Britain’s largest law firms are reducing the number of junior lawyers they are hiring amid concerns that debt finance and corporate takeover work both in London and overseas has largely dried up.

The position has been made worse by the fact that, aside from a handful of high-profile legal disputes, such as the shareholder wrangle over the nationalisation of Northern Rock, the expected surge in corporate litigation resulting from the credit crunch has failed to materialise.

The slowdown in legal recruitment, which is mainly affecting qualified solicitors with up to six years’ postqualification experience, comes after four years of high demand for junior professionals, which sparked sharp rises in salaries. The Times has learnt that several large firms will publish record profits from last year and that more partners than ever are earning £1 million a year.

Andrew Chancellor, the managing director of Robert Walters, told The Times that recruitment of junior lawyers and accountants had halved over the past couple of months. He said that the recruitment market was set to be as sluggish as it was in the mid1990s: “It may not be as bad as the early 1990s recession, but it could be worse than the dot-com fallout.

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“It will be like the mid1990s, when a 2:1 degree from a red brick university may not be enough [to help to advance a career]. It will be a return to the 2:1 from Oxbridge or first from a red brick university as a minimum plus something special.”

A partner of one of the City’s largest international law firms said: “In law firms like us, partners are seeing lower activity levels. It has definitely gone quieter in the States and we are seeing quieter times in London. There are slowdowns in Amsterdam and Paris, while Germany is buoyant – but I am not sure how long that will last. I expect the Asian offices to get less frenetic – though no signs of that yet. Whilst there is more litigation, it is only slightly more. We have not seen a wall of litigation in the US. We are still hiring. We are keen not to reduce partners or the graduate recruitment, but it is quieter at associate level.”

Research compiled by The Times and Deloitte, the accountancy firm, has found that Britain’s ten largest law firms are expected to show an increase in revenue of between 11 per cent and 15 per cent for their financial years that ended last month.

This week research published by The Lawyer magazine reveals that Britain’s top five firms – Clifford Chance, Linklaters, Freshfields Bruckhaus Deringer, Allen & Overy and Slaughter and May – increased profits per partner on average by 65 per cent between 2003 and 2007 to nearly £1.2 million.

That would suggest that about 250 partners from these firms alone are earning more than £1 million a year. Based on the increase in this past year’s revenues revealed by The Times/Deloitte survey, the million-a-year club will gain a few dozen members.

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