The aim of compensation is to put the claimant in the same financial position as if they had not been injured.
When damages are awarded for future losses, they are discounted on the assumption that funds will be invested and will attract a return in capital. It was assumed that claimants would invest in very low risk index-linked government stock and the rate had been set at 2.5% since 2001. The rate was revised earlier this year to minus 0.75%. In practice this has increased damages because the expected income from investment is lower.
In September 2017, the Ministry of Justice produced a response to its consultation, ‘The Personal Injury Discount Rate: How it should be set in future,’ which concluded that it would be more realistic to base the rate on a low risk diversified portfolio of investments which would indicate a discount rate of 0% to 1%. This approach would mean a reduction in compensation from the rate imposed in March, although it would still be more expensive than the pre-March rate. Parliamentary legislation is required to make the proposed changes and this is likely to take many months.