The Government has indicated that they are expecting to legislate on changes to the discount rate early next year. David Hatton, a Solicitor in our Personal Injury department, discusses what this will mean in practice.
What is the discount rate?
The discount rate is a calculation used in serious personal injury (and clinical negligence) cases. In such cases, claimants often receive a lump sum in compensation, and the court assumes that they will invest this so it meets their future needs.
These needs relate to what is referred to as ‘future loss’- things such as lost earnings and the cost of future care.
It is expected that any prudent Claimant will invest their compensation carefully; securing an adequate return that will meet their future needs by way of very low risk investments. The discount rate reflects the likely return that claimants will receive on such investments.
What are the proposed changes?
The current rate of 0.75%, introduced in February, correctly reflects the lower level of returns that savers and investors receive, and ensures that Claimants can adequately provide for their future needs from their compensation.
The proposals will see a new law being introduced. The discount rate would be reviewed every three years, and would reflect the rates of return on ‘low risk’ investments (instead of ‘very low risk’ as it is now.)
If the changes were introduced now, this could result in a rate somewhere between 0% and 1%.
What effect will the changes have on accident victims?
The proposed changes in fact mean that a Claimant will receive a lower level of compensation. Many are likely to feel pressured to invest their damages in investments which carry a much higher level of risk, in the hope that the returns they receive are sufficient to meet their future needs.
The proposed changes have largely been influenced by the insurance industry, following their reaction to the rate set in February 2017- given that it favoured claimants, and substantially increased the level of damages that became payable for future losses.
These changes will have a profound, unjust effect- to the detriment of those unfortunate enough to suffer serious injury through no fault of their own.
Please continue to check the blog for further updates as this legislation progresses. If you need advice or assistance with a personal injury matter, call our expert Personal Injury team on 0113 284 5000.