Rate reduction spells good news for claimants but could cost NHS extra £1bn per year.
Lawyers have given a mixed reaction to the Lord Chancellor Liz Truss’s decision to reduce the “discount rate” for personal injury compensation payments from 2.5% to minus 0.75%.
The discount rate is the calculation of lifetime earnings through low risk investment that is used by courts when working out appropriate lump sum compensation payments for victims of life-changing injuries. It will change on 20 March, the first time since 2001.
Consequently, compensation payments will rise. This will benefit injury victims but claw more money from insurers and public services with large liabilities, such as the NHS.
Citing estimates that the rate reduction could cost the NHS an extra £1bn per year, Association of British Insurers’ director general Huw Evans called it a “crazy decision”.
However, Truss has pledged to ensure both the NHS Litigation Authority and GPs and medical defence organisations have appropriate funding to cover the rise in costs. She pledged to launch a consultation before Easter to consider options for reform on the rate. Philip Hammond, Chancellor of the Exchequer, will meet with insurers to assess the impact of the rate adjustment.
Christopher Malla, partner at Kennedys, said the rate reduction would add 30% to catastrophic injury compensation and 50% to high-value clinical negligence claims involving children. He predicted “significant delays” in current cases as claimants withdraw Pt 36 offers to settle.
Malla said his firm and its clients have argued that, in reality, claimants select a mixed portfolio of investments which generate rates of return up and above 2.5%. He welcomed Truss’s pledge to consult.
An Association of Personal Injury Lawyers spokesperson said: “People who suffer severe life-changing injuries can now be assured that the compensation needed to look after them is calculated correctly and is sufficient to provide care for the rest of their lives.”
Barrister Daniel Frieze, head of personal injury at St John’s Buildings, said the new rate was “undoubtedly a positive thing for claimants” but left potential losses at up to double their previous amount, which would encourage insurers to argue for fixed costs, “which the government has already heavily championed in recent weeks”.
