Secret documents reveal that government-funded experts were warned nearly 30 years ago that tranquillisers that were later prescribed to millions of people could cause brain damage.

The Medical Research Council (MRC) agreed in 1982 that there should be large-scale studies to examine the long-term impact of benzodiazepines after research by a leading psychiatrist showed brain shrinkage in some patients similar to the effects of long-term alcohol abuse.

However, no such work was ever carried out into the effects of drugs such as Valium, Mogadon and Librium – and doctors went on prescribing them to patients for anxiety, stress, insomnia and muscle spasms.

MPs and lawyers described the documents as a scandal, and predicted they could lead the way to a class action costing millions. There are an estimated 1.5 million "involuntary addicts" in the UK, and scores display symptoms consistent with brain damage.

The MRC hosted a meeting of eminent experts and government representatives in 1981 after research by Malcolm Lader, now emeritus professor of the Institute of Psychiatry, showed brain shrinkage occurred in some benzodiazepine patients.

Recommendations to carry out studies to examine long-term problems associated with these drugs, which GPs prescribed more than 20 million times last year, were accepted by the MRC Neurosciences Board in January 1982.

But then the trail goes dead. The documents, which have been seen by The Independent on Sunday and were marked "closed until 2014", do not make it clear why no work to test Professor Lader's findings properly was ever funded. The Department of Health has no record of the meeting.

Jim Dobbin, the chairman of the All-Party Parliamentary Group for Involuntary Tranquilliser Addiction, said: "Many victims have lasting physical, cognitive and psychological problems even after they have withdrawn. We are seeking legal advice because we believe these documents are the bombshell they have been waiting for. The MRC must justify why there was no proper follow-up to Professor Lader's research, no safety committee, no study, nothing to further explore the results. We are talking about a huge scandal here."

Catherine Hopkins, the legal director of Action against Medical Accidents, added: "The failure to carry out research into the effect of benzodiazepines has exposed huge numbers of people to the risk of brain damage. This research urgently needs to be carried out, and if the results confirm the suspicions of the 1981 expert group, it could lead to one of the biggest group actions for damages against the Government and the MRC ever seen in the courts."

Initially advertised as completely harmless, benzodiazepines ("benzos") were touted as the world's first wonder drug in the 1960s. Within a decade they became the UK's most commonly used medication.

Current guidelines for doctors say they should be prescribed for a maximum of four weeks. But some people become "involuntarily addicted" within days, unable to stop without withdrawal symptoms such as burning sensations, distorted vision, headaches and even fatal seizures.

Some patients who have taken the pills for months or years have enduring neurological pain, headaches, cognitive impairment and memory loss. But 30 years after the MRC first considered the idea, there is no medical research to confirm whether this is down to drug-induced brain damage or not.

Professor Lader said yesterday: "The results didn't surprise us because we already knew long-term alcohol use could cause permanent brain changes. There should have been a really good, large-scale study but I was never given the facilities or resources to do it.

"I asked to set up a unit to research benzos but they turned me down... they could have set-up a special safety committee, but they didn't even do that. I am not going to speculate why; I was grateful for the support they did give me. There were always competing interests for the same resources, so maybe it wasn't regarded as important enough."

He repeated the small study and found similar, inconclusive results, but then gave up. "I was getting on with other research and didn't want to be labelled as the person who just pushed benzos... I should have been more proactive... I assumed the prescribing would peter out, but GPs are still swinging them around like Smarties."

The MRC has funded around 20 benzodiazepine studies since 1982, mainly in laboratory animals, but the critical questions posed by Professor Lader in 1981 remain unanswered.

Heather Ashton, emeritus professor of clinical psychopharmacology at the University of Newcastle upon Tyne, set up the first NHS withdrawal clinic in 1984. In 1995 she submitted a research proposal to the MRC to investigate the link between long-term benzodiazepine use and permanent brain damage, using sophisticated EEG and MRI scans, and cognitive testing in a randomised control trial. Her proposal was rejected.

There are a growing number of claims against individual doctors for negligent prescribing benzodiazepines. Ray Nimmo, prescribed Valium as a muscle relaxant for stomach pain in 1984, received £40,000 in an out-of-court settlement in 2002 after 12 years of addiction.

In the 1980s 17,000 claimants began a class action against the pharmaceutical manufacturers Roche Products and John Wyeth. Procedural delays, technical motions and escalating costs prevented the cases coming to trial.

A small group attempted to continue unrepresented as litigants in person but failed. The manufacturer's total costs, £35m, were awarded, but not enforced against one of those final litigants, Michael Behan, who now works for Jim Dobbin MP.

Emma Jones, a solicitor at Leigh Day & Co, said: "We're aware of earlier litigation against the drug companies which did not succeed. It is interesting that these documents may well have been pertinent at that time. It seems rather strange that such information was kept 'hidden' for so long."

An MRC spokeswoman said: "The MRC Neurosciences Board accepted the conclusions of Malcolm Lader's report on benzodiazepines. Therefore the MRC was open to any research application that met the required scientific standard... and continues to be receptive to funding in this area. The MRC funds only the highest quality science as judged by peer review. We do not fund research which does not meet this quality standard."

Case study

Valerie Bell, 67 from Surrey, was prescribed lorazepam in 1984 after a panic attack. She weaned herself off in 2007 but still suffers from neurological pains in her head, neck and feet. No brain scan has even been done.

"I was running two florist shops in Essex with my husband; we had a great social life, and life was generally fantastic. On yet another diet, I had a panic attack at a party one night. My doctor said there was a wonderful new drug from the US, so I took it without asking questions. I didn't feel right straight away. The doctor said it was my illness, increased the dose and added an anti-depressant. This went on for years, new pill after new pill. Some days I couldn't even get out of bed.