Over the past decade, the use of AI has proliferated across the legal sector. Deploying a wide range of AI-powered tools for contract analysis, document review, legal research and predictive analytics, law firms can now automate once laborious processes thereby making their business more efficient. City law firms routinely market their use of AI to corporate clients.
Magistrates and judges in the UK are also set to make greater use of AI technology. Both The Ministry of Justice (MoJ) and the judiciary are implementing significant AI integration to modernise the justice system. The strategy, outlined in the AI Action Plan for Justice (2025), aims to make the system simpler, faster, and more efficient through a “Scan, Pilot, Scale” approach. This proposed modernisation demonstrates how quickly AI is becoming embedded in the UK justice system.
At an individual level, AI already features prominently in the working life of most lawyers. According to the Wolters Kluwer Future Ready Lawyer Report, a global survey published in March 2026, 92% of legal professionals report using at least one AI tool in their daily work, while 62% say that AI technologies help them to save up to 20% of their weekly working time.
The billable hour under pressure
For law firms operating in the UK, where the traditional billable hour model still forms the basis of how most clients are charged, AI-enhanced productivity is distinctly double-edged: by eliminating inefficiencies, input (time) can no longer be prioritised over output (value).
Compressing tasks that once took many hours into a few minutes, AI therefore represents an existential threat to the billable hour because the quantum leap in efficiency is structurally incompatible with time-based billing: faster work results in fewer billable hours, driving the march towards fixed fees and value-based pricing.
Fee-earner input becomes easier to scrutinise with a notable reduction in billable hours adversely affecting the business model. Manifestly, there is also a risk that firms which rely on automated drafting or analytical tools might struggle to justify the reasonableness of time claimed. Ultimately, all of this will put profitability under pressure.
How the billable hour became the industry standard
So, why do lawyers bill by the hour? Although ubiquitous, the model is relatively recent: having been popularised in the 1940s by Reginald Heber Smith, managing director of Boston’s Hale and Dorr, it soon became the dominant billing method.
Various iterations of the England & Wales Law Society guidance on expense of time calculations have been published since the 1960s. By the late 1980s, hourly rates had become standard practice, although the expense of time calculation was primarily seen as a management tool rather than a benchmark of costs. Since then, Guideline Hourly Rates have further solidified hourly rates as the cornerstone for quantifying costs and billing.
Is it time to re-evaluate this anachronistic model to determine a lawyer’s value, and if so, what challenge does that present for future levels of law firm profitability? Further analysis of how far law firms are trimming their employee costs in response to AI may provide some answers.
AI is already reshaping law firm structures
Increased use of AI technology is already diminishing swathes of more routine legal tasks. Last November’s FT headline – ‘Clifford Chance cites AI as it axes 10% of back-office staff’ – provides evidence of support staff cuts. Other big firms have taken a similar path: in 2025, Baker McKenzie also credited AI adoption as a factor in reducing staff numbers, while Mishcon de Reya, BCLP, DWF, and Freshfields initiated redundancy consultations, citing AI as the reason.
At the same time, multiple surveys confirm that lawyers’ use of Gen AI has mushroomed, both in law firms and among in-house counsel. They point to faster delivery of work as a key benefit. Increasingly, lawyers in private practice anticipate future adjustment to their billing practices as a result, although only 17% of them believe that AI will end the billable hour model.
Value-based billing may become more common
So, is faster completion of work necessarily beneficial? It is undoubtedly better for the client who is paying by the hour. But increased efficiency may create different challenges, necessitating careful consideration at the outset. If not properly supervised, errors, assumptions or data limitations embedded within AI tools could also undermine work product.
Where AI accelerates the process, a value-added model might be more advantageous: agreeing a fixed fee, calculated with reference to the lawyer’s perceived added value. This might, however, be a hard sell to clients who are aware that the billing change results from “less” work being done – and yet they are expected to pay a comparable fee.
Although seeing things exclusively through the prism of time spent may be myopic, AI is certainly not a universal remedy. In legal proceedings, it cannot provide human experience, tactical know how, or the ability to negotiate or undertake advocacy.
Future billing may therefore balance an appropriate fee for AI-assisted document preparation with the non-drafting skills of a lawyer, charged at the traditional hourly rate. This would ring-fence the added value of their human skills and professional expertise.
Courts are also grappling with AI risks
Although AI is transforming how lawyers work, doubts remain about how far it can be trusted. According to recent surveys, a clear majority of UK legal professionals are concerned about inaccurate or fabricated information from Gen AI platforms.
In the courts, there has been notable tension between claims of technological efficiency and judicial expectations around transparency, accountability, and accuracy. Following the submission of hallucinated or entirely fabricated case law, judges have sanctioned and warned lawyers about the use of Gen AI in legal proceedings.
In a dynamic tech environment, AI will continue to challenge and change the status quo. In seeking practical steps to ensure that the use of AI enhances, rather than erodes, recoverability and margin, much will depend on the speed and scale at which the technology evolves across the legal sector.
The future of costs recovery and AI
From a costs recovery perspective, AI-related challenges are inevitable. A Bill of Costs might perhaps be disputed on the fact that the receiving party failed to use AI to avoid unreasonably high fees. Equally, AI cost may be claimed within a Bill of Costs or Budget – either as a proportion of a subscription cost or as part of the firm’s fee for implementing and maintaining their own system.
If so, will costs judges ascertain the reasonable running and implementation costs of AI, or will factoring these costs into the hourly rate (if charged) address this issue? Where a firm has pivoted to a value-added charging model, there may be issues with assessing the costs claim.
Conversely, if hourly rates have been charged, would the use of AI lead to these being reduced on assessment for some tasks but not others, requiring multiple rates to be applied at assessment and to the Bill of Costs?
Inevitably, we will see some parties maintaining that their costs are perfectly reasonable, while simultaneously arguing that the other side’s are unreasonable because of an overreliance on AI tools – which are not necessarily accessible to smaller firms, or to individuals who are not yet comfortable with the technology.
At the other end of the spectrum, City firms are fully embracing AI: to meet perceived client demand and to avoid falling behind their competitors. In terms of billing and costs, until the full extent of reliance on AI technology becomes apparent, flexibility is key. Traditional billing methods may well subside with new hybrid arrangements replacing them. Time will tell if the change is client or lawyer led – perhaps ChatGPT might provide some answers.
