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The Personal Injury Discount Rate: How Should It Be Set In Future? - the latest consultation
On 30th March 2017, just ten days after the long awaited reduction in the discount rate came into force, the Ministry of Justice has issued a consultation, The Personal Injury Discount Rate: How it should be set in future.
The consultation purports to promote “fairness for all” and repeatedly re-states the commitment to provide 100% compensation for victims of negligence. However, it is clearly an appeal for any evidence or means which might provide justification for changing the way that compensation for severe long-term injury is calculated, with a view to reducing the cost of claims.
In her statement of 27th February, explaining her reasons for adjusting the personal injury discount rate to minus 0.75, which dramatically increased the multipliers in compensation claims involving long term future loss, the Lord Chancellor 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 ‘only acceptable rate’, however, appears to be far too expensive for a government intent on reducing the cost of claims. The consultation paper seeks ideas for new ways of addressing this problem, but the government’s dilemma is clear. When the only legally and morally justifiable way of ensuring that injured victims are compensated for their loss feels too expensive, how can a system which must be seen to support the principle of 100% compensation for victims of negligence, reinvent itself to ensure that it doesn’t?
The answer suggested by the consultation paper is to undermine the principle upon which the law and the practice of personal injury compensation is based. The discount rate which largely determines the multiplier by which the claimant’s annual losses (such as costs of care) are multiplied must be set in accordance with The Damages Act and the case law, principally the House of Lords’ decision in a case called Wells v Wells. The Law Lords overturned the Court of Appeal’s decision in that case, on the basis of a presumption that injured victims of negligence, who are dependent on their compensation and unlikely to have other fallback income to rely on, will probably be risk averse investors and cannot be assumed to reap the benefit of the higher interest that a more risky investor could achieve.
The dramatic drop in interest rates over recent years and the continued, (and largely correct) assumption that claimants derive only the lowest rates of interest on investment of their damages, has left the Lord Chancellor with no choice other than to reduce the discount rate to a negative figure. Now, having complied with the law and restated the compelling reasons for doing so, when faced with its inevitable expensive consequences, the Ministry of Justice invites us to revisit those assumptions, circumventing the House of Lords’ rationale in favour of the more palatable Court of Appeal approach which we must remember was subsequently overturned. The consultation says, “A different balance could be struck by altering the underlying assumption that claimants adopt a degree of investment risk.”
Of course it could, but would it be true?
The expert panel appointed by the former Lord Chancellor to advise on how the discount rate should be set, after the last attempt to review the system by consultation in 2012 gave inconclusive results, didn’t seem to think so. The current consultation refers to the panel’s decision; “They unanimously agreed that it would be appropriate to set the discount rate by reference to ‘risk free’ returns, such as ILGS, without regard to the actual investments made.” In considering other investment approaches, “They concluded that not all of these were consistent with the legal principles presently governing the Lord Chancellor’s choice.”
In addition, the consultation reminds us that defendants have the right to challenge the assumption that any individual claimant will be a low risk investor on a case by case basis – an entitlement which has rarely been taken up. Presumably, high-risk-investor claimants are very hard to find.
At Boyes Turner we see first-hand the physical, mental, emotional and financial impact that negligently caused serious injury has on our clients. We are committed to helping them by achieving the highest levels of compensation, applied to achieve the maximum restitution of mobility, independence and rehabilitation. Our aim is to help provide our clients with the care, accommodation and other facilities that they need to bring them, in so far as it is possible to do so with money, back to the position that they would have been in but for the negligence which injured them.
We work with our clients’ families, experts, counsel and those representing the defendants to secure compensation in the way that will be of greatest help to the claimant, via early interim payments, lump sums and life-long periodical payment awards.
Through our multi-disciplinary approach, and working closely with the Court of Protection, we assist our clients in the investment and wise expenditure of their money.
I try to assist lawyers by explaining, in clear and comprehensible terms, what the relevant issues are and where the strengths and weaknesses of the case lie.
DR PETER DEAR