Law Firm IT Budget Planning for 2027: What the Numbers Are Actually Telling You

Key Takeaways

• Rising IT costs are the main driver of higher non-salary overheads at firms in England and Wales, according to the Law Society's Financial Benchmarking Survey 2026, which covers 121 firms.
• The survey names two forces behind it: consolidation among software suppliers and growing AI spend.
• Splitting the IT line into run cost and change cost is the single most useful budget move a firm can make, because each needs a different kind of evidence.
• Renewal notice periods mean next year's software cost is usually decided months before the invoice arrives.
• AI needs its own budget line, however small, or it gets cut at the first review.

The Law Society's latest benchmarking survey reads like good news. Median fee income at the 121 firms it covers grew by 11.2% in 2025, and non-salary overheads fell as a share of that income, from 31% to 28.4%, according to the Financial Benchmarking Survey 2026.

The honest reading is less comfortable. Overheads per fee earner barely moved, at £46,916 against £47,098 a year earlier, so the ratio improved because income grew. Costs per head stayed where they were, and inside that overhead line the survey singles out one category as the main factor pushing costs up: IT.

For a Managing Partner or Finance Director signing off next year's numbers, that changes the question. An 11% income year absorbs a lot. The 2027 law firm IT budget has to hold up in a year that may look far more ordinary.

Why the law firm IT budget is growing faster than other overheads

The Law Society survey, produced by Hazlewoods LLP and sponsored by Lloyds Bank, gives two reasons for the rise in IT costs: consolidation in the software supplier market, and increasing spend on AI.

Consolidation is the quieter of the two. When the company behind a practice management, document management or billing platform is acquired, the product usually carries on as before and the commercial terms change at the next renewal. Fewer credible alternatives means less bargaining power, and bundles tend to grow to include modules a firm never asked for.

AI spend is the louder one. PwC's Law Firm Survey 2025 found that virtually every Top 100 firm is now engaging with AI in some form, and many of those tools started life as pilots paid for out of existing budgets. They now arrive as recurring line items.

The larger-firm data points the same way. PwC puts IT revenue costs, the day-to-day IT spend that excludes depreciation, at between 3.4% and 4.5% of UK fee income across the Top 100 bands, with the share rising year on year in three of the four bands. The Top 26-50 moved furthest, from 3.5% to 4.0%. Property costs fell as a share of income in every band over the same year.

There is a third pressure underneath both. The Law Society survey records cyber threats as a growing concern for firm leaders, which adds security spend that no partner wants to be the one to cut. So the IT line is being pushed from three directions at once: higher prices on systems the firm already runs, new spend on systems it is still testing, and security it cannot skip. Those need separating before anyone can argue sensibly about any of them.

Run cost and change cost: two arguments inside one law firm IT budget

Run cost is what it takes to keep today's firm working: licences, hosting, support contracts, security tooling and the people who keep them running. Change cost is spend meant to alter how work gets done, such as a data platform, a system migration or an AI workflow that takes over part of a process.

Each needs its own argument. Run cost is judged on price and reliability, and the right question is whether the firm pays a fair rate for something it needs. Change cost is judged on return, and the right question is what will be measurably different in twelve months, and who answers for it.

When the two sit in one line, both arguments get worse. An AI pilot gets compared with email licences and looks expensive. A licence increase hides inside a "technology investment" total and never gets challenged. A partner asking why the IT budget went up cannot tell whether the firm paid more for the same thing or bought something new.

The split itself is a few days' work for a finance lead and the head of IT sitting together. Tag every line of current IT spend as run or change. Where one contract covers both, as bundled platform deals often do, split it by estimate and write the assumption down so it can be tested next year.

Once the split exists, a sensible rule follows. Run cost should fall as a share of income over time, and every change cost should come with a named outcome and an owner. A firm whose run cost climbs every year while change cost stays flat is paying more to stand still, a pattern we looked at in more detail in why law firm support costs keep rising.

The renewal audit: why October decides next year's IT budget

Many enterprise software agreements renew automatically unless the firm gives written notice within a set window before the term ends. For a contract renewing on 1 January, that window can close in October or November. Miss it and the 2027 price is fixed before the budget meeting that is supposed to approve it.

So a large share of next year's run cost is decided by this autumn's diary. The audit that catches it is short:

• List every software contract with its renewal date, notice period and current annual cost.
• Record usage: active users against licences paid for, and which modules anyone actually opens.
• Flag contracts where the supplier has changed hands since signing, since terms often shift at the first renewal under a new owner.
• Mark each contract keep, renegotiate or exit, with a named owner and a date for the decision.

The usage column is usually where money turns up. Licence counts creep upwards through a year of joiners and pilots, and they rarely creep back down when people leave or a pilot quietly ends.

October matters for a second reason. A firm that knows which contracts it can exit has room to fund change without asking the partnership for more money overall. For many firms, the renewal audit is the cheapest source of AI budget they have.

Giving AI its own line in the law firm IT budget

AI spend that sits inside general IT has no defender when the budget gets squeezed. It looks like discretionary software, it is the easiest thing to trim without breaking anything today, and it rarely has a revenue figure attached yet.

The PwC data shows how common that last point is. Over half of Top 50 firms reported productivity gains or financial benefits from AI, while no firm in the Top 51-100 had yet turned those benefits into money, though 19% were seeing productivity gains. The same survey found Top 100 firms now expect AI could save around 16% of chargeable hours, up from 11% a year earlier. Hours saved only reach the firm's economics when pricing, resourcing or matter scope changes with them.

That gap between productivity and money is the reason for a separate line. A named AI budget, however small, forces three decisions a general IT line never asks for:

• Which workflows the money is for, with a baseline of how long each one takes today.
• What result would justify carrying the spend into 2028.
• Who owns that result, on the practice side as well as in IT.

A modest line tied to two measured workflows will survive a budget review far better than a larger, vaguer AI programme. If the firm cannot yet say which workflows to start with, our guide to what an AI readiness assessment should tell a law firm sets out how to get to a costed shortlist in a week.

What to ask before you approve the 2027 law firm IT budget

Before the budget goes to the management board, these are the questions worth putting to whoever presents it:

• How much of this budget is run cost and how much is change cost, and how has that split moved since last year?
• Which renewals fall due before the next budget review, and has anyone checked their notice windows?
• Which suppliers have changed ownership in the last two years, and what happened to their pricing?
• How much does the firm pay for licences it does not use?
• What is the AI line for, which workflows does it cover, and what result would justify renewing it?
• Who owns each change project once it is live, and who is still accountable for it a year later?

In-house legal teams can run the same exercise against their own peers. The ACC and Major, Lindsey & Africa Law Department Management Benchmarking Report covers 421 legal departments across 32 countries, with sections on cost management and legal technology adoption.

This is the work our Tech Advisory team does in AI Readiness in Five Days, a structured assessment across infrastructure, process and governance that ends with a costed 90-day plan a management board can approve. Where the pressure sits in run cost, Cognitive Outsourcing™ moves operational ownership of a back-office function to 3Rive, rebuilds it AI-first and shares the savings, with the AI assets handed back to the firm at the end of term. Our Data team builds the governed reporting that makes run and change cost visible inside a firm in the first place.

If the 2027 budget meeting is already in the diary, the renewal audit is the place to start, and it is worth starting this month.