The compensation bill for those affected by the NHS contaminated blood scandal could reach £10bn, according to officials, in a further blow to the UK’s stretched public finances.

Ministers have accepted the “moral case” for compensating families of the victims of the scandal, in which tens of thousands of people were infected with HIV and hepatitis C through tainted blood transfusions.

The scandal dates back to the 1970s and 1980s, but ministers are only now coming to terms with the financial impact. Senior government officials have told the Financial Times the compensation scheme could cost between £5bn and £10bn.

Given the tight nature of the public finances, officials from the Treasury and Department of Health have been holding talks in recent days over how a compensation scheme would be structured.

“We are working through the options,” said one government insider. Another said: “People are very worried about the cost.” The government declined to comment on the size of the compensation bill.

The issue is coming to a head following the publication of a new report into the scandal last month by Sir Brian Langstaff, a former judge, who said action was “necessary to alleviate immediate suffering” of those affected.

He noted in his second interim report on the issue that many were on “borrowed time” after suffering from what he said was “the worst treatment disaster in the history of the NHS”.

He said a scheme should be set up this year to compensate those both “infected” and “affected”; the latter group includes spouses, parents of children infected up to the age of 18, siblings who lived with an infected person, carers and dependants of the deceased. A final report on the scandal will be published in the autumn.

The potential level of compensation has caused concern in Whitehall. Although the costs would not directly affect the government’s fiscal rules, they would add to the pressures already facing public services.

Cabinet Office minister Jeremy Quin told MPs last month that the government would act at “pace” to “deliver resolution”, but warned Langstaff’s recommendations needed “careful consideration” and would have “financial implications”.

He questioned Langstaff’s suggestion that the compensation scheme should be run by an arm’s length body, possibly chaired by a High Court judge.

Quin said such a structure would be a “new departure” from previous schemes, adding that the government would have “no ongoing role beyond providing taxpayer funds as required by the body”.

The government said: “The infected blood scandal should never have happened. Sir Brian Langstaff’s interim report will help the UK government and devolved administrations to meet our shared objective to be able to respond quickly when the inquiry’s final report is published in the autumn.”

The inquiry into the scandal was announced by former premier Theresa May in 2017; infected individuals and bereaved partners have so far each received an interim payment of £100,000, leading to payouts of about £400mn.

About 1,350 people are thought to have contracted HIV, of whom about 1,000 had died by 2019, according to the inquiry. A further 26,800 had contracted hepatitis C, of whom about 1,820 had died from causes related to the infection.

Langstaff described how victims campaigned for decades to have their voices heard and said compensation should also reflect “the wrongs done by authority, whose response served to compound people’s suffering”.