Clients seeking legal aid are at risk of having their cases turned down if Community Legal Services overrun their budget and their cases are not judged to be high priority.
After the release last week of the White Paper, Modernising Justice, Hoon said: "If we start hugely over-spending on the budget we would have to rein that in and we would have to make judgements about what are priority cases," he said.
The legal reforms hinge on the premise that legal aid costs can be "brought under control" by fixed price contracts which tie lawyers to cost estimates made before they take the case. But many lawyers question whether they can accurately predict how long a case will take and how much it will cost.
Michael Napier, senior partner at Irwin Mitchell, said: "The Government must not try to straitjacket solicitors into fees that become fixed in areas where it is impossible to be reasonably accurate.
"That reduces legal work to the lowest common denominator."
A Law Society spokesman said: "We may run out of justice."
Hoon said that any prioritising of cases would be no different from the current system because "there's a limit to how often we can go back to the Treasury saying we want more money for legal aid".
But Legal Aid spokeswoman Karen McKay said the difference was in moving from a system that judged cases on their legal merits to one that judged cases on how much was left in a capped budget.
"It is not acceptable for lawyers to be put in the position where they have to say to a client there's not enough money for you. If they are going to cash-limit, parliament is going to have to make the judgements."
Hoon said that, with block contracts, lawyers would be able to cover the cost of expensive cases by saving money on cheaper, quicker cases.
"There may well be some cases where they spend more than the amount they're allocated, but equally we judge there will be many cases when they spend less."
Hoon said the contracts would be flexible. If cases progressed more quickly or slowly than expected, contracts could be reviewed. "You can fix the fees at certain stages in the case."