Fantasists who allege they were sex abuse victims are being allowed to keep taxpayer-funded compensation - even after their claims have been exposed as false, a Telegraph investigation can reveal.

Last night, ministers launched an investigation into why thousands of pounds paid out to fake victims has not been clawed back.

Critics fear the system could have helped to encourage an industry of false claimants.

The Telegraph can disclose that the man who falsely accused Field Marshall Lord Bramall and Lord Brittan, the former Home Secretary, of involvement in a VIP paedophile ring has hung onto £50,000 paid to him by the Criminal Injuries Compensation Authority (CICA).