Compensation costs have increased by 15 per cent a year with the total bill representing 1 per cent of gross domestic product, the report by the Institute of Actuaries said.

More than a third of the £10 billion was consumed by legal and administrative costs.

The figure represents £175 for every person in the UK. The report estimates that compensation costs will grow by £150 million a year as more and more people take claims to court.

It also found that the UK topped the EU league for state compensation payments, followed by France and Germany. The number of applications for state compensation in the UK was 78,100 compared with 13,500 in France and 9,700 in Germany.

The compensation culture in the US cost $180 billion in 2000, equivalent to 1.8 per cent of gross domestic product compared with 0.6 per cent in 1950 and 1.4 per cent in 1970.

The institute’s report said that costs in the UK would increase by more than 10 per cent a year for the foreseeable future as the UK moves from being a country renowned for its “stiff upper lip” and ability to greet misfortune with stoicism to one where every mishap leads to a complaint.

Julian Lowe, the chairman of the Actuaries’ Working Party which produced the report, said: “Some have argued that the shift towards an individual’s right to compensation has forced big business and public authorities to behave more responsibly.

“However, we do not believe the supposed benefits match the very real burdens imposed on all of us by the growth of a far more litigious culture in the UK.

“This is because the costs to society, both financial and in terms of restricting activities, far outweigh the benefits of providing better compensation to accident victims.”

The report found that the compensation culture had taken root in the National Health Service with an increasing number willing to take legal action over negligently performed operations.

People were willing to sue the NHS or local authorities because they viewed them as faceless bureaucracies and did not make the link between compensation and less money for equipment and staff.

It also found that local education authorities were increasingly being sued for stress-related injuries and that school trips were becoming more expensive because of the cost of insurance policies taken out to cover claims by parents and children.

“Recent high-profile incidents of tragic deaths of students while overseas on school trips have accelerated this trend,” the report said. The report gave warning that claims for post-traumatic stress disorder were likely to increase as the Armed Forces deployed to troublespots around the world.

It says that within a decade post-traumatic stress disorder had been developed for situations that had always existed. “Sixty years ago soldiers in the Second World War were treated for ‘shell shock’ and told to pull themselves together.

Today, they are diagnosed as suffering from post-traumatic stress disorder and sue the Ministry of Defence.

“Forty years ago, the world was horrified by the Aberfan disaster but there was little focus on compensation for the families of victims or rescue workers.

“Today it is very likely that such a tragedy would lead to banner headlines about compensation costs.”

The report estimated that insurance-based compensation costs were £7.1 billion last year: the cost to the NHS was £900million; to the police and the Ministry of Defence £800 million; to the Ministry of Agriculture £500million; to the criminal injuries compensation authority £375 million; to the Trade Department £300 million; and to education authorities £200million.

It added that the compensation culture had resulted in more time spent by organisations managing risks and the diversion of resources to meet compensation claims.

One of the reasons for the rise in the compensation culture has been a rise in an awareness of consumer rights, coupled with legal reforms that have allowed “no win, no fee” deals, the report said.

Legal claims, often on a group or “class” basis, have been lodged over disasters such as rail crash injuries, medical mistakes (such as the litigation over HIV-contaminated blood) and the third-generation contraceptive Pill.

The cost of getting it wrong

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