Uncertainty over discount rate change


The Lord Chancellor announced that the discount rate applied to personal injury compensation payments will fall from 2.5% to 0.75%.

The rate determines how much payments are adjusted by to reflect the interest claimants can expect to earn by investing them. The percentage is linked in law to returns on the lowest risk investments, typically index-linked gilts.

Liz Truss said the change reflected the significant fall in interest rates since the rate was last set in 2001.

The Ministry of Justice said the law makes clear claimants must be treated as risk averse investors, reflecting the fact that they are financially dependent on this lump sum, often for long periods or their life.

Compensation awards using the rate should put the claimant in the same financial position had they not been injured, including loss of future earnings and care costs.

Truss said: ‘The law is absolutely clear – as Lord Chancellor, I must make sure the right rate is set to compensate claimants. I am clear that this is the only legally acceptable rate I can set.’

Claimant lawyers welcomed the move that will give victims greater sums. But Truss warned it will have a significant impact on the insurance industry and a knock-on effect on public services with large personal injury liabilities – particularly the NHS.

Insurers reacted by seeking an urgent meeting with the Chancellor of the Exchequer, Philip Hammond, to ask him to intervene and reverse the change.

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