On the morning of 27 February 2017, the Government announced their decision to reduce the discount rate that applies to personal injury claims from 2.5% to -0.75%.

The discount rate is set to calculate deductions from personal injury compensation to take account of interest on future investments.

The decision to reduce the discount rate was announced by Lord Chancellor and Justice Secretary, Liz Truss, who commented:

“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 new rate came into effect on 20 March 2017.

The previous 2.5% discount rate was set by the then-Lord Chancellor, Lord Irvine of Lairg, in 2001. The rate remained the same ever since and did not reflect subsequent changes in the economy.

Over the past few years, whilst interest rates have remained dormant, the discount rate became evidently too high. Meanwhile, injured people who settled their future loss claims during this period were significantly undercompensated.

In order to restore quality of life for the most seriously injured claimants, significant sums of money are required to cover costs of care, accommodation, equipment and other such future losses. The discount rate, as it was, left claimants and their families short-changed. The Government promised a review of the discount rate, which was long put off.

The Association of Personal Injury Lawyers (APIL) campaigned for a re-evaluation of the discount rate for many years. They eventually began legal action to challenge the Government’s delay and the review subsequently went ahead.

The new discount rate will see damages rise for those who have suffered the most serious injuries. The increase is by no means excessive. It is now reflective of the current return on investments, as it should be. Therefore, claimants will now finally get the compensation that they are entitled to.

The decision will have an effect on the insurance industry and the NHS. This was acknowledged by the Lord Chancellor when the announcement was made.

The Government has said that is committed to ensuring that the NHS Litigation Authority and General Practitioners have appropriate funding available to meet additional costs.

The Government also confirmed when making the announcement that the Chancellor, Philip Hammond, would meet representatives of the insurance industry to assess the impact of the rate adjustment.

Insurers have unsurprisingly complained, stating that insurance premiums will need to rise to cover the increase in compensation payments. Even if that were the case, those who suffer life changing injuries through no fault of their own should still be entitled to receive full compensation.

In addition, only the most seriously injured people will benefit from the change to the discount rate. The reality is that only a small proportion of claimants will have such significant future losses.

The change in the discount rate is an acknowledgement of the long established principle that claimants must be put back in the position they would have been in had the accident not occurred.

The good news for the vulnerable section of society was summed up well by APIL:

“Any one of us might have our lives, or the life of a loved one, changed in an instant. Everyone should welcome the fact that wrongdoers will now pay their dues and the people they injure will e compensated fully and properly cared for.”