In February 2017 the personal injury discount rate was reduced from 2.5% to 0.75%, which has resulted in a dramatic increase in the size of damages awarded to individuals who are bringing personal injury claims.
The Civil Liability Bill was introduced to the House of Lords on 20 March 2018. The Bill does not mention an implementation date, but justice officials have indicated that the reforms will be ready to come into force by April 2019.
There will now be a long process of parliamentary scrutiny with the second reading taking place on 24 April 2018.
Background to the discount rate
A lump sum award of damages for future financial loss is intended to compensate the injured person for all the loss expected to be suffered by him or her as a result of the injury.
The aim is to provide full compensation and, in so far as a sum of money can do so, to put the claimant in the same position as he or she would have been in but for the injury. This is known as the 100% compensation principle.
The reason why a personal injury discount rate is applied to the calculation of the lump sum is to adjust the size of the award to reflect the return expected to be earned on the lump sum before it is expected to be spent.
If the discount rate applied is greater than the rate of return actually received by a claimant, the claimant will receive less money from the award than was expected at the time it was made: conversely, if the rate of return received is greater than the discount rate applied, the claimant will receive more than was expected at that time.
The discount rate neutralises the return expected from the investment of the lump sum in the calculation of its size.
Proposed legislation to come into effect;
Effect of the new changes
- The legislation makes it clear that the Lord Chancellor will have the ability to set different rates based on duration of injury or for different general and special damages.
- The government intends to set the rate with reference to ‘low risk’ rather than ‘very low risk’ investments, meaning a larger percentage can be deducted on the assumption of higher interest rates.
- The rate will be reviewed every three years with an independent expert panel chaired by the government actuary advising the Lord Chancellor on the rate.
This is a significant change to the present system where judges apply the discount rate to the compensation awarded. If the discount rate is increased, this reduces damages to client so they receive less than what they would do under the current rate.
It is hoped this will provide a more transparent and better informed system, as well as reassurance for claimants and underwriters alike.
Author, Nilma Shah is an experienced Solicitor in the Personal Injury/ Clinical Negligence and Litigation departments at Duncan Lewis with more than 5 years PQE. She regularly handles different types of serious injury claims, providing legal representation to clients who have suffered injustice through the hands of the NHS and have sustained serious injuries, from birth injury claims to misdiagnosis claims.
Contact Nilma on 020 3114 1274 or via email at email@example.com for expert advice on any personal injury, clinical negligence or litigation matter.
Duncan Lewis Personal Injury Solicitors
Duncan Lewis Personal Injury Solicitors have extensive experience representing clients who have sustained injuries as a result of accidents. Our no win no fee personal injury solicitors are proud of their reputation for being caring and considerate in their dealings with personal injury.
Family members can call us for advice on making a claim if someone close to you has been injured and is still recovering in hospital.
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