Compensation for large medical negligence claims is set to soar by up to 30 per cent, following a landmark judgment by the House of Lords. The ruling followed appeals in three cases of catastrophic injuries, including a birth injury case.

In cases where awards have to provide for future care and loss of earnings, the courts multiply the annual figure by a number designed to produce that sum per year for the patient's expected life span, using up both capital and interest. But the figure will vary depending on what rate of return the plaintiff is expected to get on the capital.

If 3 per cent is assumed, the lump sum will need to be bigger than if a return of 4.5 percent is projected.

The law lords had to decide whether it should be assumed that awards would be invested in the traditional portfolio of equities and gilts, giving a return of 4 to 5 per cent, or in virtually risk-free index-linked gilts.

Traditionally a 4.5 per cent return has been assumed, but in the test cases plaintiffs' lawyers argued that they should not be expected to take the more risky route, when an inflation-proof, low-risk vehicle existed. They succeeded in the High Court but the Court of Appeal reversed the rulings.

The Appeal Court judges held that there was no difference between the victim of a serious injury and any other investor. However, the law lords disagreed.

In the medical negligence case, cerebral palsy sufferer James Thomas, now aged nine, was awarded 1.3m by the High Court. This was slashed to just under 1m by the Appeal Court, only to be restored by the law lords.

Gay Wilder, partner in the law firm Beachcroft Stanleys, said: 'Health service bodies and their advisers need now to review cases where there are major claims for future losses, to assess their likely additional cost which, one way or another, will have to be met out of the healthcare budget.'