Compensators have been told to start preparing for a new discount rate as it will come into force in no more than eight months, following the Civil Liability Bill receiving Royal Assent yesterday.
Under its provisions, the Lord Chancellor must start a review of the rate within 90 days. He must then determine the rate within 140 days of the review commencing, meaning that the latest he can set the new rate is 7 August 2019.
The Ministry of Justice has already started preparing for the review by issuing a call for evidence earlier this month. It closes on 30 January 2019.
The rate is almost certain to change from the current -2.5% because the Act alters the way in which it is calculated.
At present, the assumption is that claimants choose ‘very low’ risk investments for their damages; this will change to an assumption that they will select more risk than a very low level, but less risk than would ordinarily be accepted by a prudent and properly advised individual investor.
The Lord Chancellor must consult with both the Government Actuary and the Treasury as part of this process.
Deborah Newberry, head of corporate and public affairs at leading defendant firm Kennedys, said: “Reform to the discount rate is to be welcomed and it will in future reflect a real-world approach to how claimants invest their damages. Compensators will in turn be able to plan their reserves in a more realistic manner.
“We can expect a certain amount of tactical manoeuvring in the coming months ahead of a change in the rate, but at all times both claimant and defendant lawyers must bear in mind the importance of doing what is best for the client.
“Given the call for evidence has already begun, we could see a new rate before August 2019.”
The Ministry of Justice said the Act would ensure that discount rate was reviewed “in a more regular, transparent way” – it will be done every five years – and ensure that claimants suffering life-changing injuries “still receive full and fair compensation”.
It continued: “The changes will also reduce the burden of over-compensation on defendants, in particular the NHS, and will make the system fairer for all – including taxpayers and motorists.”
The Courts and Tribunals (Judiciary and Functions of Staff) Bill also received Royal Assent yesterday, having just completed its passage through Parliament.
It will allow qualified court and tribunal staff to deal with routine matters – so-called box work – so as to free up judges’ time to focus their expertise on more complex matters.
It will also allow the judiciary to be flexibly deployed across jurisdictions where they are most needed, allowing judges to gain experience of different types of cases and helping with their career progression.
Justice minister Lucy Frazer said: “This bill supports our fundamental transformation of the justice system, making courts easier to use, more efficient and fit for the digital age.
“By enabling judges to hear cases in different jurisdictions and giving court staff powers to deal with routine issues, we will make our courts more efficient and effective, while making better use of taxpayers’ money.”