Let's talk about Muffin. She is a yappy, dappy dachshund belonging to a man called Gordon Musselwhite. But Muffin is also a symbol of how the debate about Britain's "compensation culture" has departed from reality.

Let's talk about Muffin. She is a yappy, dappy dachshund belonging to a man called Gordon Musselwhite. But Muffin is also a symbol of how the debate about Britain's "compensation culture" has departed from reality.

In 2003, Muffin got a slipped disc. She spotted a leaflet from Safeway poking through the letterbox and leaped up to gnaw on it. Mr Musselwhite decided to sue Safeway for the £2,500 vets' bills that it took to put Muffy right. The right-wing press splashed with the story as yet more evidence that we are sliding towards an Americanized system of million-pound handouts for coffee burns. They said it was "proof" that "Health and Safety Nazis" are "strangling Britain", and worse. Nobody could blame the British people for concluding that our system was, indeed, out of control.

The story faded from view. None of these enraged newspapers bothered to report what happened next: the case was thrown out of court for being both frivolous and absurd. Muffin lives on, with all expenses paid by the Musselwhites. In other words, the compensation system worked.

Almost every story about "compensation gone mad" ends the same way. If you trace the tale from the hot coals of rage in the right-wing press to the cold reality of the law courts, you find a string of myths and delusions. Last year, the corporate-friendly Labour Government set up a Better Regulation Task Force - consisting mostly of businessmen - to investigate this very issue. After months of in-depth study, even they found that the compensation culture is a "damaging urban myth".

When it comes to people who really need and deserve compensation, far from being a lavish giveaway culture, this is Cruel Britannia. A major investigation by the Trades Union Congress published last week - "A Little Compensation" - has found that fewer than one in 10 people made ill or injured in their workplace ends up with any compensation at all.

Even if your boss leaves you riddled with tumours, you may get nothing. More than 1,000 people dying a slow, agonising death each year from the asbestos cancer mesothelioma receive nothing, even though this is universally recognised to have been caused by unsafe work conditions.

Whenever I hear somebody saying "you get thousands just for stubbing a toe these days", I want to drag them to Barry Welch's grave. He died last month of asbestos-related cancer just after his 32nd birthday. It's some stubbed toe, but his wife and three children have received no compensation - none - from the company which exposed him to asbestos as a young man.

The Welches are not an exception. In this country, we still have a Kleenex approach to manual workers - use them, screw them up, and throw them away. Companies will fight for decades to refuse responsibility for illnesses they caused, and even when they are forced to take responsibility, the value they place on human life is often contemptuously low.

Last year, it was proven beyond doubt that a Scottish ship-worker, Ian Cruickshank, had died in agony at the age of 52 because he was exposed to carcinogens as he tried to earn a living. (Perhaps there could be a new phrase for this kind of work: earning a dying). The Fairfields, Upper Clyde Shipbuilders and Govan Shipyards offered his family £3,000 in return for his life.

Indeed, a real compensation culture is exactly what families like the Cruickshanks need. If only we had one. Right now, levels of compensation are lower in Britain than in any other developed country bar Denmark. This means companies here can take bigger risks with your life than with the lives of anybody else in Europe. At £1.5bn, the entire corporate compensation budget is still lower than the annual profits of a single supermarket chain. It's no good appealing to the good nature of individual businessmen, as the Government so often does. It is only tough regulation and the real possibility of having to pay compensation that will make them minimise harm to workers.

So why all the fuss about the compensation culture now if the problem isn't real? In the late 1990s, there was a brief spike in the amount of compensation businesses had to pay to workers they had harmed - so a fierce propaganda fight-back was launched. Along with allies in the right-wing press, they have aggressively promoted the idea that Britain has a compensation culture filled with Muffins in order to discredit real compensation claims and hold down the bills.

In a neat twist, the myth is now so widely believed that many people really are changing their behaviour as a result. School-teachers are afraid to take pupils on trips, because they cower at the thought of lawsuits that would never come.

As Tony Blair put it in a speech on the subject last week: "The most outlandish cases that are brought are dismissed. But their headlines live on, create a myth and the myth is acted on ... So public bodies, in fear of [non-existent] litigation, act in highly risk-averse and peculiar ways. We have had a local authority removing hanging baskets for fear that they might fall on somebody's head, even though no such accident had occurred in the 18 years they had been hanging there."

And there's an infuriating coda, too: the Labour Govern-ment still acts as though the problem is real and promises to deal with it. In his intellectually incoherent speech, Blair first showed that the panic about the compensation culture is built on a myth, but then proceeded to act as though it was a serious problem that had to be tackled. He even pledged to "replace the compensation culture with a common sense culture". It's a familiar story: the desire to appease big corporations and the right overwhelms the truth, even in the mind of a Labour prime minister.

The only real problem with compensation in this country is that there is not enough of it being paid out by negligent corporations to the workers they harm. The TUC has shown that work-created illnesses and accidents cost workers £10bn a year, more than 10 times the amount paid out by businesses. So why is the cost to deserved business a scandal while the undeserved cost to ordinary people is a non-issue? The truth is that the whole compensation culture debate is scarred by Britain's extreme and growing inequality. Nobody was surprised when the Lloyds' names sued, or when the agri-businesses affected by BSE demanded £4bn in compensation. But when ordinary people start to use the courts to enforce their civil and legal rights - and for much smaller amounts - it is labelled a crisis.

j.hari@independent.co.uk