The discount rate is a percentage that is applied in claims where an injured person receives compensation now but this is to cover losses that they are expected to incur the future. There is accelerated receipt of the money and the court therefore assumes that the injured person will invest their compensation and earn interest on it.
Between 2001 and 2017 the discount rate was set at 2.5%. This was very favourable to the Defendants and it meant that if a Claimant was claiming 20 years’ worth of lost earnings the Defendants would only need to pay out just over 15 years’ worth as it was assumed the Claimant would be able to cover the missing years with the interest they had earned.
For many years, Claimant’s solicitors and organisations representing injured people said this was not good enough and that Claimants were being short changed. They could not cover the loss with low risk investments as had previously been anticipated.
The Government, by way of the Lord Chancellor, did not look at this again until 2017 when the discount rate fell to -0.75%.
This caused a tidal wave of responses as insurance companies and the NHS lobbied for the discount rate to be reviewed again immediately as it would cost them millions in additional damages despite the savings they had previously and unjustly been making. It was a very good time to settle claims for the Claimant as instead of recovering 20 years’ worth of lost earnings they were suddenly recovering nearly 22 years’ worth and the greater the period of loss, the greater the additional recovery for the Claimant.
In just over 2 years the Lord Chancellor announced the result of a review of the discount rate which was to be applied from 5 August 2019. The new rate of -0.25% has increased but only marginally so, much to the chagrin of Defendants and their representatives who had expected a result much closer to the previous 2.5% rate.
While this is good news for the Claimant, it should be noted that the Government are clearly now going to review the discount rate more regularly and given the length of time it takes to settle the high value multi track cases where discount rates are applicable, there is no certainty that a case you take on today will reap the benefits of such a low discount rate by the time compensation is awarded in 4 years’ time!
Ashleigh Holt – September 2019