Britain risks losing out on economic growth and international influence because its crumbling legal system is not prepared for innovations such as crypto-currencies, artificial intelligence and green investing, new research warns today.
The Social Market Foundation said that delays in settling cases in over-burdened courts and a lack of laws specifically governing new markets and technologies could dissuade companies and investors from doing business in Britain or using English law in their commercial activities.
The think-tank said that politicians, officials and business have been “complacent” about the international standing of Britain’s legal system, resulting in a failure to invest and prepare for the future.
Britain risks losing its place as a world-leading economy based on the rule of law, the SMF said.
English law is currently used extensively by international businesses, both in English courts and in courts elsewhere. That helps bring business to the UK, but it cannot be assumed that this will continue into the 21st Century, the think-tank found.
English law is used in business and financial contracts around the world, underpinning transactions worth trillions of pounds every year (See Note 1). But failures to maintain both the legal code and the bodies that uphold the law – especially courts and the judiciary – put that pre-eminence at risk.
The SMF report was sponsored by Mishcon de Reya. The SMF retained full editorial independence.
In research drawing on insights from senior lawyers, academics and officials, as well as Opinium polling of UK’s businesses, the SMF found that English law is struggling to remain relevant to disputes and contracts involving technological innovations such as blockchain, AI and biotechnology.
There are growing concerns about English law’s ability to deal with the growing interest in Environmental, Social and Governance (ESG) investing, which seeks to combine returns for shareholders with social impact.
The SMF also highlighted economic risks arising from poorly supported legal institutions.
Civil court cases in England and Wales “take too long and cost too much”, it said. When it comes to enforcing a contract, England and Wales ‘languishes’ 33 places behind Singapore, according to World Bank rankings. Delays and costs push some big businesses to use private arbitration processes instead of the courts, reducing the relevance of the legal system.
The report also noted a “persistent problem with the recruitment and retention of judges”, which contributes to the slowness and cost of litigation. The Treasury last week promised more than £200 million to help the civil courts deal with recent backlogs, but the SMF said that more investment will be needed in the long term.
Richard Hyde, SMF Senior Researcher, said:
“Our laws and legal institutions have been respected around the world, generating wealth and influence for the UK. But as a country we have become complacent about it and failed to support the law and its institutions properly.
“If companies can’t settle their cases quickly in our crumbling courts, they will go elsewhere. If business can’t use English law to draw up contracts for cryptocurrencies, AI or green investment, they’ll use another system.
“We can no longer take the rule of law and its economic benefits for granted. To maintain and improve our place in the global economy of the 21st Century, we must continue to invest in and update our legal code and legal institutions.”
James Libson, Managing Partner at Mishcon de Reya, said:
“We are proud to have supported this research, which is a timely reminder of the direct and indirect importance of English law not only to our continued economic prosperity, but also to our sense of place and influence in the world.
“For too long, we have taken the economic and social benefits of our system of law for granted, ignoring growing problems and allowing other legal centres to steal a march.
“If we are to continue experiencing the considerable benefits that English law has historically brought to the UK, it is vital that government, legislators, business and the legal profession act now.”
- Recognise more clearly the importance of English law and the civil justice system as an indispensable element of the “social infrastructure” and make the quality of English law and the functioning of the civil justice system a higher priority among policymakers
- Reduce the time and cost problems that plague the civil justice system so that access to justice can be increased, in particular for businesses,
- Modernise English law so that it is fit for the 21st century economy and therefore can, most effectively, support higher domestic growth as well as remain the best and most widely used law for governing international trade and financial
- Protect English law from being undermined through its use by other jurisdictions, who are offering English law-based adjudicative services but do not have an interest in sustaining the integrity of English law over the long-term.
- Ensure legal services are a key topic in future trade discussions and that trade arrangements with developing countries in particular, are facilitated by efforts to help bolster the use of English in those countries.
Strengthen existing – and building new – international institutions and networks that will enhance the reputation of, increase familiarity with and grow the levels of support for common law systems in general and English law in particular, around the world.
- The report, Law and the open economy, is published at 09:00 on Wednesday, 3rd November at www.smf.co.uk/publications/law-open-economy/
- The report is kindly sponsored by Mishcon de Reya. The SMF retained full editorial independence.
Research published in October by Oxera for LegalUK found that English law is used in the contracts that supported:
- EUR 661.5 trillion of OTC derivatives trading in 2018
- $11.6 trillion of global metals trading in 2020
- £250 billion of global M&A in 2019.
The report also found that English law governs insurance contracts worth £80 billion annually and is the law of choice for maritime contracts, a sector that contributes over £15 billion annually to the UK economy.
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