The average hourly rates for London’s top commercial lawyers fell by a third last year, reports The Times, as the largest law firms cut prices.

Partners at London’s five elite firms billed an average of £450 (AUD$844) an hour, down from £675 (AUD$1266) a year ago, according to Jim Diamond, an independent legal costs consultant.

Diamond said that the figures showed that the average cost of instructing a partner at Allen & Overy, Clifford Chance, Slaughter and May, Freshfields Bruckhaus Deringer or Linklaters had dropped to a five-year low.

Banks are said to be the hardest bargainers, with one magic circle partner claiming they are demanding cuts of up to 30 per cent, “safe in the knowledge that if their current law firm does not like the reduced rate, a rival will gladly pick up the work”. 

At the same time, aggressive smaller law firms, which offer lower rates but often comparable service, are moving to try to take share from bigger rivals.

With the top firms paying London rents and salaries but charging the same fees as regional law firms, Diamond predicts further pain for the industry.

Some of the fee reductions over the past 12 months have already fed through to static or lower profits at the four magic circle firms that release results.