Chancellor Rachel Reeves’ attempts to take control of Britain’s finances are being hampered by a huge bill of £47bn in outstanding compensation claims, which could rise further. The Independent can reveal.
Analysis of a National Audit Office (NAO) report has found that previous governments have pledged £84 billion, including 12 compensation schemes for injustice, cover-ups and negligence.
While much of that sum has been paid by the British state, almost £47 billion is still outstanding in high-profile cases such as the contaminated blood and Post Office Horizon scandals.
The outstanding amount is more than double the £22bn black hole in the national finances that the Chancellor revealed to MPs in July, after she cut winter fuel payments, cancelled social care reforms and cut spending plans including rail improvements.
Ms Reeves has also confirmed she plans to walk back her campaign promise not to raise taxes.
But, alarmingly for the government, the bill could be even higher. Victims of the contaminated blood scandal are expecting more than the £2.2 billion currently set aside to compensate them, while other claims for compensation have yet to be decided.
Compensation for around 3 million Waspi (Women Against State Pension Inequality) women whose pension plans were affected by changes to the retirement age, worth between £1,000 and £2,950 each, is not included in the figures. There is also pressure for a proper compensation scheme for Britain’s nuclear test veterans, of whom 1,500 are believed to be still alive.
While several compensation schemes have now closed, many remain open with no end date set. Pressure has been mounting in recent months to make those payments.
Former Postmaster General Paul Scully, who oversaw postmasters’ compensation, said The Independent that the huge bill for the taxpayer is often “the result of groupthink and cover-ups to protect the brand”.
He said: “If the cover-up had not happened and the mistakes had been addressed earlier, the cost to the public purse would have been much lower.”
He added: “I have come across many horrific cases [in the Post Office scandal]. Nothing can make up for the way lives have been destroyed and businesses bankrupted by this scandal, but we have a duty to compensate the victims to the best of our ability.”
He said the budgeted amounts are based on a value for money test carried out by the Ministry of Finance, to protect taxpayers in the future.
The new government plans to introduce a duty of openness for government employees to prevent cover-ups.
It comes in response to outrage over the Post Office’s conduct under former boss Paula Vennells, which led to postmasters being wrongly convicted and jailed for theft, fraud and false accounting.
According to analysis by the Taxpayers’ Alliance, the NAO report shows that £222m has been paid out so far of a potential £1bn budget for the Post Office.
The Compensation Act covered the contaminated blood scandal in which more than 30,000 people in the UK were infected with HIV and hepatitis C after receiving contaminated blood products in the 1970s and 1980s. Successive governments ignored warnings about blood supplies, leaving victims exposed. Former Health Secretary Kenneth Clarke was among those heavily criticised by a public inquiry.
So far, £346 million of the £2.2 billion budgeted interim payments have been paid, but campaigners say the cost should be higher.
According to former SNP MP Chris Stephens, who worked closely with victims and their families, the true compensation cost was always believed to be at least £10 billion.
He said: “The infected blood community deserves clarity on these figures. Either the £10bn figure is correct and the previous government failed to account for the funding, or the £10bn was used as political leverage to scare people about the cost.
“The government must ensure that the commitments made by parliament to the infected blood community are fully honoured.”
However, the NAO warns that there is a lack of coordination in the way compensation schemes are set and implemented by government, leading to errors.
The report noted: “Citizens eligible for redress have suffered hardship and misery. These citizens have a reasonable expectation that their claim will be dealt with fairly and promptly. There is no centrally coordinated approach when the government sets up new compensation schemes, resulting in a relatively slow, ad hoc approach.
“Setting up and managing a compensation scheme is a complex task and a challenge for civil servants who may not have done it before. This has led to errors and inefficiencies in scheme design and delays in getting money out to claimants.
“Claimants’ and stakeholders’ confidence can be further undermined if the design and operation of the scheme are not seen as independent of those who have harmed them. Those with experience of schemes all agree that: recovery must be swift; decisions must be fair, proportionate and transparent; and that those who have suffered harm must be at the centre of decision-making.”
The largest amount the taxpayer has to fund is for clinical negligence schemes administered by NHS Resolution, of which £26.5 billion has been paid out and a further £69.3 billion has been budgeted.
Other schemes have unknown caps on payments, including the late 1970s vaccine injury scheme, which has so far paid out £20m.
Payments for the Windrush scandal, in which people with a right to remain in the UK were wrongly deported, have so far reached £85.9m against a budget of £215m.
Another open scheme is the Armed Forces Compensation Scheme (AFCS), which pays out for injury, illness or death resulting from service on or after 6 April 2005. So far, £1.3 billion has been paid out of a total budget of £2.3 billion.
The fully paid-up schemes include compensation for coal miners (£4.3 billion), foot-and-mouth disease (£1.3 billion) and the Icelandic water trawlers from the cod wars of the 1970s (£43 million).
A Treasury source said details of the expected cost of compensation arrangements would be set out in the autumn budget, “as required in the usual way”.
The government has said it is committed to paying extensive compensation to infected and affected victims of the infected blood scandal, but admits it does not yet know how much should be set aside.
The Treasury Department noted that the total cost of the compensation scheme will ultimately depend on the number of infected or affected individuals who come forward, but that “every eligible person will receive the compensation to which they are entitled”.
John O’Connell, director of the TaxPayers’ Alliance, which compiled the figures, said: “Taxpayers will be stunned by the huge bill they have been left with as a result of the series of blunders by previous governments.
“When something goes seriously wrong, those affected rightly expect and demand compensation. But what is unforgivable is that such mistakes are certainly not one-offs.
“The new government can demonstrate that it represents change by fixing existing arrangements quickly and efficiently, while ensuring that these types of mistakes are a thing of the past.”