Government unveils new basis for setting discount rate

Lidington: rate should be reviewed fairly and regularly

The government is to change the basis on which the personal injury discount rate is calculated, with the rate set by reference to ‘low risk’ rather than ‘very low risk’ investments as now.

This would likely mean adjusting the current rate of -0.75% to somewhere between 0% and 1%, it estimated.

The move would better reflect the actual investment habits of claimants and “significantly reduce overpayment”, the Ministry of Justice said today as it prepared to publish draft legislation which will be open for public comment.

In further changes, the rate will be reviewed at least every three years and the Lord Chancellor will consult a panel of independent experts when setting the rate.

The then Lord Chancellor Liz Truss announced the consultation in February at the same time that she changed the rate, acknowledging the significant impact it would have on the public finances and insurers.

Her successor, David Lidington, said today: “We want to introduce a new framework based on how claimants actually invest, as well as making sure the rate is reviewed fairly and regularly.

“In developing our proposals, we have listened carefully to the views of others, and we will continue to engage as we move forward.”

The MoJ said the shift to ‘low risk’ investments was based on evidence gathered during the consultation.

“Where they expressed a view, consultees advised that claimants do not invest in very-low risk portfolios such as one entirely comprising index-linked gilts and many suggested that it is reasonable to expect claimants to invest in low-risk portfolios instead.”

The proposals envisage that a review of the discount rate would be started within 90 days of the new law coming into force. On this review the Lord Chancellor must consult the Government Actuary and HM Treasury as now.

On all further reviews, the role of the Government Actuary as a statutory consultee will be taken by an independent expert panel, which will be chaired by the Government Actuary.

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