A Proposed Rise In The Discount Rate May Leave Vulnerable At Risk

Helen Grant (The Parliamentary Under-Secretary of State for Justice) has indicated that in the future those who have suffered the most severe personal injuries may have to risk losing the damages that they have received.

When an injured person is awarded a lump sum which includes losses that they will incur in the future (such as the cost of medical treatment, the costs of care and financial losses, such as loss of wages) the Court will apply a “Discount Rate” to reflect that the lump sum can be invested, and the income produced by that investment may lead to the injured person being over-compensated.

Since 2001 the Discount Rate has remained at 2.5%. In 2010 the Association of Personal Injury Lawyers (APIL) requested that the Discount Rate be reviewed as over the previous three years the return on Gilt investments (a Government bond, which is one of the safest of investments) had been 1.05 per cent and those with the most serious injuries, who received the biggest compensation awards, had lost the most. APIL recommended that the Discount Rate should be reduced in order to reflect the poor return from investments. In February 2012 an APIL spokesman explained a new rate was a ‘matter of urgency’ for some injured people under-compensated by hundreds of thousands of pounds. After APIL threatened to bring a judicial review regarding the Discount Rate, a decision was taken by the Lord Chancellor to review the Discount Rate.

In February this year, contrary to APIL’s findings, Helen Grant indicated that initial evidence may actually support a rise in the Discount Rate used to calculate deductions from compensation awards.  The ministry of Justice has commented that there was evidence that recipients of lump sums ‘do not invest in the cautious way that is envisaged by the guidelines’ and went on to say that ‘The initial evidence indicates [successful claimants] seem to invest in mixed portfolios, including higher risk investments’.

The comments from the Ministry of Justice are an obvious concern for the victims of personal injury. An increase in the Discount Rate will force those who have suffered the most severe injuries to invest their damages in higher risk investments in order to meet the cost of their future care and medical needs. The Government should not be forcing victims to move away from cautious investment, as a bad investment could leave a severely injured person with insufficient funds to pay for their ongoing needs.

There is an ongoing consultation regarding the review of the Discount Rate, and the latest consultation paper can be found here.

The consultation closes on 7^th May 2013.