Compensation claims cost taxpayers nearly £9bn a year

Compensation payouts in Britain are running at £12bn a year, with the brunt of the bill being borne by the taxpayer, an investigation by The Independent has discovered.

Compensation payouts in Britain are running at £12bn a year, with the brunt of the bill being borne by the taxpayer, an investigation by The Independent has discovered.

Stoked by the burgeoning new claims industry and court rulings that have created a wave of new liabilities, compensation payouts are now costing the public purse nearly £9bn. This is the equivalent to 4p on the basic rate of income tax and would buy four new hospitals, 3,000 schools and put £2.50 on the basic weekly pension.

Next year, the cost to the taxpayer could rise to £12bn. But despite the huge cost, the Treasury does not know the full scale of the problem or its impact on public finances. A Treasury spokesman said the overall total was not tracked and it was up to each department to budget for its liabilities.

But eight out of ten Whitehall departments could not say how much compensation cost them or the extent of their liabilities. The Ministry of Defence, one of the two departments that does monitor payouts, says compensation claims by service personnel have trebled in the past five years.

So serious is the problem that the National Audit Office (NAO) is pressing the Government to establish risk management taskforces to reduce "financial loss and impropriety".

It comes as the Government faces a wave of new compensation claims. Miners suffering from coal dust-related lung disease are likely to get a record industrial payout of £2bn to £3bn. A Department of Trade and Industry spokeswoman said claims were being received at an "unprecedented" rate of about 600 a week, some dating back to the 1930s.

The Ministry of Agriculture, Fisheries and Food is fighting a compensation battle with victims of CJD, the human form of mad cow disease, which combined with the amount already paid out to farmers who were forced to cull their cattle, is expected to top £4bn.

The Home Office is facing a legal challenge by the former directors of Matrix Churchill - who were wrongly accused of selling arms to Iraq - which could open the floodgates for a £100m claim by hundreds of defendants accused of crimes they did not commit.

The National Health Service is the biggest single target for compensation claims. According to the Medical Defence Union, negligence claims in some areas of practice are outstripping those in the US. The NAO says negligence claims are exposing the NHS to "potential liabilities" now running at £2.4bn a year, an increase of £600m on the previous year, with a further £1bn worth of claims going unreported. The annual cost of medical negligence compensation would pay for 40,000 patients to receive dialysis treatment.

Behind the rise is a series of court rulings that have created costly potential liabilities dating back many years. Claims are also being stimulated by a burgeoning compensation industry, which attracts clients by prime-time television advertising.

Councils are facing hundreds of "failure to nurture" cases due to alleged negligence in schooling or childcare, and about 4,000 claims are being brought by emergency services staff for stress suffered in dealing with incidents such as the Dunblane school massacre.