Stephen Downing, freed after serving 27 years for a murder he did not commit, is now making a life for himself in a world that has changed almost beyond recognition since he was jailed in 1974. His solicitors will be making a claim for compensation from the Home Office. But can any amount compensate for those lost years?

For Michael O'Brien, now 34, the process of claiming compensation has been very distressing. He spent 11 years in prison after being wrongfully convicted for the murder of a Cardiff newsagent. His father and daughter died while he was inside, his marriage broke up and his health suffered so badly that he is unlikely to work again.

"How do you put a figure on loss of liberty? They can never compensate me for what I lost. My son was one when I went inside and 12 when I came out," he said. "But it is not just about money. The award is about recognition by the State that they did wrong. But the amounts they offer are insulting, particularly when you see someone get £1.5 million for wrongful dismissal. How does that compare with someone wrongfully imprisoned for 11 years?" The Home Office paid £8.51 million in 2000-01 in compensation for wrongful convictions.

Under Section 133 of the Criminal Justice Act 1988, the Home Secretary will pay compensation if a conviction is reversed or a pardon is granted owing to new or newly discovered evidence, "unless the non-disclosure of the unknown fact was wholly or partly attributable to the person convicted".

The Home Secretary can also make ex-gratia payments where an applicant has spent time in custody because of a serious default by a public authority, such as the police, or if the accused was exonerated either at trial or on appeal.

However, it argues there is "no general entitlement" to compensation and it will fight claims where someone is cleared on a technicality. Nicholas Mullen is seeking to appeal against his unsuccessful judicial review of the Home Office’s rejection of his application for compensation. His conviction in 1990 for conspiracy to cause explosions was quashed in 1999 after the Court of Appeal decided there had been an abuse of process because he had been brought back illegally from Zimbabwe to stand trial.

Once the Home Secretary has decided someone is eligible for compensation, the amount is decided by the independent assessor - currently Lord Brennan, QC, who took over last August. He faces an enormous variety of claims, including Timothy Evans and Derek Bentley, both hanged for murder but later pardoned, and Paddy Hill of the Birmingham Six, who has rejected an offer of £549,000, arguing that it does not reflect the hardship he suffered and should not become a benchmark for other injustices.

Alastair Logan, who represented the Guildford Four and the Maguire Seven, believed the system was a "matter of shame. It could be rectified simply. Applicants should be paid an income based on interest on the amount of money to which they are presumptively entitled - individuals should not have to survive on lump-sum payments, although they should be advanced such sums, for instance, if they need to buy a house. The final amount should be decided by a judicial tribunal.

"Some claims take years to resolve. People shouldn’t be drip-fed the money so they have to go on the dole, come off it when they get an interim payment which they have to live on until it has gone, when they have to go back on the dole. It leaves them no dignity. I think the system stinks. It isn't a fair or reasonable way of dealing with people and it doesn't reflect the reality of those years inside or what they have to face on their release."

For Patrick Allen, senior partner of Hodge, Jones & Allen and vice-president of the Association of Personal Injury Lawyers, awards for "non-pecuniary" losses, such as loss of liberty, damage to reputation, physical and mental suffering, should be increased by a factor of two to three.

"In the case of Andrew Evans, a soldier who spent 25 years in prison for a murder he didn't commit, his basic award for non-pecuniary losses came out at £350,000 or £14,000 a year. He was only 17 when he was detained and most people would say that amount is not enough for spending the best part of your life in prison."

While Mr Allen did not have any complaints with the "mechanics of the system", he believed it could be improved by an easier right of appeal, rather than by judicial review.

Nogah Ofer, a solicitor with Hickman & Rose, acts for Mr O'Brien and Derek Bentley's family. "The assessor is supposed to give similar awards to those a civil court would give. But there have never been any cases involving such long-term imprisonment. The assessor in the past has taken the view that compensation should be assessed on a sliding scale, that the first year in prison is terrible but it gets slightly easier. But that is fundamentally unfair and is just a way of reducing awards for long sentences."