Pay-outs for troops wounded in Afghanistan and Iraq to rise

One-off awards for individual injuries will be increased by more than 50 per cent in some cases, while the rule limiting compensation to the first three injuries suffered in a single incident will be scrapped.

The guaranteed lifetime income paid to the most seriously injured servicemen and women who are unable to carry on working will also be raised to reflect likely promotions they would have received and extended retirement ages.

The increases will be backdated to cover all personnel who have been compensated under the scheme since its inception in 2005, when it replaced the old war pensions.

Announcing the changes yesterday, Defence Secretary Bob Ainsworth said that he believed that they would ensure that the forces had a compensation scheme that was "fair and just".

"They must have confidence that when they are injured due to their service, that they and their family will be fully cared for, right through their initial treatment to their long-term convalescence," he said.

"And they must have confidence that we will provide them with a fair and just compensation scheme as part of that support."

The changes follow a review of the scheme chaired by the former chief of the defence staff, Admiral Lord Boyce.

Lord Boyce said that as a result of the recommendations – which the Government has committed to implement in full – the UK armed forces would have a scheme that compared "more than favourably" with most other countries.

Under the Ministry of Defence's tariff system, the award for the most serious injuries will remain at 570,000, but the other award levels below that will be increased.

For the second level it will rise from 402,500 to 470,000 and for the third it will go up from 230,000 to 380,000.

However, Lord Boyce said the biggest changes would be to the guaranteed income payment system, based on salary, which would be changed to reflect the average number of promotions a person of their age could expect to receive and the age at which they would be likely to retire.

The youngest troops who suffer life-changing injuries will particularly benefit from the changes, with a 21-year-old private receiving a 35 per cent increase in monthly payments.

In total, a serviceman or woman who was also eligible for the most serious one-off payment could receive 1.5m in compensation over the course of their lifetime, Lord Boyce said.

Mr Ainsworth said: "I have been particularly concerned that the youngest soldiers who suffer life-changing injuries in Afghanistan are properly supported for the rest of their lives.

"Increasing the guaranteed income payment they will receive for the rest of their lives will make a real difference to their quality of life."

Other changes include the introduction of fast, interim payments so that injured troops can receive some compensation before their full claim is processed.

The maximum award for mental illness will be increased and an expert body established to advise on compensation for particular injuries and illnesses. The time limits under which claims can be made will also be extended.

Mr Ainsworth said that the Government was committed to implementing the changes as quickly as possible, although some would require secondary legislation, and Lord Boyce said that he hoped the process could be completed within a year.

It will continue to be funded out of the MoD's budget.

Mr Ainsworth announced last July that the review of the scheme would be brought forward amid growing criticism.