The new rate of -0.25%, announced by the Lord Chancellor David Gauke this week, is effective from 5 August 2019. The discount rate is used to calculate the large lump sum compensation awarded to victims of life-changing injuries, and reflects the interest they can expect to earn on investments.
The decision to change the current rate of - 0.75% follows a Call to Evidence launched by the Ministry of Justice in December 2018. The rate was lowered from 2.5% in 2017, leading to concerns defendants, particularly the NHS, were having to pay out too much money.
According to the Ministry, a 30-year-old male with annual financial costs of £50,000 would receive £2.9355m under the current rate, and £2.56525m under the new rate, a difference of £370,250.
Lord Chancellor Gauke said: ‘It is vital victims of life-changing injuries receive the correct compensation―I am certain this is the most balanced and fair approach following an extensive consultation.’
Jonathan Wheeler, managing partner at Bolt Burdon Kemp, said the government had ‘resisted insurers’ calls for the most seriously injured to make risky investments to maintain or “top up” their damages.’
However, Tony Cawley, Clyde & Co partner and member of the Forum of Insurance Lawyers (FOIL), said: ‘It is very disappointing that the numerous representations made by FOIL and the insurance industry have failed to be taken into consideration.
‘Although the Lord Chancellor refers to the new statutory test in the announcement, FOIL does not believe that the new rate reflects how claimants actually invest their damages. [This] new confirmed rate will be particularly concerning to the insurance market generally but also to many public bodies.’
Insurance firm Kennedys partners Mark Burton and Christopher Malla said: ‘The Ministry of Justice had previously signalled a likely outcome of between 0% and 1%.
‘In practice, serious injury cases have been settling at levels based on a positive rate coming into force. The announcement of a negative rate is therefore surprising.’
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