OUT: Law Lords and the Lord Chancellor. IN: a Supreme Court

Blair shakes up Cabinet, then the justice system
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Tony Blair announced sweeping changes to the legal and judicial systems and the House of Lords yesterday as he carried out a cabinet reshuffle.

The Prime Minister used the retirement of Lord Irvine of Lairg to abolish the 1,400-year-old office of Lord Chancellor, replace the Law Lords with an American-style Supreme Court and create an independent system for appointing judges, who are now chosen by the Lord Chancellor.

In a reshuffle that was more dramatic than expected, Alan Milburn, the Health Secretary, shocked Westminster by resigning from the Cabinet to spend more time with his family. A loyal Blairite, he was a potential Labour leader and his decision is a blow for the Prime Minister.

Mr Milburn, 45, who has two sons aged 11 and six, said: "I concluded that I cannot do this 24-hour-a-day, seven-day-a-week job in a busy cabinet post and have anything like a normal family life." He insisted there was no hidden motive for his decision and said he could not envisage a return to frontline politics.

The crucial post of Health Secretary was handed to John Reid, the Commons Leader and a Blair loyalist who has now held five cabinet posts in four years. The new Leader of the Commons is Peter Hain, who is promoted from the Welsh Office.

The ministers who leave the Cabinet are Lord Irvine, Mr Milburn and Helen Liddell, the Scottish Secretary. Her department and the Welsh Office will become part of a powerful new Department of Constitutional Affairs, which will also take over the work of the Lord Chancellor's Department. The size of the Cabinet is reduced from 23 to 21.

The new department will be headed by Lord Falconer of Thoroton, a Home Office minister and close friend of Mr Blair, who wins promotion to the Cabinet. He will not take Lord Irvine's salary of £202,736 a year, but will be paid £96,960.

Lord Falconer will preside over the most far-reaching changes to the legal and judicial systems in modern times. Unlike previous lord chancellors, he will not wear three hats, as head of the judiciary, Speaker of the Lords and a cabinet minister, and will act only as a departmental minister.

The Law Lords, the highest court in the land, will be scrapped, replaced by a new Supreme Court, in which Lord Falconer will not sit. Judges will be chosen by a new independent Judicial Appointments Commission, a significant change long favoured by reform groups.

Lord Falconer hailed the changes as "a new beginning as far as the courts, Crown Prosecution Service and police are concerned". He will work closely in modernising the criminal justice system with David Blunkett, the Home Secretary, who clashed with Lord Irvine after accusing some judges of being out of touch.

The Government will publish more details of its proposals next month, and there were signs that some of the changes were decided at the last minute.

In a surprise move, Mr Hain will answer Commons questions about Wales and retain the title of Welsh Secretary, while Alistair Darling, the Transport Secretary, will answer questions on Scottish affairs and add the post of Scottish Secretary to his title. The new arrangements for Scotland and Wales were criticised by some MPs.

Today the Prime Minister will announce extensive changes to the junior and middle-ranking ministers outside the Cabinet as he tries to freshen up his team by bringing in new faces.

The departures will include Brian Wilson, the Energy minister, who said: "I have had five ministerial jobs in six years and I think it's an appropriate time to change my lifestyle to something more normal. There are a lot of things I can do and say as an MP but not as a minister and I just wanted that change of role."

The human rights group, Liberty, welcomed the changes. Mark Littlewood, its campaigns director, said: "At last there will be a clearer separation between judges and politicians ...a modern democracy needs to be based on sensible and logical rules."

But the shake-up provoked criticism in the Lords. Lord Onslow, a Tory peer, condemned scrapping the post of Lord Chancellor, saying: "I don't think I have ever been so angry in the 30 years I have been in this House."

The New Cabinet

The Prime Minister's salary is £119,056; cabinet members earn £71,433, unless otherwise stated

Prime Minister, First Lord of the Treasury and Minister for the Civil Service Tony Blair

Deputy Prime Minister and First Secretary of State John Prescott

Chancellor of the Exchequer Gordon Brown

President of the Council and Leader of the House of Commons Peter Hain*

Secretary of State for Constitutional Affairs Lord Falconer*

Secretary of State for Foreign and Commonwealth Affairs Jack Straw

Secretary of State for the Home Office David Blunkett

Secretary of State for Environment, Food and Rural Affairs Margaret Beckett

Secretary of State for International Development Baroness Amos

Secretary of State for Work and Pensions Andrew Smith

Secretary of State for Transport Alistair Darling*

Secretary of State for Health John Reid

Secretary of State for Northern Ireland Paul Murphy

Secretary of State for Defence Geoff Hoon

Chief Secretary to the Treasury Paul Boateng

Lord Privy Seal and Leader of the House of Lords Lord Williams of Mostyn QC (salary £96,960)

Secretary of State for Trade and Industry Patricia Hewitt

Secretary of State for Education and Skills Charles Clarke

Secretary of State for Culture, Media and Sport Tessa Jowell

Parliamentary Secretary to the Treasury (Chief Whip) Hilary Armstrong

Minister without Portfolio and Party Chairman Ian McCartney

Also attend Cabinet meetings: Lords Chief Whip Lord Grocott (salary £75,706), Minister for Work Nick Brown

*The Secretary of State for Constitutional Affairs replaces the Lord Chancellor. His department takes on responsibility for Scottish and Welsh affairs. In the Commons, Alistair Darling speaks on Scotland, Peter Hain on Wales