01/03/2017.  Updated 4/4/2017.

Possible changes to the way the personal injury discount rate1) is calculated are discussed in a consultation published by the Ministry of Justice in response to widespread concerns that the Lord Chancellor’s recent decision2) to reduce the rate would have unintended financial consequences for businesses, motorists and the NHS.

‘The personal injury discount rate: how it should be set in future’ * links to a consultation which, though making no specific proposals, considers

  • what principles should guide how the rate is set
  • how often should it be set
  • who should set it?

It also asks whether enough use is being made of Periodic Payment Orders, which remove the need to make any discount in the award of damages by paying the money expected to be needed by instalments when it is expected to be needed.

(* Any responses to this consultation should be sent to the Ministry of Justice by 11 May.)

1)  The ‘discount rate’ is the percentage calculation applied to adjust the actual amount of

compensation that victims of life-changing injuries receive according to the interest they can expect to earn by investing it.

The legal requirement is that they should be able to invest the adjusted compensation payment in the lowest risk investments (traditionally index-linked gilts) and still maintain their financial position, while covering additional costs relating to treatment equipment, care etc.

2)  The Lord Chancellor, Elizabeth Truss, explains in ‘Discount rate: summary of reasons’, why she believes she had no choice under the law but to reduce the rate from plus 2.5% to minus 0.75%. The new rate came into force from 20 March.

The insurer, LV= estimates it will increase the lump sum paid to a 25-year-old awarded £100,000 a year for brain damage from £3.1 million to £8 million.

Other estimates of additional, unintended costs include

  • £1bn for the NHS Litigation Authority
  • up to £1,000 per annum for the cover of 18-22 year old motorists
  • up £300 per annum for drivers aged 65 and over
  • £50-75 per annum on average for motorists across the board