Discount Rate - the Aftermath

Article

07 April, 2017

Last month, Liz Truss took the surprising step of reducing the discount rate from 2.5% downwards to -0.75%. Lowering the rate to -0.75% means the cost of paying for lump sum personal injury compensation will significantly increase. Future settlements are likely to be double or even treble in value.

Since the new discount rate came into effect on 20 March 2017 we are already seeing the fallout of the new discount rate. Last week the High Court in the matter of Thompson v Reeve allowed a claimant to withdraw a Part 36 settlement offer made before the discount rate applied. On 25 August 2016 the Claimant made a Part 36 offer to settle the claim in the sum of £340,000, but on 28 February 2017 (the day after the announcement of the new discount rate) her solicitors sent an email withdrawing the offer. With revised multipliers, the claim was then put at about £602,500.

The Ministry of Justice have also announced a consultation on calculating the rate. The paper considers possibilities for how, when and by whom the discount rate should be set, but does not make specific proposals.

The core issues examined in the consultation paper are:

  • What principles should guide how the rate is set?
  • How often should the rate be set?
  • Who should set the discount rate?

It has been reported that Liz Truss is considering handing responsibility for setting the discount rate to an independent body. The paper also considers whether sufficient use is being made of periodical payment orders.

Following the six-week consultation, it is reported that the Ministry of Justice will bring forward 'any necessary legislation to strengthen the way in which the rate is set'.

Forbes comment

It is clear that the impact of the rate change is likely to be far reaching for insurers, defendants and public bodies with large personal injury liabilities. Going forward, defendants need to be cautious and take steps to re-examine Part 36 offers, Schedules of Loss and budgets.

For further advice please contact Sarah Wilkinson by email or on 01254 662831.

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