More than 30% of law firms plan to increase their non-fee earner headcount over the next year as pressure from clients on billing rates continues to drive down profitability and force firms to rethink their business models, according to new research from the Royal Bank of Scotland.

RBS' annual review of the legal market in 2012/13 and predictions for the first half of 2014 found that more than 60% of firms expect to increase fee levels over the coming 12 months, with 50% also predicting an increase in the number of chargeable hours.

Despite this, historic levels of profitability are still a long way off and will not return without firms making significant changes in the way they service clients.

Pressure from clients means firms need to continue rethinking how they best deliver service at prices corporates are willing to pay – driving more use of paralegals and legal process outsourcing as well as more analysis of work flows and disaggregation of work .

As a result, more than 30% of firms plan to grow non legal headcount in the coming year, with this growth coming as the survey found law firms are continuing to face overcapacity levels of at least 5%.

The survey, which focused on the UK's largest law firms and used Legal Week's Top 50 financial data, looked at a number of key issues for the legal market including lateral hiring, merger activity, international expansion, technology and alternative business structures.

Other key findings include 70% of respondents expecting to see the rate of merger activity increase over the next 12 months and only 6% of firms surveyed expecting lateral hiring to fall over the same period. This is despite the viability challenges of lateral hiring, given the difficulty of integration and cost of recruitment .

Commenting on the report James Tsolakis, head of legal services, corporate and institutional banking commented: "The legal sector is currently confronted by many challenges, from being 'over-lawyered' to stressed demand dynamics. I remain optimistic however about the future of the legal profession in the UK and market participants are clearly demonstrating a willingness to confront and respond to these challenges with initiatives which will permanently change the shape of the profession and the manner in which legal services are delivered."