Ministers must ensure LGBT veterans who suffered historical mistreatment in the military receive fair reparations, they have been told.

The Government said it will accept the “intent” of all 49 recommendations from an independent inquiry which looked at the experience of LGBT veterans who served in the armed forces between 1967 and 2000.

Among the recommendations made by senior judge Lord Etherton were that those who suffered mistreatment as a result of their sexuality should be given an “appropriate financial award”.

His investigation found that some suffered abusive investigations, with others subjected to “conversion therapy, peremptory discharges, and appalling consequences in terms of mental health and wellbeing, homelessness, employment, personal relationships and financial hardship”, according to the report.

The cap puts at risk the opportunity of finally bringing resolution for the harm done to these veterans and must be scrapped

Defence minister Andrew Murrison told MPs that the Government was still preparing how to administer financial awards, with more details to come in the new year, but said other restorative measures are now being carried out.

But MPs and LGBT forces charity Fighting With Pride have raised concerns about a proposed £50 million overall cap on payments.

In a joint statement following the announcement in the Commons, Fighting With Pride directors Craig Jones MBE and Caroline Paige said: “Today the Government finally remembered its commitment to a full debate early in the new year of its reparations plans, but failed to ‘Scrap the Cap’ on compensation for LGBT+ Veterans.

“The proposed £50 million cap on funding is arbitrary, unworkable and offers no guarantee of fair compensation for veterans, whose treatment was described by the Prime Minster as ‘a stain upon the nation’.

“The Government’s position is untenable and the focus of the scheme must be fair compensation for the abhorrent treatment these veterans experienced and the lifelong impact of the ‘gay ban’.

“The cap puts at risk the opportunity of finally bringing resolution for the harm done to these veterans and must be scrapped.”

We cannot change the past but we can act to make amends, we can honour the service of our LGBT veterans, we can take pride in the inspiration they provide to future generations

Labour former veterans minister Kevan Jones said he did not think the £50 million cap on payments “will even touch the sides” of the amount needed, while Tory MP James Gray (North Wiltshire) urged the Government to revisit it.

“It would be crazy if £51 million had been applied for, but the cap said only £50 million would be paid out,” he added.

Dr Murrison sought to manage expectations, telling MPs the Government cannot “write a blank cheque” to compensate affected veterans.

“It is just not possible to do that. Lord Etherton came up with £50 million. It is a significant amount of money,” he added.

He confirmed there would be an opportunity for a debate “on the floor” of the House of Commons on Lord Etherton’s inquiry, and said this would be an opportunity to debate the financial award.

Dr Murrison said: “The controversy will be around how we structure the financial reward. I expect in the new year to be in a much better place to bring to the House a suggestion around how we might do that, having consulted with others and observed from lessons of the past and also experience in other countries.”

The minister had earlier confirmed the Government was “accepting the intent behind all 49 of Lord Etherton’s recommendations”, following an apology from Rishi Sunak in the summer after the conclusion of the inquiry.

He said veterans can now begin to make applications for “restorative measures”, including individual apology letters, return of berets and cap badges, and amendments to their service history.

Dr Murrison added: “Importantly, the form will also allow veterans to indicate their interest in applying for a financial award when eligibility is confirmed and that scheme goes live.”

Labour pressed the minister to ensure LGBT veterans are able to claim their accrued pensions if they were discharged for being gay or lesbian.

Shadow defence secretary John Healey said: “What action is he taking to ensure pensions are fully restored to those who are misinformed that pension rights have been abolished? What action is he taking to guarantee that those whose evidence of investigations was destroyed in 2010 so they don’t lose out?”

He added: “We cannot change the past but we can act to make amends, we can honour the service of our LGBT veterans, we can take pride in the inspiration they provide to future generations.”

Dr Murrison replied: “Accrued pension rights remain; however, some people were misled when they left the armed forces and I would strongly recommend that they refer to the guidance available on gov.uk.”

But he was not able to offer hope of rights to pensions which would have been accrued had dismissed veterans remained in service for longer.

“There is no way of restoring those pensions,” he said.

“I hope he will understand that, and it will be incredibly difficult to do that.

“So I am not going to give him any encouragement that that will form any part of our deliberations in relation to the financial award.”