Terror victims are being denied payouts from the £1.6m fund set up in response to the IRA campaign on mainland Britain because the cash only covers damage to buildings. Lawyers have accused ministers of putting property before human beings.
The Government is already under fire for delaying compensation for those injured in the 7/7 attacks. It has also been criticised for refusing to make payouts to families who suffered in foreign atrocities such as the bombings at Sharm el-Sheikh last year in Egypt.
The government-backed compensation scheme, which lawyers say should be extended to cover terror victims, is called Pool Re. There have only been a handful of payouts from the fund.
Jill Greenfield, a specialist at Field Fisher Waterhouse representing families injured in Sharm el-Sheikh, said: "The London bombing victims are receiving payments which will not compensate them for the rest of their lives and the victims of the bombings abroad are in an even worse position."