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Published On: April 24, 2017 | Blog | 0 comments

Will the snap General Election increase uncertainty over the new discount rate?

It’s fair to say that most people were very surprised last week when the Prime Minister called a snap general election to be held on 8 June.  MPs then voted, by a margin of 509, in favour of the poll.  It would appear that Theresa May considers that a general election will bring stability at a time of considerable political and economic upheaval as she prepares to start negotiations for a hard Brexit.  Whether that in fact proves to be the case is another matter, but what will it mean for changes already on the table?

It was hoped that years of uncertainty for the victims of personal injury would be brought to a close on 27 February 2017 when the Lord Chancellor Elizabeth Truss finally announced the result of the discount rate review.  However, Ms Truss’ decision to cut the rate from 2.5% to – 0.75% (in force from 20 March) was met with horror and criticism by the insurance industry and NHS representatives.  The Lord Chancellor said at the time:

‘The law is absolutely clear – as Lord Chancellor, I must make sure the right rate is set to compensate claimants.  I am clear that this is the only legally acceptable rate I can set.’

The discount rate refers to the percentage by which lump sum compensation is adjusted to take account of the real net rate of return a claimant can expect to earn by investing it.  Claimants are supposed to be treated as risk averse investors and therefore the discount rate should reflect that.   However, with the discount rate unchanged at 2.5% since 2001, and interest rates at an all-time low, this was clearly unfair and leading to the undercompensating of those with serious and life-changing injuries.

The change was of course welcomed by claimants and their representatives but with the insurance industry up in arms about the likely increased costs for them, the Government pledged to do the following:

  • Ensure that the NHS Litigation Authority has funding to meet increased NHS clinical negligence costs;
  • See that the Department of Health work with GPs and their defence organisations to ensure that they also have sufficient funding to meet increased costs;
  • Launch a consultation in the near future to consider whether there is another framework, an alternative to the discount rate, which could work better for all parties and to move forward with any necessary legislation.
  • Chancellor Philip Hammond met with insurance industry representatives to discuss the impact of the rate change.

So what happens now in the wake of the shock call for a general election?  It seems inevitable that no decisions are going to be made on the discount rate until after 8 June. The Prisons and Courts Bill has already fallen by the wayside since the announcement.  We can only speculate on what might happen after the election.

All of this means more uncertainty for claimants.  Whilst the new rate will be applied in those claims which are due to go to trial imminently, other claimants will likely be left in limbo.  Insurers and the NHS Litigation Authority may well refuse to engage in settlement negotiations until after review of the consultation on the rate which could be many months away now.  All of this leaves claimants in an invidious position.

Uncertainty in the political sphere should not be used to derail the purpose of the new rate.  That is of course, to ensure that those with serious and life-changing injuries are properly compensated for their injuries and are able to utilise that compensation to, for example, pay for much needed care or treatment, without fear that it will run out whilst they are still alive.

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*

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