Leading lawyers Allen + Overy have challenged rivals to donate hundreds of thousands of pounds earned on client accounts to help cash-strapped legal aid centres.

A leading City law firm has challenged its rivals to donate hundreds of thousands of pounds that they earn as interest on client accounts to cash-strapped legal aid centres.

Allen & Overy, one of the “magic circle” of top five firms, is to give voluntary legal agencies all the extra interest retained from clients’ cash that it handles on deposit.

The firm has also taken the unusual step of writing to Tony Blair, urging the government to boost civil legal aid funding.

In a rare political inter-vention from a City law firm, it warned the prime minister that the poorest people could be denied access to justice within five years because of the “crisis” in legal aid.

Law firms routinely place large amounts of their clients’ cash in “client accounts”, for example while transactions are being completed. Because the lawyers are able to consolidate cash from many clients into a single account, they can achieve higher interest rates than each single tranche of money could have achieved had it been deposited in an individual account.

When the cash is paid out, the lawyers pay the clients the interest they would be due had the cash been deposited in an individual account. As a result, the firms pocket the extra interest accrued on their clients’ cash.

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