A Court of Appeal decision to limit a rise in damages for pain and suffering in personal injury cases has been welcomed by NHS experts, who had feared the cost of medical negligence would rise by tens of millions of pounds more than now looks likely.

In eight test cases, five judges headed by Master of the Rolls Lord Woolf last week rejected a Law Commission recommendation that payments should rise by between 50 and 100 per cent.

The court decided that damages should be uprated in line with the increase in the retail price index since awards were last examined.

It rejected arguments that the uprating should be based on the GDP index, which takes wider increases in the standard of living into account.

Awards under£10,000 will not be increased, but those above£10,000 will increase by up to a third.The maximum payout will therefore rise from£150,000 to£200,000. Awards for financial loss and long-term care costs, which may be far greater, are unaffected.

In reaching its decision, the court took into account that its decision would have a significant effect on NHS resources.

If the commission's proposals had been accepted, the cost to the health service would have risen by hundreds of millions of pounds. The yearly cost to the NHS could have increased by£133m if awards had been doubled.

NHS QC Philip Havers said the exact financial impact on the NHS could not be calculated because of the tapering of awards. However, the maximum extra cost would now be significantly less than£45m.

Negligence claims have increased from around£11m in 1996-97 to an expected£278m in 1999-2000.

NHS Litigation Authority chief executive Stephen Walker said he was relieved the court had taken a 'pragmatic' line.

But lawyers acting for victims in the cases said they were disappointed their clients had been 'short-changed'.

The Medical Defence Union has called for a 'look at more cost-effective ways of providing for patients who have been harmed by medical negligence'.

MDU professional services director Dr Christine Tomkins said: 'Rather than stand by and watch the drain on healthcare resources, we need a public debate on what can be done to stem this trend before the situation becomes unsustainable.'