After his long-awaited review, the Lord Chancellor, the Rt Hon David Gauke MP, has announced the new personal injury Discount Rate at -0.25 per cent.
The new rate will come into effect on August 5 and a statement from the Lord Chancellor will follow.
This is a very minimal increase (on the previous Discount Rate of -0.75% set in March 2017) that is highly surprising and will be of significant concern to insurers and public bodies like the NHS.
Plexus Law provided evidence to the MOJ in advance of the review and throughout the same supported the position of FOIL, that a fairer and more just Discount Rate was required to ensure accurate compensation that did not over or under compensate Claimants.
In determining the rate, the Lord Chancellor is required to assume that a Claimant will invest in a diverse portfolio that involves (i) more risk than a very low level of risk but (ii) less risk than would ordinarily be accepted by a prudent and properly advised individual investor.
The Lord Chancellor did not consider it appropriate to set a dual rate, but this is something that will be considered at future reviews and he will be conducting a consultation into such a rate. On this point he has said: “The potential of the dual rate to be appropriate for future reviews is one that I will consider in more detail through a consultation, which the Ministry will launch in due course.”
It is disappointing the Lord Chancellor did not set a positive rate because no prudent investor would invest in something which produces a negative rate of return.
Section 1 (3) of the Civil Liability Act 2018 (Part 2) states that each subsequent review of the rate of return must be started within the five year period following the last review. Therefore, subject to any immediate challenge from either side of the industry or a significant shift in the financial landscape, such as the 2008 financial crash, the new rate could and should be set up until July 2024.
The new Discount Rate does not affect Scottish claims. Scotland is subject to its own review which commenced on 1st July 2019 and is expected to conclude in September 2019 where it is widely anticipated that the new rate for Scotland will also be set at -0.25%.
If you would like to know more about this matter, please speak to your contacts at Plexus Law:
Anthony Baker, Partner & Vice President of FOIL
T: 0113 4681 702 | M: 07811 545 321 | E: firstname.lastname@example.org
Joseph’s Well | Hanover Walk | Leeds | LS3 1AB
Lorien Helm, Partner
T: 0161 2457 930 | M: 07584 147 890 | E: email@example.com
City Tower | Piccadilly Plaza | Manchester | M1 4BT