The government hopes proposals to dramatically reshape the legal aid system will save ?100m a year.

A review of the free legal advice service in England and Wales has been carried out by the Department for Constitutional Affairs.

The radical revamp would remove long-standing arrangements where solicitors are paid by the hour.

Initial findings published in February suggested lawyers should bid competitively for all legal aid work.

Lord Carter of Coles, who is reviewing the legal aid structure which costs ?2 billion a year, acknowledged it was a significant departure from the current system and would lead to fewer law firms taking on legal aid work.

The government's proposals, which will go out to consultation, will be closely based on his recommendations, and his report also said the moves would reduce criminal legal aid spending by more than 20% in real terms over the next four years.

"The procurement reforms should, if executed properly, deliver the long desired cost control in Legal Aid," it said.

"We hope that all those involved with the existing system of legal aid will seize this unique opportunity to put this vital public service on a long-term, sustainable footing for the future."

High costs

Solicitors who win contracts to provide legal aid cover in police stations would receive a block grant for the duration of the contract.

Defending cases in magistrates' courts would be paid by a fixed fee.

Lord Carter has noted that, in 2004-2005 there was ?90m spent on paying solicitors for travelling time and waiting time in police stations and magistrates' courts.

The peer also proposed substantial reforms to the way very lengthy crown court cases are paid for, as currently 50% of spending on crown court hearings goes on just 1% of cases.

He proposed expanding the current regime which deals with so-called "very high cost cases".

Lord Falconer, the lord chancellor, said that change was necessary because the current system was too costly.

"It takes too long, it costs too much and the state pays for inefficiencies," he said.

"We need a system whereby you encourage people to finish cases as quickly as possible, preserve quality and encourage efficient firms.

"Fixed fees mean that people will resolve cases as quickly as possible.

"Being able to compete in price will reward people for efficiency, ensuring that quality is preserved by lawyers themselves being able to look at their peers and see whether they're up to a reasonable standard."

And the Legal Services Commission chairman, Sir Michael Bichard, said the new proposals "offered an important opportunity to ensure that legal aid has a sustainable future."

He also said it would continue to: "safeguard peoples fundamental legal rights while providing value for the taxpayer and opportunities for good quality, efficient service providers to grow and prosper."

'Costly re-organisation'

But the vice president of the London Criminal Courts Solicitors' Association, Greg Powell, said the new plans could spell the end for high street legal firms.

"What's envisaged here is an enormously bureaucratic and costly re-organisation of the supplier base which is the high street solicitor firms that will lead, perhaps, to many of them closing.

"The problem for the criminal legal aid budget is it's the victim of prosecutorial decisions, so that if the serious fraud office or customs decide to launch some vast case to which they've devoted huge resources into the criminal justice system, inevitably it attracts high defence costs."

Lord Carter's final report will also cover legal aid in civil, family and public law.

Its proposals will also take account of separate moves to allow outside investment in law firms - known as Tesco law - and other changes to the way solicitors and barristers can operate.