In February the Government announced the only negative discount rate in the world (minus 0.75%). There was immediate pressure put on the Government to reconsider this change and the associated consultation has led to the announcement that legislation will be implemented to adjust the rate to a figure likely to be between 0% and 1%. Until then, the discount rate remains at minus 0.75%.
The previous 2.5% discount rate was set in 2001. Under the new proposals, future rate reviews will occur on a more regular and formalised basis. The intention is that regular reviews will safeguard the principle that claimants should receive 100% compensation whilst avoiding undesirable tactical behaviour by litigants. It is proposed that rate reviews will take place every three years, but with the precise timing remaining at the discretion of the Lord Chancellor.
The Government intends making the rate-setting process more transparent and guided by expertise rather than (as had been some peoples’ perception) political considerations. The rate will still be set by the Lord Chancellor, however, following input from an expert panel comprising the Government Actuary, an independent actuary, investment manager, economist and individual with “experience in consumer investment affairs”.
Historically, the Government considered claimants to be zero-risk, or very low-risk investors. In line with the view of the largest group of respondents to the Government’s consultation, the discount rate will be based upon the assumption that claimants are merely low risk investors.