The government is set to announce a decision on the personal injury discount rate. This is an announcement that has been a long time in the making, as a consultation on the discount rate was held several years ago but until now no decision has been made.
The discount rate represents a reduction made to personal injury (PI) compensation awards, such as traffic accident or workplace injury claims. The amount that the injured claimant receives is reduced in order to reflect the level of interest that the funds are expected to earn. The rate is set according to the yields of index-linked government stocks.
At present, the discount rate is 2.5%. This rate has not been reviewed in roughly 15 years, and has seen some significant shifts in the economy without changing to reflect them. In particular, the global financial downturn of 2008 profoundly changed the UK economy, and significantly reduced the amount of interest available from savings accounts, stocks, and bonds.
As a result, there have been concerns among legal professionals for some time that the discount rate is therefore set two high, and is unfair to compensation claimants. Injured people who claim compensation, it is suggested, are seeing the amount of money they receive cut unfairly and excessively because the rate is not representative of the amount of interest they can earn on their payments.
It is now over four years since the conclusion of a government consultation on the possibility of adjusting the PI discount rate in light of these concerns. So far, however, no decisions or major announcements of any kind have followed, and it has seemed as though the government has done nothing with the findings of the consultation. Now, this is finally set to change. The government has said that an announcement will be made some time before the end of January next year, including a final decision on whether the rate should be adjusted and, if so, how this should be done.
The Association of Personal Injury Lawyers (APIL) has been among the more prominent groups campaigning for a reduction in the current rate, which has been in place since 2001. APIL president Neil Sugarman said: “People with lifelong injuries are continuing to be undercompensated, in some cases, by hundreds of thousands of pounds, because successive governments have dragged their heels and failed to review the discount rate to reflect changes in the economy.”