In the Media

Clarke looks again at discount rate deductions

PUBLISHED August 16, 2012

Thursday 16 August 2012 by John Hyde

Justice secretary Kenneth Clarke has opened talks with the personal injury sector amidst concerns that claimants are missing out on their rightful compensation.

Clarke and his equivalents in Scotland and Northern Ireland are looking again at the discount rate; the amount deducted from settlements on the basis that sums will accrue interest in the future. The intention is to put the injured person in the same material position they would have been in if they had not been injured, by factoring for income that may be generated from investment of damages they have been awarded.

The rate has been set at 2.5% since 2001 and is based on yields of Index-Linked Government Gilts (ILGs).

Campaigners have argued the rate is out of date, and a consultation paper released by the government last week acknowledges the methodology needs to be reassessed. 'Yields on ILGs have been declining for some time and there is a risk that the present rate may now be too high,' said the Ministry of Justice.

'In the light of this possibility the lord chancellor, the Scottish ministers and the Department of Justice in Northern Ireland have each decided that the discount rate ought to be reviewed to ensure that it is still set at an appropriate rate.' Last year the Association of Personal Injury Lawyers threatened a judicial review over the issue amidst claims that some claimants were being under-compensated by hundreds of thousands of pounds.

The government consultation invites comments from all sides of the personal injury sector and is open until 23 October.

The consultation considers two methodology options of whether a 'claimant investor' should be linked to low-risk index-linked government stocks or to a calculation based on a mixed portfolio of appropriate investments.