Britain embraces £12bn compensation culture

Claim-chasing industry cashes in as new rulings on liability and level of payouts herald arrival of American-style litigation

Britain is in the throes of a compensation revolution that is changing our social and legal landscape so quickly and profoundly that both government and business have been caught completely unawares.

Britain is in the throes of a compensation revolution that is changing our social and legal landscape so quickly and profoundly that both government and business have been caught completely unawares.

Almost every week, legal rulings or actions create new liabilities, some running to billions of pounds. In the past six months alone, a series of landmark decisions in the House of Lords has created many new compensation rights: the Court of Appeal has ruled that awards for pain and suffering should be increased by a third; causing stress is now actionable and councils have been judged liable for the failure of teachers to provide adequate education.

A multi-billion-pound claim-chasing industry has been created, and British employees and consumers have absorbed its message: there is almost no such thing as misfortune anymore. For accident, read culpability; and where there is fault, there is money.

The result is a breathtaking growth in the cost of compensation claims. Since 1992, the bill has risen from £3.2bn to £12bn a year. Of this, no less than £8.8bn must be paid by taxpayers. Next year this charge on the public purse is projected to reach £12bn.

Behind these rises are not just new kinds of claims, but an increase in traditional ones. Compensation to victims of crime is expected to rise by 50 per cent to £300m in the next two years. Cases involving unfair dismissal and discrimination have risen by nearly a third in the past year, the maximum an employment tribunal can award has been raised from £12,000 to £50,000, and out-of-court settlements are now going much higher.

Kay Swinburne, 32, an investment banker, got about £500,000 in an out-of-court settlement with her former employers, Deutsche Bank, after her claim of sex bias was upheld. In June, a policewoman, Sarah Locker, struck a deal with the Metropolitan Police estimated to be worth £1m, ahead of a High Court claim alleging negligence and breach of contract.

Stress is one of the boom areas of employee litigation. Last year unions took 783 legal cases against employers for stress-related illness, a rise of 70 per cent on the previous 12 months. Among them was Randy Ingram, a warden for Hereford and Worcester County Council, who was awarded £203,000 for stress arising out of his work at gypsy sites.

But the fastest-growing area is personal injury and medical negligence cases. Each year the NHS awards £800m in compensation with £1.4bn budgeted for claims not yet lodged. The National Audit Office believes there could be a further £1bn of unreported claims. The Medical Defence Union (MDU), which represents GPs and doctors in private practice, has warned that the startling rise in compensation is now outstripping the United States in some areas.

Gynaecology and obstetrics are especially subject to claims, with awards to babies brain damaged at birth running into millions. But even dentistry is now a lucrative area for compensation, and a law firm in Manchester has recently been set up to deal solely with dental negligence claims, with £7,000 a tooth the going rate.

Behind this is a series of legal rulings and new laws which, according to the Centre for Policy Studies, have given Britain a compensation culture to rival America's.

Perhaps the most significant decision taken by the courts this year was the one that held councils responsible for the failure of their teachers to provide adequate education. The House of Lords reinstated a £45,650 damages award to Pamela Phelps, 26, for the west London borough of Hillingdon's failure to diagnose her dyslexia. The Local Government Association says councils are now facing hundreds of "failure to nurture" claims, ranging from complaints of a poor education to child abuse.

In May, the law lords ruled in favour of a firearms enthusiast who was forced to hand over his guns after the Dunblane massacre, exposing the Home Office to claims worth £100m.

The Human Rights Act is likely to create many new grounds for payouts, such as the concept of "intangible loss". Last week, the Law Commissions of England and Wales and Scotland, said the Act would not only generate higher payouts but also new grounds for compensation. Children wrongly taken into care, said the commissioners, could win substantial compensation for the loss of a loving relationship.

A number of cases at the European Court of Human Rights in Strasbourg have led to damages being awarded for the removal of a child from its parents in breach of article 8 of the human rights convention - the right to a family life. Britain may now be required to develop laws to follow these decisions, which recognise "intangible loss". In a 1988 case decided by the European Court, a British mother was awarded £12,000 after her daughter was taken into public care and subsequently adopted.

The impact of this new legal climate is immense, affecting procedures and relationships everywhere. Today doctors will almost always visit a child with a fever; it could be meningitis and, if the condition is not diagnosed, that could mean a brain-damaged child and a compensation claim by the family.

The MDU also reports that doctors no longer treat a patient's consent as a matter of formality. The threat of a claim over the issue of consent means that doctors are more likely to sit down with patients to discuss their treatment.

Employers are also much less likely to dismiss employees without valid cause, workplace sex discrimination is less prevalent, and unreasonable demands on staff are now seen to have a potential cost.

But the possibility of claims is affecting policy in some surprising areas. By 2002, local authorities will be paying out £1bn a year in compensation, and councils are so concerned about the risk of lawsuits that some have covered paved and cobbled streets with asphaltto avoid actions for trippinginjuries. In Newport, south Wales, the council has planted sterile horse-chestnut trees to remove the risk of children climbing them to collect conkers and falling.

Dr Frances Szekely, a senior claims handler for the MDU, said payouts were also influencing the way doctors prescribed drugs. According to the MDU, doctors were no longer prescribing drugs that they knew to be safe to children and pregnant women because these groups were not included in the drug's licence. In obstetrics, the "defensive medicine" culture has meant one in five births is now delivered by Caesarean section, partly because of a fear of litigation over riskier natural childbirth.

And there could soon be defensive pub-keeping. The law firm Belmont Hodgson is representing a number of people injured in the 1999 Soho pub bombing. If it succeeds in proving the Admiral Duncan pub was negligent in the way it responded to the bomb threat, it could mean a multi-million-pound claim - and security staff in every pub.