A controversial decision to refuse refunds to wrongly convicted prisoners who were charged for bed and board while in jail was made in part to save money, the Guardian has learned. The move, which has prompted dismay among ex-prisoners who had tens of thousands of pounds stripped from compensation money to cover “living expenses” while in jail, was justified on the basis that ministers could not retrospectively change policy decisions. However, a Ministry of Justice (MoJ) letter to some former prisoners, seen by the Guardian, said another consideration was avoiding the “significant administrative and other financial costs” if other victims of miscarriages of justice made similar claims. It is understood that when officials first looked into whether it might be possible to reimburse prisoners who were wrongly jailed and then charged for living expenses, concerns were raised that doing this could become a “potential gravy train” for lawyers. The Liberal Democrats have urged the MoJ to look again at the decision in cases such as Paul Blackburn, who spent 25 years in prison after, in the eventual view of the appeal court, detectives helped to fabricate a confession. Blackburn, who had more than £100,000 taken off the compensation he received to cover what would have been his living expenses outside prison, said the MoJ’s decision had prompted a serious deterioration in his mental health. The practice of docking compensation payments in this way has not happened for a decade, and was formally ended last year. The former justice secretary Alex Chalk had said he would examine what could be done for Blackburn and others. Blackburn and two other wrongly jailed prisoners initially approached the MoJ via their lawyers under the Conservative government to request the money be reimbursed. But after the election, the new Labour government said it would not reimburse them. In a letter earlier this month, the department said ministers had decided “not to depart from the established principles of public policy” under which changes are not applied retrospectively. Part of the consideration, it said, was “the importance of certainty and ensuring the finality of concluded settlements and the significant administrative and other financial costs of reimbursing historic saved living expenses”. Blackburn told the Guardian that the process had taken a significant toll on him. As part of it, he had for the first time read the official document from 2011 that set out how much compensation he should receive – and how much should be removed for living costs. “I’d never actually read the paperwork before. I daren’t – I couldn’t have that stuff in my head,” he said. “It tears you apart all over again. I‘ve not been very well for the last couple of months because of it. It’s a resurgence of the nightmares and sleeplessness, the not eating, the erratic behaviour.” Alistair Carmichael, the Lib Dems’ home affairs spokesperson, said Blackburn’s story was “utterly devastating”. He said: “Having been wrongfully jailed for 25 years, he deserves the full compensation he is entitled to, not to suffer the further injustice of having tens of thousands of pounds clawed back.” An MoJ spokesperson said: “Financial awards made after 6 August 2023 as part of the miscarriage of justice scheme will not have saved living expenses deducted. However, in line with the standard approach to changes in government policy, the change announced last year does not apply retrospectively.”