Future payments for past accidents – options for the injury discount rate

Yesterday the Government issued its latest consultation paper about the discount rate to be used for calculating future loss payments in personal injury cases. It has requested views by 11 May which can be fed in via the consultation home page.

The current law on the rate is that the Lord Chancellor sets it and has to follow the return on Index-linked Gilts (ILGS), which is presumed to indicate a risk-free approach to the investment of compensation. If this is going to change it will need legislation to change or repeal the Damages Act 1996 – a point which is confirmed in the Lord Chancellor’s written statement which accompanied the consultation.

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Prison & Courts Bill debate signals reform of the discount rate?

A good deal of this recently-published Government Bill deals with prison reform and prisoner welfare and these issues took up much of the debate on Second Reading in the Commons yesterday, which ran from late afternoon until nearly 10pm. In addition, part 5 of the Bill seeks to implement the Government’s reforms to whiplash claims, which were also discussed at some length.

This short post covers none of those topics but instead suggests that perhaps the two most important interventions yesterday, in terms of financial impact on the claims sector, came relatively early in the debate and then right at its end. Both were quite brief and taken together they clearly signpost reform to the process by which the discount rate for future losses in personal injury claims is set.

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Post-Budget fall out: what do we now know about the new discount rate?

  1. Following the Budget last week, we can take it as confirmed (if it needed to be) that the Chancellor of the Exchequer will not or cannot change the new rate.
  2. In such circumstances, he “has set aside £5.9 billion across the forecast period [to] protect the NHS from the effects of the changed personal injury discount rate”.
  3. The new rate of -0.75% will apply in England & Wales from 20 March unless there is a successful attempt to annul the relevant statutory instrument, SI 2017/206.
  4. A motion to annul this SI has been indeed been tabled, but as it has been signed by only six MPs – all Lib Dems – it looks to be going precisely nowhere*.
  5. This intervention by Conservative MP Jacob Rees-Mogg during the Budget debate last week – “I would encourage the Government not to proceed with the personal injury discount rate reduction to minus 0.75%.” – very probably adds no weight at all to that motion.
  6. However, the basis on which the new rate was derived looks set to change. A different approach could apply from some future date because the Lord Chancellor has unambiguously said she “will bring forward a consultation before Easter that will consider options for reform”.
  7. Our expectation is that this consultation will begin within days of the new rate taking effect, given that Parliament will rise for Easter on Thursday 30 March.

* It is virtually unknown for these to succeed. The last to do so was a generation and a half ago, according to this from the Commons Library: “The House of Commons last annulled a statutory instrument on 24 October 1979 (the Paraffin (Maximum Retail Prices) (Revocation) Order 1979 (S.I. 1979/797)).”


Written by Alistair Kinley, director of policy and government affairs