The NHS will need a £1bn bailout to meet the bills of looming higher personal injury compensation payments, Number 10 has admitted.

Changes to medical negligence rules will force the Treasury to hand over the extra cash – at a time when the health service is already crying out for extra funding.

The shake-up will also push up motor insurance premiums – possibly by “hundreds of pounds” according to the industry – and land the Ministry of Defence with higher payouts.

The Chancellor, Philip Hammond, will meet insurance companies today to discuss the fall-out, as a major political row blew up.

It has been sparked by a little-noticed decision to dramatically change the ‘discount rate’ for compensation awards to reflect lower yields from investment bonds.

The rate adjusts compensation payouts to take into account how much an individual can expect if they invest a lump sum over their lifetime.

Cutting the rate – from 2.5 per cent to minus 0.75 per cent – will benefit the thousands of people who suffer from medical negligence, car accidents and other personal injury incidents.

However, insurance firms are expected to pass on the cost in the form of higher car insurance – particularly for the youngest and oldest motorists, who are most likely to be involved in a road accident.

And, Downing Street acknowledged today, the Department of Health (DH) is braced for higher compensation bills – describing the £1bn figure as “broadly in the right ballpark”.

Theresa May’s official spokesman said: “The Government will make sure that the NHS has the appropriate funding to cover any changes to hospital costs, clinical negligence costs.”

He added: “The Government will make that extra funding available.”

However, the £1bn bailout could not come at a worse time, amid growing pressure on the Government to inject more funding to head off the current crisis.

Patients are waiting longer in overcrowded A&E departments, more operations are being delayed or cancelled and local health chiefs have been ordered to find £20bn of “efficiency savings”.

NHS spending will fall on a per-person basis next year, threatening the health service with its toughest year yet, Simon Stephens, the NHS chief executive, has warned.

Meanwhile, the spokesman would not say whether any assessment had been carried out on the impact of the move on motor insurance premiums.

He said: “In terms of premiums, ultimately that is a commercial decision for insurers.”

The Government was “aware that there will be an impact on the insurance industry”, which was why the Chancellor would be meeting representatives to discuss it.

The spokesman said Ms Truss, as Lord Chancellor, had been “required” to carry out the review, before deciding on the new discount rate.

“This is a legal act that the Lord Chancellor was required to carry out,” he added.

“The discount rate had to be reviewed, quite simply because it was out of line with the current yields.”