is reasonable to do so, with that reasonability considering the varying applicability of the scheme to all UK businesses; consequently, there is every chance those currently excluded may not be in a relatively near future.