15 July, 2019
The Lord Chancellor has today announced that the new discount rate will be set at minus 0.25%. The announcement follows a comprehensive review of the rate as provided for in the Civil Liability Act 2018.
Currently the discount rate stands at minus 0.75% after it was controversially reduced in 2017. The lowering of the discount rate saw a dramatic increase in compensation payments and many are of the view that claimants have been "over compensated" as a result. The current discount rate is also blamed for placing increasing financial pressure on public sector organisations and large bodies who have significant personal injury liabilities. Insurance companies have already expressed their dismay at the modest alteration to the discount rate, as many had hoped the rate would have been increased to at least 1% or more. The Lord Chancellor and Justice Secretary David Gauke commented today in relation to the new rate, "It is vital victims of life-changing injuries receive the correct compensation - I am certain this is the most balanced and fair approach following an extensive consultation."
The new rate will come into force on 5 August 2019.
A Statement of Reasons explaining the -0.25% rate will be laid in parliament later today, and we will report further on those reasons in due course.
In the meantime, we recommend that relevant cases are reviewed to assess the impact of today's announcement. According to an example provided by the Ministry of Justice, today's announcement could see an adjustment as follows: 30-year-old male with annual financial costs of £50,000. Under existing minus 0.75%, he would be awarded £2,935,500. Under the new rate (minus 0.25%), he would be awarded £2,565,250, a difference of £370,250.