Government Announces New Discount Rate for Personal Injury Claims

Changes to the Discount Rate applied to personal injury compensation payments in England and Wales have been announced by the Lord Chancellor.

What is the Discount Rate?

When victims of life-changing injuries accept lump sum compensation payments, the actual amount they receive is adjusted according to the interest they can expect to earn by investing it.

In finalising the compensation amount, courts apply a calculation called the Discount Rate – with the percentage linked in law to returns on the lowest risk investments, typically Index Linked Gilts. This allows claimants to be put in the same financial position had they not been injured, including loss of future earnings and care costs.

The UK Government has now announced that the Discount Rate in England and Wales will be lowered from 2.5% to minus 0.75%, with effect from 20th March this year.

Impact of Rate Change

Compensation payments are likely to rise as a result of this decision. It is also likely to have a significant impact on the insurance industry and a knock-on effect on public services with large personal injury liabilities – particularly the NHS.

The Government has therefore made four key pledges:

• A commitment to ensuring that the NHS Litigation Authority has appropriate funding to cover changes to hospitals’ clinical negligence costs.
• The Department of Health will work closely with GPs and Medical Defence Organisations to ensure that appropriate funding is available to meet additional costs to GPs, recognising the crucial role they play in the delivery of NHS.
• To launch a consultation in the coming weeks to consider whether there is a better or fairer framework for claimants and defendants, with the Government bringing forward any necessary legislation at an early stage.
• Chancellor of the Exchequer Philip Hammond will meet representatives of the insurance industry to assess the impact of the rate adjustment.

The consultation exercise mentioned by the Government is expected to be launched before Easter, and will seek views on a number of different options for reform – including whether the rate should in future be set by an independent body; whether more frequent reviews would improve predictability and certainty for all parties; and whether the methodology is appropriate for the future.

Law Society Response

The Law Society of England and Wales has welcomed the rate change announcement.

“The Government consulted on a review of the rate four years ago but a decision never followed, so reform is long overdue,” commented Law Society president Robert Bourns. “The rate has been set at 2.5% since 2001, despite the decline in interest rates since the 2008 financial crisis.”

“This reduction in the rate means lump sum damages payments will increase, and will result in a better deal for those who have been very seriously injured with consequences that are long term – for example, babies who have suffered brain damage at birth and require compensation to cover the support and adaptations they need to help them live as normal a life as possible,” he added.

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