The Government’s release of new research into setting the personal injury discount rate should be cautiously welcomed, however the outcome of this research could delay a decision on whether it should change.
The research, released last week by the Ministry of Justice, provides an analysis of stakeholder data and explored the current use and profile of the discount rate, plus how changes in the discount rate affects the size of a claimant’s award and their investment and consumption behaviour. It follows two earlier consultations on the methodology and legal parameters for setting the rate in October 2012 and May 2013 respectively.

Partner Christopher Malla, who spearheaded the firm’s high-profile campaigns during the consultations, said:

"The Ministry of Justice is clearly taking the setting of the discount rate very seriously, which is absolutely right bearing in mind it is used to calculate a claimant's future losses in approximately 70,000 cases per year. Whilst the research sample size is small, it reveals that participating claimants invested in a mixed portfolio rather than index-linked government stocks (ILGS), which is something we have long highlighted".

The current discount rate is based on the notion that claimants invest all their money in index-linked government stocks (ILGS). We argued that neither claimants nor the Court of Protection (on behalf of injured claimants) actually do this, pointing to dedicated personal injury funds which offer a range of assets to invest in and achieve higher rates of return than someone who invests solely in ILGS.

Christopher Malla continued:

"I was pleased to see the research recognise that even a small reduction in the rate would have a significant impact on public bodies and insurers. However, it is unfortunate that the research did not go wider to actually address whether a claimant's damages run out.

"In fact the research concludes by highlighting a significant number of evidence gaps, which may lead the MoJ to further delay a decision into the rate. Public bodies and insurers are waiting for clarity on this important issue and we continue to urge the government to maintain one discount rate for all heads of loss. Furthermore, once set, the discount rate should be in place for at least 10 years so as to provide stability".