Lord Falconer of Thoroton announced that he was in effect scrapping controversial plans for fixed fees instead of hourly rates in family and civil legal aid cases pending a complete rethink. He also pledged to reconsider the timetable for the scheme, which had been due to start in April. It is likely that the proposed market-based reforms will not now come in before 2008.

In a series of significant concessions announced at the Law Society annual conference in London, he also said he was looking at a quota system or “aspirational targets” to ensure that law firms employed ethnic minority solicitors. Under this — which he admitted would have to be checked for its legality — some legal aid contracts would go only to firms with a certain proportion of solicitors from ethnic minorities.

Research by the Law Society predicted that the Lord Chancellor’s plans would have led to more than 800 firms going out of business. Hundreds of solicitors, already struggling on present fee levels, would not continue under the proposed fixed-costs regime, leaving the most vulnerable members of society without access to justice, it suggested. Solicitors doing childcare cases, other family work and civil disputes were particularly dismayed, calling the proposals unviable.

Lord Falconer said that he recognised that the proposals required “a very substantial rethink”. He said: “We must retain the supplier base [of solicitors] and we can’t help people unless we attract them into the work. We know the proposals are not right and will not be introducing the policy in family and civil work until we believe it is right.”

On the timetabling of reforms, he said that he understood solicitors’ concerns and recognised that present proposals would put considerable pressure on law firms. “We will therefore take a hard look at the sequence of reforms and are prepared to work with the Law Society to come to a workable solution.”

But Lord Falconer insisted that there would be no more money for the reforms, which are based on a report published in July by Lord Carter of Coles. “My plea is to accept that position, because it is the reality.”

He also challenged the Law Society research predicting that 800 firms would go out of business. What was crucial, he said, was the number of solicitors, not the number of firms.

The reforms are expected to lead to hundreds of smaller firms either closing or merging to form “mega-practices” that can be profitable through economies of scale.

Desmond Hudson, the chief executive of the Law Society, which represents 100,000 solicitors in England and Wales, said: “We welcome the Lord Chancellor’s willingness to look at the issues both on family and civil work and the sequence of the implementation of reforms.

“But the facts show that firms are voting with their feet because they are not economically viable at present rates.”

This week the Law Society said it had joined forces with three legal aid bodies to fight the proposals because they threatened access to justice.

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