The Ministry of Justice (MoJ) has issued a call for evidence on the new personal injury discount rate to be set under what will soon be the Civil Liability Act.
The MoJ said it had decided to go ahead before the Civil Liability Bill received Royal Assent, so the “relevant data and information” was available for the first review of the rate within the timescales set by the bill.
The cutting of the discount rate from 2.5% to -0.75% by former Lord Chancellor Liz Truss in February 2017 greatly increased personal injury awards for the most serious cases, triggering howls of protest from the insurance industry and the NHS and plaudits from claimant lawyers for restoring proper compensation.
Under the bill, the Lord Chancellor will set the discount rate with advice from an expert panel, chaired by the Government Actuary, and the Treasury. For the first review, he needs only to consult the Government Actuary and Treasury.
He must start the first review within 90 days of the Civil Liability Bill receiving Royal Assent and fix the new rate within a further 140 days.
The MoJ said the changes in the Civil Liability Act to the way the discount rate was set were intended to ensure that it reflected the return that, in the Lord Chancellor’s opinion, a personal injury claimant could “reasonably be expected to receive” from investing a lump sum in a “diversified low risk” portfolio.
It wanted evidence on the investments available to claimants, investment advice, investments actually made by claimants, taxation and inflation.
Further evidence sought was on investment management costs, model investment portfolios and other considerations, such as examples of investments made by investors “with a similar risk appetite” to personal injury investors under the bill, including pensioners with defined contribution schemes.
The MoJ said it may be relevant in setting the rate to consider “as an additional factor” the investment management costs a ‘properly advised’ claimant might face.
“This may turn on the extent to which a properly advised claimant would be assumed to choose to invest in a manner requiring active or passive investment.
“We are therefore also interested in evidence of the extent to which claimants can properly reduce their exposure to investment management costs.”
In his foreword to the call for evidence, justice secretary and Lord Chancellor David Gauke said: “Calculating what the personal injury discount rate should be is a demanding and technical exercise, but it is vitally important to many of the most vulnerable individuals in our society that the rate is set fairly and accurately.
“I would urge everyone who can provide evidence to do so. Your contribution may make the difference between victims of dangerous driving, clinical negligence or workplace accidents receiving the right compensation and their awards being inadequate or excessive.
“Excessive compensation unfairly diverts money that could be spent on hospitals and other frontline public services and drives up the cost of insurance, particularly for motorists.”
The call for evidence is open for eight weeks.