The New Discount Rate: Time for Action

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25 July, 2019

The Lord Chancellor has announced that the new Discount Rate will be set at minus 0.25% and will take effect from 5 August 2019. It is disappointing news for Compensators; although damages claims will be reduced, the savings fall far below those that would have been achieved had a change back to a positive rate been effected, as hoped.

Parties must now consider the impact the change may have on any existing cases. In particular, the following action should be taken:

  • Delay settlement, or reconsider the terms. The change is sufficiently imminent to allow parties to legitimately incorporate the new discount rate in to negotiations, or to delay settlement of any cases pending the change where the Claimant refuses to agree do so.
  • Revisit all existing offers made. Have any Part 36 offers been made which are now less favourable? Can they be withdrawn and a new offer made on different terms using new calculations? It may be, for instance, that an old offer becomes more attractive to a Claimant but accepting it exposes them to an adverse costs risk from the date of expiry of the offer, leaving it tactically advantageous for the Defendant to leave it open.
  • Revisit all offers received. Is there scope for a counter offer on better terms? Is there a sufficient saving on a costs/benefit analysis to warrant doing so?
  • Tactical re-think. Are any cases more attractive to settle now than they previously were?

It is fair to say that a 0.5% change in the discount rate will have a fairly negligible effect on all but the higher value claims, but we should still be mindful of the impact on all cases. An example of the potential effects of the change is set out below for illustrative purposes.

At -0.75% At -0.25%
Age at date of trial: 22 22
Lifetime Earnings £22,000 £22,000
Ogden Multiplier from Table 11 (at -0.75%): 55.53 49.10
Total £1,221,660.00 £1,080,200.00
Saving £141,460.00

There are likely to be hefty care, accommodation and other future loss claims in such cases, so the cumulative savings from the recalculations could be substantial.

For more information contact David Mayor in our Insurance department via email or phone on 01254 222416. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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