More and more of the people it was intended to help are falling through the holes in its increasingly threadbare mesh. As the government ploughs more money into health and education, legal aid has become what MPs on the constitutional affairs select committee described as "the Cinderella" of the government's services to address social exclusion and poverty.

At its birth in 1950, it was seen as the second arm of the welfare state (along with the NHS, created two years earlier). Lawyers in private practice were paid by legal aid not only to defend those charged with serious crimes but to handle civil court cases - divorce battles, housing disputes, virtually any type of civil claim. Later the scheme was extended to include advice and help short of going to court.

By 1980, people on average earnings were still eligible. But over the years successive governments allowed inflation to outstrip eligibility levels to the point where today few people with a full-time pay packet are covered. Usha Singh, a constable in the Metropolitan police, qualified only because her living expenses, as a single mother of five with a London-sized mortgage, leave a huge dent in her income.

legal aid solicitor David Emmerson recently negotiated a divorce settlement for her, which enabled her to buy out her ex-husband and take over the mortgage on the family home in east London. Next year, however, someone in her position might not qualify for legal aid at all, if the government goes ahead with proposals to curb the pounds 1bn legal aid bill.

Currently, those with up to pounds 100,000 equity in their homes are entitled to aid if their incomes are low and they have little other capital. Under proposals from the department of constitutional affairs and the legal services commission (LSC), which administers legal aid, the equity would no longer be disregarded and homeowners wanting legal help would be expected to borrow the fees from the bank or pay with their credit cards. Only those on benefits or the very lowest incomes would still be covered. The government estimates that the change would remove 10,000 people a year from the scope of legal aid.

It would not disqualify Singh, who would still benefit from another rule - that the value of assets at the heart of the legal dispute are disregarded in assessing eligibility. So a divorcee in her position fighting an ex-spouse over the family home would not have the equity in the property taken into account. But that rule too could go; the little-noticed consultation paper says there is "a case" for abolishing it.

The squeeze is coming from two directions: crime and asylum cases, where the cost of legal aid is inexorably rising. The budget for civil cases is not "ring-fenced", so changes in criminal law and procedure, which mean longer trials and more pre-trial preparation, cut the money available for other cases.

To comply with Britain's human rights obligations, anyone charged with a serious crime has to be provided with a lawyer and the growing number of asylum seekers need legal help to assert their claims. That leaves a diminishing share for people facing the myriad other problems involving housing, debt, employment and family that can arise - particularly if you're not so well off. As one solicitor puts it bluntly: "The government is spending so much money on crime and asylum that people's rights are being denied."

The latest figures for legal help - the part of the scheme covering advice and assistance with legal problems that stop short of going to court - shows a steep drop in the numbers being helped, a situation the constitutional affairs committee deemed "unacceptable" in its report on legal aid last year. Cases started in 2002-03 totalled 690,226, in 2003-04 the figure was 582,925, and the forecast for 2004-05 is 502,323. The amount spent on these cases was pounds 288m in 2002-03 and pounds 302m in 2003-04, with just pounds 218m forecast for 2004-05.

Bob Nightingale is director of South West London Law Centre, and spokesman for the newly formed Access To Justice Campaign - a coalition of organisations including the Law Centres Federation, Liberty, Citizens Advice and top City law firms that provide volunteers to give free "pro bono" help. The campaign aims to highlight the crisis in civil legal aid funding. Nightingale has written to Tony Blair appealing to him to sort out the mess. "We're definitely feeling a difference on the frontline," he says.

Law centres such as his combine social work with legal help for a section of the population that is often particularly vulnerable and socially excluded. Without timely legal intervention their problems can escalate and in government terms become far more costly.

"Social welfare legal services prevent homelessness, prevent families living below the poverty line, ensure proper care services for elderly and disabled people and ensure access to justice for the poorest and most disadvantaged people," Nightingale points out.

Richard Miller, director of the legal aid Practitioners Group, says: "There is no evidence that there is less demand for this work but there is evidence that solicitors are stopping doing this work." Housing, he says, is an area of law that has been particularly badly hit. "I know of a law firm in east London which got a referral from a client in Cambridge recently because there was no one closer to handle the case. In the last five years the number of solicitors doing civil legal aid work has dropped by 10% per year. The system cannot afford to keep haemorrhaging solicitors. As a result of the failure to access the legal help they need, people are almost certainly having to tolerate the problem in their lives. And this can lead to a spiral of other problems."

Solicitors are deserting legal aid because of low fees and the bureaucratic demands of the LSC. Young lawyers are increasingly reluctant to go into legal aid work, a development the constitutional affairs committee cites as one of the most serious threats to the survival of the service. Emma Knights, head of community legal service development at the LSC, insists: "We are tackling the issues raised by practitioners and are in the process of making sure that the legal advice system addresses the needs of clients." A consultation paper is promised for next month.

The need for action is urgent, according to a spokesman for Citizens Advice. "One in 10 of the people our bureaux dealt with last year are not getting access to justice. Our bureaux staff are telling us all the time that in some areas of the country they can't access immigration lawyers; in other areas they can't access housing lawyers. People can't always get access to justice but it's supposed to be a right of citizenship."

Initial findings from a survey by the charities Asylum Aid and Bail for Immigration Detainees confirm that in some areas of the country it is no longer possible to access a legal aid immigration lawyer. Those closing their doors include some of the most experienced in the field. One solicitor who has jettisoned publicly funded immigration work says he dropped it because of increased bureaucracy and reduced funding. "It appears from where I'm sitting that the LSC is actively trying to force people out of this work. They have succeeded in my case."

The law society fears that the controversial payment scheme for cases before the new asylum and immigration tribunal, which starts work in April, will drive more solicitors out of of the asylum field. At the end of the case the tribunal judge will decide whether the appeal had "a significant prospect of success" at the time it was made. If not, there will be no payment for the solicitor. The Joint Council for the Welfare of Immigrants predicts that the new scheme will "lead to increasing numbers of poor, unrepresented and badly advised litigants blocking the judicial system, because they cannot find a lawyer able to risk not being paid".

Shankari Chandran, the pro bono manager at City law firm Allen & Overy, whose lawyers have given free help at South West London Law Centre's Battersea branch for 13 years, says: "We are taking on a lot of housing and employment cases which used to be covered by legal aid. We used to be able to refer clients to high street legal aid practitioners but now we're referring into a black hole. We're concerned that a whole section of society just isn't able to access the legal services they're entitled to."

In his letter to the prime minister, Nightingale warns of dire consequences for the future of civil legal aid if steps are not taken to remedy the situation. "If things carry on like this there will be no civil legal aid in five years' time," he says. "They say that rural areas are advice deserts but cities have become advice deserts too. The government has to do something quickly or the whole system of civil legal aid will collapse and die."