A radical shakeup of pay for legal aid lawyers will see the end of "fat cat" QCs and shave an estimated 20% off the soaring criminal legal aid budget over the next four years.

The proposals from the government-appointed troubleshooter Lord Carter of Coles will mean substantial cuts for top QCs who have grossed payments of ?500,000 or more a year from acting in the biggest cases. Last year, for the first time, a barrister received more than ?1m from legal aid.

The recommendations for far-reaching changes were welcomed by the lord chancellor, Lord Falconer, who said the reforms would be phased in after a three-month consultation period starting immediately.

Fees will be redistributed from the top-earning QCs to junior barristers, who have seen their pay rates for crown court trials lasting up to two weeks frozen since 1997. They threatened to strike and paralyse the crown courts last year but were persuaded by bar leaders to hold off pending the Carter report.

Britain has the most generous legal aid system in the world, costing each taxpayer nearly ?100 a year. Spending has risen from ?1.5bn when Labour came to power in 1997 to over ?2bn today.

The rising cost of criminal legal aid has starved the budget for civil cases and advice for the socially excluded. Ministers hope savings from crime will mean more funds to help the least well-off with debt, housing and other social problems.

The most expensive cases - fraud, murder and drugs - make up 1% of trials but consume 50% of the legal aid budget for crown courts. In future, barristers and solicitors will have to tender for these cases, driving down the cost.

Lord Carter said his plans should stop barristers making "unreasonable" amounts of money from legal aid. Launching the 200-page review, he said: "We would like to see the end of the ?1m-a-year criminal defence barrister. To earn that amount of money under the new system I think you would have to do four weeks' work in one week."

He said a top barrister putting in a normal working week under the new system should receive no more than ?250,000 a year before expenses.

QCs as a whole would see their incomes fall by an estimated 3%, while junior barristers would get an increase.

The Bar Council said the proposals would see an overall rise for barristers of about 16%, in line with inflation since their last increase. Leaders have told rank-and-file barristers that they believe the deal is the best that could be achieved.

The thrust of the scheme is a move towards fixed prices and away from hourly rates. A new system of contracts for solicitors doing criminal defence work will force firms to amalgamate to provide efficiencies of scale and could see many go out of business, including small ethnic minority firms that represent black and Asian clients.

The London Criminal Court Solicitors Association described the recommendations as "a disaster for access to justice for the public" and said thousands of small law practices would be forced to close.

Lord Falconer said he was acting immediately to bring in the reforms "as quickly as possible".

He added: "Lord Carter calls for fundamental reform of the legal aid system and we thoroughly endorse the need for that reform.

"If we don't reform it along the lines that Lord Carter suggests, then there won't be the access to the system, it will get out of control and we won't have a sustainable providers' market.