Last year, the Conservatives scrapped the policy of making such deductions in the wake of the high-profile Andrew Malkinson case. The issue of past cases, however, was left undecided.

The UK’s new Labour government has now said that people who have already had payouts cannot claim bed and board costs back retrospectively.

Paul Blackburn was wrongfully convicted of attempted murder at the age of 15. He was imprisoned for 25 years. The Court of Appeal found that the police had fabricated evidence.

When Mr Blackburn was compensated in 2011, more than £100,000 was deducted from his compensation to cover rent and food costs. That policy was reversed following public outrage at Mr Malkinson’s case.

The UK government has now told Mr Blackburn’s solicitors that the changes in policy will not apply retrospectively and that he and others cannot claim back money already deducted. His lawyers may take the government to court.

Mr Blackburn said: “It’s just compounding things isn’t it? Just do the right thing. Just put things right.”

His compensation was also calculated on the basis that he would never have worked and would have received benefits. “That’s punishing me twice,” he said. “I had no employment record because you stole my life.”

Labour peer Lord Falconer described the situation as an “absolute outrage” and said the government should pay back deductions in historic cases.

Paymaster General Nick Thomas-Symonds said, however, that it was a “standard approach” that such changes do not apply retrospectively.

“Whenever you change policy there’s going to end up being a cut off point in it,” he told the Today programme.

“But it is absolutely crucial that people do have the chance to rebuild their lives and that’s exactly what this government is committed to.”