APIL legal threat forces Ministry of Justice to announce outcome of 2012 discount rate review

Sugarman: discount rate is now clearly far too high

Sugarman: discount rate is now clearly far too high

The government is finally set to announce the result of its review of the discount rate for personal injury claims – more than four years since issuing a consultation – in the face of legal action by the Association of Personal Injury Lawyers (APIL).

The discount rate is the rate of return to be expected from the investment of a lump sum award of personal injury damages for future loss, and applied to the lump sum to ensure a claimant is not over-compensated.

The rate has been 2.5% since 2001, largely by reference to yields from index-linked government gilts (ILGS). This is on the basis that claimants would seek low-risk investments

However, the low rate of return prompted calls for it to be changed, and in August 2012 and February 2013 the Ministry of Justice (MoJ) issued two consultation papers on the discount rate – first considering the methodology for setting the rate, and then seeking views on the legal framework.

Also in 2013, research commissioned by the MoJ contradicted the premise of the consultation that claimant recipients of lump sum compensation payments tend not to invest them as cautiously as assumed.

However, despite pressure from APIL over the years, the government has not taken the issue any further. One problem it has is that a reduction in the rate would cost the NHS more through higher compensation payments.

But APIL began judicial review proceedings and government lawyers confirmed to the association today that the Lord Chancellor will publish the result of the review by the end of January 2017.

APIL president Neil Sugarman said: “People with lifelong injuries are continuing to be undercompensated, in some cases, by hundreds of thousands of pounds, because successive governments have dragged their heels and failed to review the discount rate to reflect changes in the economy.

“Since that decision was made, yields have declined to the point that the discount rate is now clearly far too high.”

Peter Todd, a partner at London firm Hodge Jones & Allen, acted for APIL on the judicial review. He said: “I have little doubt that this long-running review of the discount rate would have dragged on, unless APIL had started legal action challenging the delay.

“I am delighted that a date for the conclusion of the review has now finally been announced. I hope the new rate will fairly reflect risk-free index-linked government investment bond returns net of income tax and hence the rate will be very substantially reduced.”

The MoJ said a decision “of such complexity and importance as whether the rate should be changed, and if so to what extent, could only be taken after the kind of detailed and thorough review capable of commanding public confidence and, specifically, the confidence of all affected.

All this has taken significant time, including two public consultations and seeking the views of an expert panel. However, the remaining steps, such as the mandatory consultation with the Treasury and Government Actuary, should be completed in short order.”

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