Personal Injury Discount Rate – The Lord Chancellor’s Review

Today’s announcement by the Lord Chancellor of a very significant reduction in the discount rate from 2.5% to -0.75% will be reflected by greater awards of personal injury damages for future losses. The change will take effect from 20th March 2017.

The sheer scale of the change can be illustrated by reference to Table 28 of Ogden, using three example loss periods, and an annual loss of £100,000:-

 

 

 

 

The discount rate has been unchanged since 2001 and was based on flawed methodology. The new rate represents the reality that claimants face post-settlement, in that it is impossible to obtain a real return of 2.5% on a consistent basis (net, after the effects of inflation, tax and the costs of investment advice have been accounted for).

The new rate represents a victory for claimants. Following many years of lobbying, consultations and the threat of Judicial Review, today’s announcement by the Lord Chancellor still comes as a surprise, particularly in terms of the scale of the change.

However, there will be substantial cost implications for insurers and Government bodies such as the NHS. The casualties are not just limited to defendant bodies – the problems thrown up for many claimants by the way accommodation claims are calculated, will be exacerbated.

Also announced today, is a further consultation, commencing before Easter, considering appropriate future methodology and whether the rate should be reviewed more often and/or be set by an independent body.

So, in summary, the level of the change is much greater than expected. Further change following-on from yet another consultation is possible. Clearly, although the position for claimants has improved on a general basis, there are still areas of concern, particularly the uncertainty from Roberts v Johnstone impacting upon accommodation claims.

No doubt, many claims close to settlement, or agreed subject to approval, will need to be reconsidered. We are happy to assist with any issues arising from today’s announcement.

If you would like to read the Lord Chancellor’s reasoning behind the application of the new -0.75% discount rate click here.