Wes Streeting is pursuing an out-of-court resolution to a legal battle over compensation for gay veterans who were forced to resign from the armed forces because of their sexuality.

The defence secretary told the Guardian the Ministry of Defence was holding talks this week in the midst of a high court challenge over rules that blocked some veterans receiving £50,000 payments despite being forced out of military service.

Next week a high court judge will decide whether two former personnel, Steven Stewart, 55, and Mark Shephard, 49, can proceed with a judicial review of the government’s LGBT financial recognition scheme that was established in 2024 under Keir Starmer’s premiership.

The case has raised questions over whether the Labour government is prolonging an injustice against people who were persecuted by the armed forces, with veterans who resigned under pressure potentially receiving thousands of pounds less than those who were formally dismissed.

The defence minister said he would be “careful” what…