Victims of catastrophic accidents will receive an improved compensation package following a landmark legal decision that lawyers said would end worries over shortfalls in care costs.

Many people injured through no fault of their own have been left unable to meet the steep rises in the cost of hiring carers under the current system of calculating periodical compensation payments.

But today three judges at the Court of Appeal ruled that the payments should be linked to rises in earnings in the care sector rather than the retail prices index.

Lord Justice Waller said: “This court is seeking to provide an answer which, on the information it has at the trial, will, through the use of a periodical payment order, best provide the claimant with 100 per cent compensation.”

The judge said if the main element of the care costs was wage inflation, and the RPI was not a suitable guide, then the courts should try to find “a more suitable index or measure”.

After reviewing all the methods of calculating future increases in care costs, the judges opted for the Annual Survey of Hours and Earnings, which relates to care workers.

Jennifer Cawthorne, one of the solicitors involved in the case, said: “The decision will mean that seriously injured people, who rely on good quality care to survive, will be able to fund it without the awful fear that the money will run out."

Ms Cawthorne was representing one of four young people injured at birth as a result of the admitted negligence of NHS hospitals.

John Pickering, a lawyer at Irwin Mitchell, said: “This is the most important decision for decades on the assessment of damages for future care.”

His firm represented Daniel Groves, 13, from Evesham in Worcestershire, who has cerebral palsy after a series of health care errors during his mother’s pregnancy.

In December 2006 he was awarded a compensation package of more than £4.75 million but the way the annual payments were paid had been placed on hold until the outcome of today’s ruling.

Apart from the four cases today, many other injury compensation cases will be affected by today’s judgment.

Various NHS trusts took the issue to the Court of Appeal after the High Court ruled in favour of using the wage-linked index. During a five day hearing in November the court was told that without the change many victims would no longer be able to afford care.

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