New figures released under the Freedom of Information Act show that Sunderland City Council paid out £4,761,750 in compensation claims between 2005 and the end of 2007, while Durham County Council paid £4,081,460 in the same period.

These figures include legal costs and cover payments for accidents which occurred over an extended period of time, not solely the result of claims relating to a particular year.

In Sunderland, the payouts ranged from as little as £5 for property damaged by an employee to £46,265 for an employee injured at work.

In Durham, the claims ranged from £25 for damage to a scooter to £90,323 for a fall on a footpath.

Today a taxpayers' campaign group urged councils to take more care of their money.

Mark Wallace, campaign director of the TaxPayers' Alliance, said: "This is a huge amount of money, especially at a time when council tax bills are hitting record levels and people are struggling to make ends meet.

"There are undoubtedly some ambulance-chasing lawyers and unscrupulous people who cash in on the compensation culture, and that's wrong of them, but the councils also need to get their act together."

But the figures also show that the amount of compensation being paid out by Sunderland City Council has been reducing over the last three years.

In 2007, 279 claims for compensation resulted in the council paying out £1,245,141 – down more than £350,000 from 2006, when there were 330 claims resulting in a total pay-out of £1,599,784.

The number of claims in 2007 was down by more than 20 per cent compared to 2005, when there were 357 claims. And the total compensation in 2007 was about 35 per cent less than in 2005, when it was £1,916,825.

Keith Beardmore, city treasurer at Sunderland City Council, said that the council had been affected by changes in the law called the Woolf Reforms (1999) which, among other things, has allowed solicitors to charge success fees and "after the event" insurance premiums, which sometimes exceeded the payments made to claimants.

He said: "All claims are thoroughly investigated and, where appropriate, external legal advice is taken. The amounts paid are in line with the Judicial Studies Board guidelines on compensation.

"The council turns down the majority of claims, especially in relation to highways trips, but inevitably, given the breadth and scale of services and number of people to whom these services are provided, the numbers in the workforce and size of our motor fleet means that, unfortunately, accidents occur for which the council can be held responsible.

"The council is acutely aware of the number and cost of the accidents it is held responsible for and is constantly trying to manage this risk to reduce these figures."

Durham County Council settled payments for 282 claims in 2007, paying out a total of £1,555,978 including legal costs.

There were 309 claims which the council settled with a payment in 2006, resulting in a total payout of £1,093,572.

In 2005 there were 280 claims for which the council paid out a total of £1,431,910.

A Durham County Council spokesman said: "The annual figures for compensation payments include significant sums relating to historic claims dating back a number of years and do not give an accurate picture of the number of claimable incidents in any one year.

"In fact, the current situation reflects a downward trend in the number of claimable incidents being made."