Plans outlined by Lord Carter of Coles for a "market-based" system will see earnings at the top cut through efficiency savings and redistributed to barristers lower down the scale who do run-of-the-mill, one- to 10-day cases in the crown courts, who have not seen their rates rise since 1997. The results of his review come after government figures showed that one barrister was paid ?1.18m from the legal aid fund in 2004-05 and a second received more than ?900,000. The 10 highest-paid barristers from criminal legal aid work each made more than ?600,000, while some junior lawyers doing criminal defence work earned ?25,000 or less.

Barristers who were threatening to throw the courts into crisis by a boycott last summer were persuaded to hold off pending the outcome of Lord Carter's review. Yesterday the Bar gave a "cautious welcome" to the proposed new structure but said it would reserve judgment until the figures for the new fees were provided in the final phase of the review, expected in May.

The review, commissioned by the lord chancellor, Lord Falconer, would slash the number of solicitors' firms allowed to do criminal legal aid work, forcing many working in small firms to amalgamate or abandon the work.

Lord Carter, a troubleshooter who has chaired a number of government reviews, was brought in to target waste and inefficiency in a legal aid yearly budget which has climbed by 37% since 1997, to ?1.2bn. He noted that England and Wales have the highest per capita spending on criminal legal aid in the world, at ?22 a head compared with ?4 a head in New Zealand.

The review highlights the fact that 75% of criminal defence expenditure is paid on the basis of hours worked, providing little incentive to lawyers to work efficiently. Some ?90m was spent on time travelling to and waiting at police stations and magistrates courts. Payment will move from hourly rates towards fixed fees per case. Police station advice will be paid for as a block grant. For the most "unpredictable, complex and resource intensive cases" contracts will be negotiated on an individual case basis.

Teams of barristers and solicitors would continue to be paid on an hourly basis for such cases, but rates would diminish over the lifetime of the case. After a transitional period, lawyers would compete for work on the basis of price, with the Bar and the Law Society ensuring quality was maintained.