The Ministry of Justice today (15 November) unveiled plans to withdraw public funding from swathes of civil cases as part of the Government's plan to slice £350m from the annual legal aid bill.

The move will be coupled with a substantial shake-up of civil litigation that is set to see the MoJ implement the majority of the funding reforms proposed earlier this year by Lord Justice Jackson in his much-touted report.

Unveiling the proposals, MoJ minister Jonathan Djanogly (pictured below right) said that civil aid funding will be redrawn from most cases involving family disputes, clinical negligence, debt, education, immigration, employment, housing and welfare benefit cases.

The bulk of savings will be made from cuts to private family cases, which the Government expects to save £178m a year from the £2.1bn legal aid budget. The Government estimates that annual earnings at legal aid providers will fall by between £144m and £154m if the reforms are implemented in full.

The Government has also unveiled moves to toughen up the financial criteria for those eligible for legal aid. Full legal assistance will only be granted for those with up to £1,000 in disposable capital, after which a minimum contribution of £100 will be enforced, marking a drop from the previous £3,000 benchmark.

The package of reforms is estimated to lead to a drop-off of 547,000 civil cases annually.

The Secretary of State for Justice, Kenneth Clarke, (pictured) said: "I strongly believe that access to justice is the hallmark of a civilised society. But at more than £2bn each year, we currently have one of the most expensive legal aid systems in the world. This cannot continue.

"The proposals I have outlined today suggest clear, tough choices to ensure access to public funding in those cases that really require it, the protection of the most vulnerable in society and the efficient performance of the justice system."

There will, however, be a number of exceptions to moves to restrict public funding, with legal aid still being available in cases involving threats to liberty, physical safety, child welfare or the immediate threat of homelessness. Legal aid is also expected to be retained for judicial review cases that involve the individual holding the state to account, for some discrimination cases and for legal assistance for bereaved families in inquests.

No changes are proposed for eligibility for legal aid in criminal proceedings but the Government will be looking at replacing the set rates paid to lawyers in criminal cases with a "competitive market" in 2011-12.

The Government does propose that in the most expensive criminal cases – classed as Very High Cost Criminal Cases – payments to solicitors will be moved to a more strictly graduated fee scheme to help contain legal costs.

The MoJ has also floated alternative funding routes for legal aid, including proposals to make use of interest payments on client money held by solicitors and recovering a proportion of public funding in successful damages claims.

Clarke added: "I believe that there is a compelling case for going back to first principles in reforming legal aid. It is now available for a very wide range of issues, including some which do not require any legal expertise to resolve. It cannot be right that the taxpayer is footing the bill for unnecessary court cases which would never have even reached the courtroom door, were it not for the fact that somebody else was paying."

The related proposals to reform civil litigation funding leave the Government on track to implement many of the key recommendations from the Jackson review in January.

The MoJ indicated its support for abolishing the recoverability of success fees and associated costs in 'no win, no fee' deals. The move, which the MoJ argues would give claimants an incentive to control legal costs, would be a break from the 'loser pays' tradition of the English and Wales courts, stopping the losing parties from having to cover the other sides' success fees and related insurance policies.

The MoJ is also proposing to follow Jackson's call to allow "damages-based agreements", a form of contingency fee that would allow lawyers to claim a portion of the claimant's damages as a success fee. The move, which commercial lawyers have long argued is necessary to bring in success fees for complex cases, is expected to be subject to a 25% cap of total damages.

The Government has also voiced support for moves to introduce a 10% increase in general damages for personal injury cases and defamation cases to help claimants to bring cases, and to introduce a mechanism to stop most personal injury claimants from having to pay a winning defendant's costs.

However, the MoJ said it is yet to be convinced of the case for banning referral fees, as Jackson recommended. Djanogly said that the Government would wait until the Legal Services Board completes its review of referral fees before deciding its position.

The Government issued two consultation papers today on both strands of the proposals (see links below).

Djanogly commented: "Alongside our ambitious proposals for reforming the legal aid system, we have also set out important plans to reform funding arrangements in the civil justice system, which will support wider Government efforts to help businesses and public bodies fearful of costly litigation.

"We want to reduce overall costs, ensure claimants have a financial interest in controlling legal costs incurred on their behalf and deter avoidable, unnecessary or unmeritorious cases.

"Today's proposals are designed to prevent the situation in which, regardless of the merits of their case, defendants are forced to settle for fear of prohibitive costs."

The cuts to legal aid, which will be seen as highly controversial, are part of the MoJ's contribution to the Comprehensive Spending Review (CSR), which was unveiled last month as part of the Coalition Government's attempt to slash the public deficit. The MoJ faced one of the toughest departmental settlements in the CSR, with the ministry set to slash its budget by 23% over the life of the Parliament.

Legal aid cuts: industry reaction

Kennedys senior partner Nick Thomas: "We would welcome the removal of success fees because they have increased the cost to society of dealing with claims. Many people take the view that it does not matter if an insurance company has to pay more, without realising that such costs are in the end funded by the premiums that consumers have to pay.

"Unfortunately, however, the proposed change to contingency fees brings with it the risk of conflict of interest, perhaps lawyers needing to recover more to cover their fees and keep the client happy, or the timing of settlements being engineered to suit the lawyers cash flow, not the client's interests."

Law Society president Linda Lee: "Legal aid clients are some of the most vulnerable in society and good legal representation where required is essential if they are to be able effectively to enforce and defend their rights. Without that ability the rule of law is meaningless."

The Law Society: "Our key message to Government is that you do not make savings to the legal aid budget by cutting the legal aid system, but by tackling the drivers of need for legal advice, such as waste, poor administrative decision-making, needlessly complex justice systems, and unnecessary and unclear laws."

Chairman of the Bar, Nicholas Green QC: "We have set up a number of working groups to examine the MoJ's proposals, drawing on the expertise of several specialist Bar associations. Our key concern is that these cuts will undoubtedly hit the weakest and most vulnerable hardest.

"The Bar has been preparing for some time for a step change in the delivery of publicly-funded legal services. These consultations enable us to set out, in the public interest, how barristers can provide cost-effective specialist advocacy and advice to ensure that access to justice is not denied."

Holman Fenwick Willan insurance partner Paul Wordley: "The changes are to be encouraged, as it presents opportunities for well-managed litigation practices to handle their clients' cases to the best possible level with the added incentive of a payout for both the lawyer and the client.

"I don't think it will encourage lawyers to drag out cases, but if anything wrap them up quicker so that it doesn't go into expensive and difficult litigation, but pushes more cases through."

Legal Action Group: "The British public overwhelmingly believe that even if they are unlikely to use the services themselves, their fellow citizens should have access to state-funded legal advice when things go wrong in their lives.

"We accept that cuts in legal aid should not be reduced to a popularity contest between different areas of law as we recognise that some types of legal aid work might not enjoy popular public support, but are essential to guarantee civil liberties and to maintain the rule of law."

Carol Storer, director of the Legal Aid Practitioners Group: "We are keen to ensure that the debate over the next few months focuses on ensuring that there is access to justice regardless of one's means. We consider that the rule of law is important. An important component of that is that people can access the means of resolving civil law disputes and that they can receive advice and representation in criminal law cases.

"Clients who are receiving legal advice or representation now or who may need representation in future will find it hard to contribute to the debate. We hope that the government will take all possible steps to hold a dialogue with the very vulnerable and marginalised people who are often in need of the services provided under the legal aid scheme and consider very carefully what effect any cuts will have."

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Click here for the full proposals on legal aid reform.

Click here for the full proposals on litigation funding.

• For more, see MoJ to see 23% slashed from budget in Govt spending review