PI discount rate finally reviewed

The government has launched a long-awaited review of the personal injury discount rate, following a campaign by claimant lawyers.

Injured persons usually receive their compensation, intended to make up for future loss of earnings, in a one-off lump-sum payment. Claimants often invest this money, so the courts make adjustments to ensure the claimant is not over-compensated.

In making this calculation, the courts follow guidance laid down by the House of Lords in Wells v Wells [1999] 1 AC 345. They apply a discount rate of 2.5%, although courts may decide a different rate is appropriate in individual cases.

This rate was set by the Lord Chancellor in 2001, under s 1 of the Damages Act 1996, and is based on predicted yields from index-linked government gilts. However, yields from these have been declining for years and claimant lawyers have argued that the rate is now set too high.

The Ministry of Justice consultation Damages Act 1996: The Discount Rate, published last week, proposes two main alternative positions. These are: to use a gilts-based calculation using modern data; and to move from gilts to a mixed portfolio of appropriate investments using current data.

Christopher Malla, a partner at Kennedys, says: “Any reduction to the discount rate will have a significant impact on damages paid by our clients who are compensators of a broad spectrum of personal injury claims, particularly on the high-value claims which can already attract multi-million-pound awards. It is imperative that all parties with a stake in this issue come together during this long-awaited consultation to achieve a fair and balanced outcome.”

The consultation will end on 23 October 2012.

Last year, the Association of Personal Injury Lawyers launched a judicial review on the issue, but it stalled after the justice secretary promised a consultation.