Economic value of English law | Oxera

Chapter 6: Conclusion

Published: October 5th 2021
Chapter 6

Chapter 6: Conclusion

English law is an underappreciated national asset that underpins various forms of economic activity in the UK. It is also part of what makes the UK an attractive place to do business for internationally mobile activity.

Like other pieces of infrastructure, English law directly contributes economic value (through the legal services sector). However, the wider benefit comes from a legal system’s role in underpinning and encouraging business transactions throughout the economy (i.e. outside of the legal services ecosystem).

  1. Increased productivity of other key sectors in the UK. The UK is a leading location for developments in legal and professional services globally. Agglomeration effects allow this expertise to permeate through the wider UK economy, increasing productivity across sectors.
  2. Reduction in transaction costs for UK firms trading internationally. The prevalent use of English law internationally means that UK firms outside of the legal services sector will often be able to trade internationally using English law. This allows UK firms to trade internationally with lower transaction costs thanks to their familiarity with English law.

These effects operate in a virtuous cycle, delivering continual benefits to the UK. All of these effects increase the competitiveness of the UK.

However, the ‘provision’ of English law suffers from market failure due to the free-rider problem where the market does not provide sufficient incentives for private parties to support and promote English law to the extent that would maximise the overall benefits to the UK from the use of English law. Alternatively speaking, there is a positive externality deriving from the wider benefits for the UK beyond the legal services sector.

This is in the context of increasing competitive pressure from other governing laws and other jurisdictions for internationally mobile transactions. These transactions have a tendency to ‘tip’, which means that once the use of a governing law reaches a critical mass in a given market, most market participants tend to use that law because of the benefit from using standardised contract and procedures.

Therefore, investment to maintain and grow the user base of English law is particularly important given this global competitive pressure. It is, however, unlikely that individual private parties would achieve a sufficient level of investment alone without further coordination. Lack of investment in English law would then lead to economic inefficiency where significant benefits to the UK economy from the use of English law in internationally mobile transactions fail to materialise.

As a result, greater coordination and support in promoting the use of English law in the international economy would be valuable and should be seen in the context of the wider economic benefits as we have outlined in this report.

The English courts and independent judiciary play a vital role in developing the law, and are an integral part of the asset that is English law. As such, a key consideration in most effectively maximising the value from English law is the extent to which certain systems, resources and innovations surrounding an independent judiciary can be employed to the greatest effect to enable the judicial function to continue developing a pre-eminent system of law.

Our report also highlights several areas that require further discussion between the legal services ecosystem and the government.

  1. Given the importance of English law to the UK economy, which has not been widely recognised and appreciated, which organisations either in the private or public sector should coordinate efforts in nurturing and strengthening this asset for the benefit of the UK as a whole? Can new technology be used more effectively to promote English law, and if so what role can the legal sector, other private parties and public bodies play in this?
  2. Many sectors with internationally mobile transactions demonstrate important network effects—i.e. ‘winner takes all’. While English law has been in a leading position due to the UK exhibiting strengths in areas such as maritime, insurance and capital markets, there are new areas of law arising, for example, in ESG, green finance, and cryptocurrencies. Given that the judiciary is a crucial asset in developing the law, and that speed is often of the essence to capture the user base, who should take responsibility for ensuring that English law be promoted as an international business platform and that the UK is well placed to take advantage of these opportunities?
  3. Lastly, what would be the best form of investment in English law that can appropriately reflect the significant value that English law brings to the UK?