The plans from the Legal Services Commission, which runs the £2 billion-a-year legal aid scheme, could lead to hundreds of law firms having to close if their bid fails. The commission plans to pilot a scheme in London — to be introduced nationally if successful — in which some legal aid work would be allocated through a “bidding war” to the most cost-effective bids.

Law firms would tender for slots to provide legal aid work at police stations and magistrates’ courts and name the price.

Competitive tendering would mean the end of payment by hourly rates; firms with winning bids would work to fixed prices. The commission believes that the scheme would enable more people to be helped — without an increase in cost.

Legal aid lawyers replied that more than 200 of the 500 firms in London would have to close and others would be at risk. Angela Campbell, president of the London Criminal Courts Solicitors’ Association, said that they would “resist the proposals with every means available”. Ms Campbell said: “At present, when legal aid solicitors are paid less than plumbers and other skilled people, the idea of introducing competitive tendering is ill-conceived, premature and potentially disastrous.

“This proposed approach will result in forcing small, high street solicitors out of business. It will reduce the quality of service to local communities — not just in criminal but also civil legal aid. If the pilot fails, the damage to the network of legal aid firms through closures would be irreversible,” she said.

“Reorganising our service by reference to lowest price is akin to the slash and burn of the rainforests. The loss of our social ecology you can add to free milk, NHS dentists and local post offices. The ultimate impact of this pilot will be adding to social exclusion.”

Greg Powell, of the Criminal Law Solicitors’ Association, said that legal aid solicitors were already at the limits of what was possible after a ten-year pay freeze. “In the 1990s there were 10,000 criminal law firms and now there are just under 3,000 nationwide, 500 in London,” he said, adding that the remaining law firms had already pared costs to the bone.

The Legal Services Commission figures showed that 150 of the 500 in London were earning less than £50,000 a year from legal aid work.

Mr Powell said: “The commission calls these the ‘dabblers’ — and they are expected to go to the wall straight away. Then there are another 70 or 80 earning below £100,000 who are also at risk. These proposals will encourage a cottage-style industry by forcing solicitors to work from their living rooms; the ‘dabblers’ would be encouraged to increase their market share.”

The plan is out for consultation. A pilot is to start in August and the scheme could begin next January.

The commission insisted that quality would not be jeopardised. Karl Demian, a senior official on the project, said that the commission would not just go for the lowest bids: “We are not looking to drive prices down. We are looking to make sure a quality service is delivered to vulnerable individuals.”

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