Andrew Norfolk, Northern Correspondent for The Times, explains his investigation into how millions of pounds from a compensation scheme for miners found its way into the hands the Union of Democratic Mineworkers and companies linked to it.

In a nutshell, for new readers, what is this story about?

In 1997 and 1998, British Coal lost two High Court test cases and was ruled to have been negligent in relation to two diseases affecting miners: vibration white finger (VWF), a crippling hand condition caused by the use of vibrating machinery, and Chronic Obstructive Pulmonary Disease (COPD), typically chronic bronchitis or emphysema, caused by years of inhaling coal dust underground.

The Department of Trade and Industry, which had taken on British Coal's liabilities post-privatisation, was ordered by the courts to agree arrangements with the miners' solicitors for registering, processing and settling claims. After lengthy negotiations, the DTI and the solicitors finally signed the detailed claims handling agreements, for VWF in January 1999 and for COPD in September 1999.

In the same year, for reasons that remain hotly disputed, DTI officials quietly signed separate agreements for each disease with the Union of Democratic Mineworkers and Vendside, a claims handling company, which is wholly owned by the union's Nottinghamshire section. With the claims structure in place, claims started to flood in.

How big was the compensation scheme?

Initial estimates suggested that there might be up to 50,000 VWF claims and 120,000 COPD claims, which would at worst cost the British taxpayer £1 billion. The projections were to prove woefully inadequate. With each scheme now closed to new claimants, a total of 770,000 claims have been registered and £2.5 billion has been paid in compensation for the 312,000 cases which have so far been settled.

When the final claim is settled - estimated to be 2007 for VWF and 2009 for COPD - in what have become the world's two largest personal injury compensation schemes, the Government estimates that it will face a final bill of £7.5 billion.

Who has benefited from it, apart from the miners?

The big winners have been the solicitors' firms, which have so far earned a total of £530 million in legal costs for their work on the schemes, and the UDM/Vendside, which has been paid an additional £19 million in costs for the thousands of cases that it has registered and settled in-house. If the proportion of compensation to legal fees stays the same, compensation payments will eventually total £5.34 billion, solicitors' costs will reach £1.13 billion and £41 million in costs will be paid, via Vendside, to the Nottinghamshire UDM.

How were they able to do this?

Solicitors and the UDM/Vendside receive fixed costs from the DTI for every claim they settle. The average costs payment for solicitors is £857 for VWF and £2,342 for COPD. For the UDM/Vendside it is £760 (VWF) and £1,726 (COPD). Additionally, Vendside has topped up its pre-tax profits, which total £6.3 million since 1999, by charging individual claimants who are not union members a fee, ranging from £50-£500 plus VAT, when the claim is settled. Some solicitors' firms have also earned extra money by deducting a success fee from the compensation paid to the claimant.

How do the miners feel about this?

They feel that a few people have grown very wealthy on the back of sick miners and their widows. What they have to say about this is mostly unprintable.

So what happens now? Why is there a police investigation?

The South Yorkshire Police fraud squad has launched a criminal inquiry into payments made by a solicitors' firm, Doncaster-based Beresfords, to two companies associated with the UDM. Detectives want to know why Beresfords and Sheffield solicitors Wake Smith have been making payments to a company called Indiclaim which is owned by Clare Walker, Vendside's chief executive. They are among a select group of solicitors who have earned £25 million in DTI fees for settling claims handed to them by the UDM.

Beresfords says that Mick Stevens, the union's vice president, informed them in late 2001 that fees which they had previously been paying to Vendside should in future be paid to Indiclaim instead. On Thursday, Mr Stevens and Miss Walker voluntarily stood down from their positions pending the outcome of the police investigation. The Government has offered its full support to the inquiry and says it is considering whether to suspend the UDM/Vendside agreement.

Contact the South Yorkshire Police economic crime unit on 0114 2640562 if you have information on this case

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