Discount rate now 0.5%

On 2 December 2024 the Lord Chancellor announced a change in the discount rate for use in England and Wales from –0.25% to +0.5%, with the new rate effective  from 11 January 2025.

What is the discount rate?

The decision in Wells v Wells [2002] EWCA Civ 476 sets out that the aim of damages for future pecuniary loss is‘…to place the injured party as nearly as possible in the same financial position he or she would have been in but for the accident’. Consequently, in calculating future financial losses, a discount rate is applied, the purpose of which is to account for any return on investment that may be achieved whilst damages are invested pending use over a defined period or at any given future date.

The discount rate was, until the announcement on 2 December 2024, set at -0.25% and had been effective since 2019, but legislation mandates that it should be reviewed every 5 years. The purpose of these reviews is to ensure the discount rate is appropriate to reflect the return on investment that may be fairly achieved, depending on economic circumstances at the time, the aim of which is to reduce the risk of under or over compensating the injured party.

Following the enactment of the Damages Act 1996, the responsibility for setting the discount rate in England and Wales lies with the Lord Chancellor. On 15 July 2024, the Lord Chancellor announced the commencement of the 2024 review of the discount rate. On 2 December 2024, based on the recommendations of an expert panel, the Lord Chancellor confirmed a new rate at a 0.5% discount rate which will take effect on 11 January 2025.

Impact on injury claims

The rise to 0.5% will alter the amount in damages Claimants will receive. As the rate has increased, the amount Claimants will receive in damages will be less as, it is expected that with appropriate investment, their compensation monies will have a greater return on investment.

The new discount rate represents means Claimants and particularly those with catastrophic injuries who have significant future needs, will receive less money  to purchase necessary goods and services and most likely will need to make shrewd investment decisions to ensure that they are able to meet the cost of their needs in the longer term.

The  change to the discount rate is more likely to lead to Claimants with significant future losses, particularly future care needs, looking to resolve their claims on the basis of a smaller lump sum combined with an annual  periodical payment, which is regularly indexed-linked to carer wages, and removes from the equation the applicability of the discount rate.

For claims where future financial losses are limited, the effect of the increased discount rate is likely to be less significant. Fortunately, the reduction in damages is likely to be more modest, but it will still have an impact on investment decisions.

Contact Us  

We have an expert team within our Injury and Medical Claims department on hand to assist, should you require advice or assistance on this topic.