Following my article on 24 June 2018 titled “Reforming personal injury: the Civil Liability Act 2018”, the government has revealed the adjusted personal injury discount rate.
Under s.10 Civil Liability Act 2018 (“CLA”) the Lord Chancellor was required to start the first review of the personal injury discount rate within 90 days of the CLA coming into force. Therefore, because the CLA received royal assent on 20 December 2018, the review of the rate had to start on or before 19 March 2019 and be concluded within 140 days. The rate is subsequently due to be reviewed every 5 years within a 180 day review period in consultation with the Treasury and an expert panel in order to determine whether the rate should change or remain the same.
On 15 July 2019, the Lord Chancellor announced the rate applied to personal injury compensation payments would change from -0.75% to -0.25%. This rate will come into force from 5 August 2019. If you would like more information please click here.
Some of the justifications for the change to the discount rate include:
- The possibility of claimants being over compensated which had previously increased financial pressure on public services that have large personal injury liabilities, such as the NHS;
- The increased likelihood that the claimant can expect healthy financial returns because they will be properly advised on the investment of their damages, in a low risk manner; and
- The information provided by the Government Actuary and in response to the Ministry’s Call for Evidence in December 2018. This specifically led the Lord Chancellor to determine that a rate of 0.25% or 0% would run too high a risk of under-compensating claimants but a rate of -0.25% increases the chance that the claimant will be fully compensated or receive at least 90% compensation.
However, the adjusted rate has been criticised for reasons including:
- That it does not go far enough to account for the possibility of the claimant growing their compensation award through proper investment; and
- That it undermines the principle of 100% compensation in Wells v Wells  1 AC 34, as detailed by Lord Hope of Craighead:
“… the object of the award of damages for future expenditure is to place the injured party as nearly as possible in the same financial position he or she would have been in but for the accident. The aim is to award such a sum of money as will amount to no more, and at the same time no less, than the net loss”.
Clearly, vulnerable claimants’ damages should not be undermined by insurers wishing to turn a profit; and there is some support in favour of the adjusted rate from the Association of Personal Injury Lawyers for this reason.
It remains to be seen whether the new rate will be successful in carefully balancing the needs of the claimants to be properly compensated for the duration of their injuries (the award will also need to keep up with inflation) with the financial interests of defendants but we are optimistic.
Posted on Monday, 22nd July 2019