Thalidomide was marketed as an insomnia treatment

The drug caused birth defects in children whose mothers took it in the late 1950s and early 1960s.

A compensation settlement was agreed with Distillers, the company which marketed the drug, and Thalidomide survivors receive annual payments.

The company, now part of Diageo, has earmarked an extra �150m over the next 32 years to be given to survivors.

Survivors currently receive �13,000 - �14,000 per year. If the new allocation goes ahead, this annual figure per person could be doubled by 2022.

THALIDOMIDE TIMELINE 1953 - Drug created in Germany 1957 - Marketed to the public as a 'wonder drug' for insomnia, colds, coughs and headaches 1958 - Licensed in the UK 1961 - William McBride, an Australian doctor, wrote to the Lancet after noticing a sudden increase in the number of deformed babies born at his hospital - all to mothers who had taken thalidomide. The drug was withdrawn from use in November that year. 1968 - First UK compensation settlements reached with manufacturers Distillers Biochemicals Limited 1998 - Approved by the US Food and Drug Administration as a treatment for a complication of leprosy 2004 - Thalidomide available on a named patient basis and as part of clinical trials in the UK Analysis: Thalidomide settlement

Thalidomide was withdrawn in 1961 after around 10,000 babies had been born with disabilities, such as the characteristic stunted arms or legs.

Some babies were born with no limbs at all.

The Thalidomide Trust, which distributes monies to the 455 people in Britain affected by Thalidomide, said many of those affected were now having to make expensive lifestyle changes, such as adaptations to their home, particularly as most are facing renewed challenges due to ageing and retirement.

Diageo currently makes an annual payment of �2.8 million to the Trust, although in fiscal 2005 an additional contribution of �4.4 million was made.

Based on the current negotiations, it is expected that the future annual payment will increase to around �6.5 million per annum up to 2037.

This amount will be index-linked. Diageo, which makes Smirnoff vodka, Johnnie Walker scotch and Guinness beer, said it hoped to agree the deal this year.

Diageo told its share holders on Thursday it would make an exceptional operating profit charge of about �150 million in the year ended 30 June 2005 to cover the discounted value of future payments.

A spokeswoman from Diageo said: "The discussions are ongoing and will continue on a confidential basis. As has always been the case, Diageo will continue to work with all parties concerned to address these issues and help ensure that the beneficiaries are treated sensitively, and in a just and proper fashion."

John Hurley, finance director of The Thalidomide Trust said the extra money, if agreed, should be enough.

"The figure is what we requested. The level of allocation should be capable of being doubled by 2022 and maintained until 2037. That is what Diageo has based its calculations on."