The personal injury discount rate was set at 2.5% back in 2001 by the then Lord Chancellor and has not been reviewed since, despite changes to the economic climate. APIL (Association of Personal Injury Lawyers) has been campaigning for a review.
The discount rate is applied to damages awarded in personal injury cases to account for the claimant being able to invest compensation and see a return on that investment through interest. In effect, when compensation awards are calculated, they are reduced to some extent to reflect this investment potential. APIL lodged a complaint with the Treasury Solicitor and threatened to commence proceedings for Judicial Review with regard to the Lord Chancellor's failure to undertake a review of the discount rate, which APIL deems to be unrealistic in today's economic climate. On 8 November, the Treasury Solicitor made a statement that 'The Lord Chancellor is prepared to undertake a review of the current discount rate, and will commence that review shortly'.
The rate was set at 2.5% in 2001 with reference to yields generated by index-linked government stock (ILGS). However the problem is that yields from ILGS have declined steadily, meaning that in reality, it is extremely difficult for claimants to achieve anything close to a 2.5% return on damages invested. In turn, this means that compensation awards for future losses have been and are being too heavily discounted and consequently fall short in terms of the heads of loss they were awarded or agreed for.
APIL President, Muiris Lyons, has said: “For years now, injured people have been undercompensated because of the previous Government’s failure to review the discount rate in light of economic changes. Our hope now is that the Lord Chancellor’s review proceeds quickly and redresses this imbalance which has had such an impact on injured people for so long."