Discount rate – Government response to Select Committee commits to changing the law

The Government (Ministry of Justice) announced this morning (noted in an earlier blog) that it will change the law on the discount rate for personal injury claims via the Civil Liability Bill, which will be introduced in the House of Lords later today and available on line tomorrow. And the MoJ also today issued its formal response to the Justice Select Committee’s November 2017 report on the earlier draft version of the discount rate legislation (itself published in September 2017). The body of this piece offers some first thoughts on the response paper.

The MoJ’s detailed response to the Select Committee runs to 32 pages and is available here. It sets the scene for the publication of the new legislation, explains the Government’s view of the underlying legal principles and re-states its policy goals. The Government response is clear – and pretty robust in some places – on the following points:

  • it intends to break the legal link between the personal injury discount rate and investment returns on ILGS, which it says is based on an unrealistic ‘no risk’ approach
  • it will revise the detail of the proposed rate-setting process in order to involve more fully the expert panel of advisors and the Government Actuary
  • it will provide reasons, at the end of a rate-setting exercise, for the choices made (around investment behaviours/advice and around allowances for tax, inflation and charges) and will publish impact assessments and expert panel materials
  • it will clarify the legislative power to set different rates
  • its expectation is that the new process will “relative to the approach of the present law, produce a higher discount rate and lower lump sum awards” and it notes that the present basis “tends to create excessively large awards”
  • it does not accept the Justice Committee’s view that existing evidence of investment advice and behaviours is an insufficient basis for its proposed changes and it does not intend to delay law reform pending a further evidence gathering exercise, although it will call for more evidence to inform the first review under the new law.

The first real debate on the new Bill will almost certainly not happen until after the Easter break. It will be interesting to see what sort of reception the Bill receives among Peers in the first instance given that reforming the law on damages arising from serious personal injuries is potentially an emotive and sensitive subject.

The new Bill will also deal, in a different part or chapter, with reforming whiplash claims. We expect these provisions to be based on the content of part 5 of the Prison & Courts Bill, which lapsed in the run up to the election earlier in the year. These are also controversial reforms and views for and against them are, as with the discount rate, perhaps all too predictably polarised as between insurers/defendants on the one hand and those representing injured claimants on the other. The temperature of debate on both aspects – discount rate and whiplash – may rise significantly as the Bill begins to make meaningful legislative progress after Easter.

Let’s assume, however, that the Bill is passed: which could happen in the last few months of this calendar year. After that, the detailed steps in the proposed rate setting and review process will kick in. The MoJ states clearly in its response that it “intends to begin the first review promptly after the legislation is enacted but does not consider that the specified periods for the conduct of the reviews can be sensibly reduced.”  What this could therefore mean in practice is that a new discount rate (or rates) might not apply before the early part of 2019 (the prospect of a new rate in late 2018 cannot be entirely discounted but it does look increasingly unlikely with the passage of time).

We shall provide further commentary on the detail of the new Bill very soon after its publication.


Published by Alistair Kinley, head of policy and government affairs

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