The Government must clarify its aims, gather proper evidence
about how claimants invest lump-sum damages and whether
investment covers their future losses, and ensure adequate
safeguards to prevent under-compensation of the most vulnerable
claimants, says the Justice
Committee in a report on the Government’s draft
legislation on the personal injury discount rate.
The Government asked the Committee to undertake pre-legislative
scrutiny of the clause contained in the recent consultation
paper The Personal Injury
Discount Rate: how it should be set in future. The report
sets out the Committee’s views on the draft legislation and the
evidence and policy objectives surrounding it.
Government’s proposed legislation
The Government proposes to maintain the
objective that claimants should receive 100% compensation for
losses they incur, but intends that the discount rate applicable
to lump-sum damages received by claimants should no longer be set
with reference to returns from very low risk Index Linked
Government Securities. Instead the draft legislation provides
that the discount rate should be set on the assumption that
claimants will invest lump sums in “low risk” investments, and
having regard to actual investments made by claimants.
Committee Chair MP said:
“Setting the discount rate is much more than a technical
decision. It is about how we as a society treat people who have
been seriously injured, whether through medical negligence, road
traffic accidents or by other means. It involves balancing the
interests of claimants with defendants, and also balancing the
social costs of increased clinical negligence payouts and
increased insurance premiums with protecting the interests of
vulnerable claimants.”
“If the Government remains convinced that it must change the
assumptions it makes about how damages will be invested, to
adjust the balance between the interests of different groups in
society, it should say so. It is vitally important that we get
this right, and that changes are evidence-based”.
More evidence needed on claimant investment
behaviour
The Committee welcomes the Government’s commitment to the
principle of full compensation for claimants, but recommend that
it clarifies what it means by this, given that lump-sum awards
will nearly always either under or over-compensate individual
claimants. The Committee advises caution in considering evidence
of claimants’ behaviour to set the discount rate: the risk they
accept may be driven by the rate itself. The report concludes
that while it may be reasonable to change the assumptions on
which the discount rate is calculated if they are no longer
representative of ‘real world’ behaviour, clear and unambiguous
evidence should be gathered about the way claimants invest their
lump sum damages, the reasons for their choices and the extent to
which they obtain fair compensation.
Other recommendations
The Committee makes a number of recommendations to the Government
for revision of the draft legislation before it is introduced as
part of Bill, or for other action to be taken. These include:
- establishing a means of assessing whether the legislative
framework compensates claimants fairly for their losses, and
ensuring adequate safeguards to prevent significant
under-compensation of the most vulnerable claimants;
- publication by the Lord Chancellor of his or her reasons for
every decision to change the discount rate or to leave it
unchanged, along with the advice of the proposed expert panel,
and reasons that advice is not followed on the occasions when
that happens
- the expert panel should be involved in the first review of
the rate, and its quorum should be increased to 4 from a
membership of 5.
The report also recommends that legislation should require the
expert panel and the Lord Chancellor expressly to consider
whether to set different discount rates for different periods of
loss or different heads of damage.
The final chapter of the report explains the impact which the
Committee’s recommendations would have on the text of the draft
clause.
