Almost 300,000 miners with a disabling chest disease have received less money in compensation than it cost the Government to administer their claim, a report discloses today.

“Significant weaknesses” in the Department of Trade and Industry’s handling of the world’s largest personal injury scheme are identified in the report, published by the National Audit Office (NAO). They led to long delays before many elderly and infirm miners received any money, but proved to be lucrative for solicitors’ firms, which grew rich by bulk-processing tens of thousands of claims.

The NAO says that when the final claim is settled, £4.1 billion will have been paid in compensation. The administrative costs to the former DTI, renamed the Department for Business and Enterprise, will total an additional £2.3 billion. More than 55 per cent of that — £1.3 billion — will have been paid into the bank accounts of several hundred law firms that registered claims against the DTI.

The NAO reveals that the “top ten” solicitors’ firms have already been paid a total of £636 million, with two — Thompsons and Beresfords — each earning more than £115 million.

By contrast, 69 per cent — 296,000 — of the 430,000 miners who have been awarded compensation for lung disease received less than the £3,200 that, on average, it costs the department to administer each claim.

Tens of thousands of former miners, or their widows and estates, have received awards of less than £1,000. The lowest award was 50p.

The NAO acknowledges that the DTI faced a “formidable challenge” in 1998 when it took over the liabilities of the former British Coal Corporation. In the same year the High Court found British Coal negligent in respect of two mining-related conditions: lung disease caused by coal dust and vibration white finger, a hand injury caused by the use of vibrating tools.

Most of the subsequent problems were caused, the NAO says, by “significant weaknesses in the planning and early implementation of the schemes”.

The DTI failed initially to allocate sufficient departmental resources to the two schemes. In 1998 only two members of staff were working on coal health claims. By 2003 the total was 29, plus 11 support staff.

In 1998 and 1999 crucial negotiations took place to determine how each claim would be administered and how much money per case would go to the solicitors of successful claimants. Estimates of how many claims would be registered were wildly inaccurate. The forecast was for 218,000, but the final total was 760,000. “There were serious shortcomings in the [DTI's] approach at this early stage,” says the report, revealing that in early 1998 the Government had not even realised that entitlement to compensation could be passed to the estate of a dead miner.

The report highlights the cases of two former miners who registered their claims in 1998 but, as of March 2007 were still waiting for them to be settled.

There were also weaknesses in the DTI’s negotiations to determine the fees that would be paid to claimants’ solicitors, including a failure to take account of “the potential economies of scale to be gained [by individual law firms] from processing large numbers of claims”.

“Given the amounts likely to be at stake, the [DTI's] preparation lacked the depth of analysis that might ordinarily have been expected to support its negotiations in such cases,” the NAO says. As a result, “the amounts paid [to solicitors settling lung disease claims] are likely to have been significantly in excess of the actual costs”.

The report notes that as the scheme progressed, “the Department’s approach became more robust as it applied lessons from its experience”.

Sir John Bourn, the Auditor-General, said that the DTI eventually “showed what can be achieved once it started to get its act together”.

He called on other government departments to learn lessons for the future. “The taxpayer has paid too much in administration costs and many claimants . . . have had to wait a long time for their compensation,” Sir John said.

A spokesman for the Department for Business and Enterprise said that the NAO report built on many of the conclusions of an independent report commissioned by the DTI two years ago. “Improvements have been made, particularly from the early stages of the scheme, including the fast-track system to ensure that miners and their families get their compensation paid quicker,” he said.

The 2005 report was ordered after allegations published in The Times about the financial relationship between the Union of Democratic Mineworkers and solicitors’ firms handling coal health claims, a matter that is now the subject of a Serious Fraud Office investigation.

Lawyers' fees

Payments to the top ten solicitors’ firms (as of March 31, 2007), which total £635.8 million:

Thompson’s £123.6 million

Beresfords £115.0 million

Hugh James £90.2 million

Raleys £72.4 million

Browell Smith & Co £54.6 million

Mark Gilbert Morse £52.4 million

Avalon £35.1 million

Union of Democratic Mineworkers £31.6 million

Watson Burton £31.3 million

Graysons £29.7 million

Source: Capita Insurance Services

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