The Lord Chancellor has announced the result of the discount rate review will be given on 31 January 2017.
Under s.1(1) of the Damages Act 1996, the Lord Chancellor has the power to make an order prescribing "the return to be expected from the investment of a sum awarded as damages for future pecuniary loss in an action for personal injury…". The return is commonly known as the 'discount rate'.
The discount rate was set at 2.5% by the Lord Chancellor in 2001. The courts may use a different discount rate in exceptional circumstances; however there have been no cases in England and Wales; the rate of 2.5% has governed every personal injury case in the last 15 years.
However in 2014 the Irish High Court in Russell v Health Service Executive dropped the discount rate to 1% on the basis that yields from Index Linked Government Stocks have dropped to zero since the financial crisis.
Indeed, there have been significant changes in the financial markets, leading claimant representatives to call for the discount rate to be reduced. In August 2012 the yield on ILGS had been declining and routinely falling under 1%. Despite this no review was undertaken and therefore, the Association of Personal Injury Lawyers (APIL) began proceedings for Judicial Review in July 2014.
Two public consultations and opinions of an expert panel have subsequently taken place, and the mandatory consultation with the Treasury and Government Actuary is underway.
It is likely the discount rate will be reduced to reflect current return on investments, which will increase the value of claims for future losses and accordingly the total costs of claims.
Whilst claimants will not wish to settle until the change is announced in the new-year, insurers should try to benefit from the current rate and settle relevant claims now.