He is also to introduce long-standing proposals to overhaul divorce law. They will likewise emphasise the use of mediation, not lawyers and courts.
Lord Mackay hopes to finalise both plans early next year, with a legal aid Green Paper, and divorce reform in a White Paper.
His plans - requiring primary legislation - to scrap the ``demand led'' civil legal aid scheme, under which lawyers claim back fees from the Government, will provoke stiff opposition from legal groups and a storm of protest in the House of Lords.
Currently, anyone who passes the means test and has reasonable grounds for bringing or defending a case is entitled to legal aid. But Lord Mackay insists the pounds 1.4bn budget cannot be allowed to continue to spiral. The plans would involve imposing cash limits for the first time.
Those responsible for the budgets, likely to be Legal Aid Board regional offices, would direct people qualifying for legal aid to the most cost-effective means of access to justice, which could include lay advisers, ombudsmen, mediators or arbitrators.
Lord Mackay is studying the idea of the available cash being administered regionally, but is anxious not to create an additional layer of bureaucracy. He seems to have taken on board the basic proposition that neither the people apportioning budgets among claimants nor those solving legal disputes need necessarily be lawyers.
In the divorce proposals, set out in a Green Paper last December, couples intending divorce would have to wait 12 months and attend a diagnostic interview before being referred to mediation or, in more complex cases, a lawyer.
The paper estimated mediation over children and financial issues would cut average legal costs by two-thirds to about pounds 550. Any hint that poorer people would be coerced into a ``lesser'' form of justice would be hotly opposed.
The Green Paper proposed that the decision to award legal aid would rest with the person conducting the interview, again often not a lawyer, and legal aid would be withdrawn from a party judged to be acting unreasonably.
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