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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Personal injury discount rate to change to minus 0.75%

The Lord Chancellor (LC) Liz Truss bit the bullet today and set the discount rate at minus 0.75%, to apply from 20 March. The news was issued via this statement to the Stock Exchange at 07:00 this morning. As a matter of process, Ms Truss should be congratulated for not ducking a very awkward decision – even if the financial implications of her decision are of huge importance for new and current outstanding cases alike. As to substance, views will inevitably differ hugely.

The lowered rate (it’s decreasing by a staggering 325 basis points from 2.5%) has attracted notable criticism this morning from insurers because of its inflationary effect on awards and reserves. The LC said today that she “recognise[s] the impacts this decision will have on the insurance industry. My Rt. Hon. Friend the Chancellor will meet with insurance industry representatives to discuss the situation.” It could be expected that that might be a fairly high-tempered discussion.

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