The Lord Chancellor has today announced changes to personal
injury compensation payments.
When victims of life-changing injuries accept lump sum
compensation payments, the actual amount they receive is adjusted
according to the interest they can expect to earn by investing
it.
In finalising the compensation amount, courts apply a calculation
called the Discount Rate – with the percentage linked in law to
returns on the lowest risk investments, typically Index Linked
Gilts.
Today’s decision by to lower the Discount
Rate from 2.5% to minus 0.75% was made in accordance with the law
and in her capacity as independent Lord Chancellor.
The law makes clear that 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 the
duration of 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.
Lord Chancellor and Justice Secretary 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.”
The Discount Rate has been unchanged since 2001.
Today’s decision, as well as seeing compensation payments rise,
is also likely to have a significant impact on the insurance
industry and a knock-on effect on public services with large
personal injury liabilities – particularly the NHS.
But in the announcement to the London Stock Exchange this
morning, four key pledges were made:
- · The
Government has committed to ensuring that the NHS Litigation
Authority has appropriate funding to cover changes to hospitals’
clinical negligence costs.
- · The
Department of Health will work closely with GPs and Medical
Defence Organisations to ensure that appropriate funding is
available to meet additional costs to GPs, recognising the
crucial role they play in the delivery of NHS
- · The
government will launch a consultation in the coming weeks to
consider whether there is a better or fairer framework for
claimants and defendants, with the government bringing forward
any necessary legislation at an early stage; and
-
· Chancellor
of the Exchequer will meet representatives
of the insurance industry to assess the impact of the rate
adjustment.
The consultation, which will be launched before Easter, will
consider options for reform – including whether the rate should
in future be set by an independent body; whether more frequent
reviews would improve predictability and certainty for all
parties; and whether the methodology is appropriate for the
future.
The new discount rate will come into effect on 20 March,
following amendments to current legislation.
