In October last year we wrote about the Ministry of Justice’s response to its consultation on revising the personal injury discount rate (a copy of the article is here).
Without much fanfare, this month MoJ published the Civil Liability Bill and introduced it in House of Lords (here). As well as dealing with the discount rate, the new Bill re-launches the Government’s attempts to scoop up and regulate whiplash road traffic accident claims. This part of the Bill re-adopts measures in the Prison and Courts Bill, which lapsed last year because of the general election.
The Justice Select Committee examined the draft legislation on the discount rate and reported in November 2017. The Committee’s key findings were that there should be better safeguards for vulnerable claimants and their damages and that the government should carry out a careful investigation into how claimants actually invest their damages in order to set a discount rate which reflected the reality of investment.
From the Bill and accompanying documents it appears that the government has not completely taken the advice of the JSC that further evidence was required, although it indicated that evidence will be sought as part of the first rate-setting process after the Bill has been passed.
The Bill largely holds to the process for setting the discount rate that the MoJ proposed last September. There are three key proposals to achieve this:
The discount rate will be set on the basis of an assumption of investment in low risk portfolios rather than very low or no risk portfolios (which breaks the current link between the rate and ILGS returns)
The Lord Chancellor will set the discount rate in consultation with an expert panel
The discount rate will be reviewed at least every three years
There is discretion built into the Bill to allow a court to choose a different rate of return if a party can show that will be appropriate in the particular circumstances of the case.
One of the new points in the Bill, when compared to the position in September, is that the Lord Chancellor will be under duties to give reasons for decisions and to publish information from the expert panel. The government has, in addition, committed to providing an impact assessment each time the rate is reviewed.
There has been no clear indication at what level a new discount rate might be set, although the September materials referred to a range between 0 per cent and +1 per cent. The recent announcement suggests that the first review should begin promptly after the legislation has been enacted. Allowing for the Parliamentary process, current industry estimates appear to be that the first change to the discount rate could take effect in the second half of 2019 (but nothing is certain in this respect).
What this means for you?
The Government’s stated expectation is that the rate-setting process in the Bill should, “relative to the approach of the present law, produce a higher discount rate and lower lump sum awards”. That said, for the next year or so it appears highly likely that the discount rate will remain at -0.75 per cent, representing an increase in damages for future losses (when compared to the +2.5 per cent rate which applied until last March) for those claimants who receive lump sums.
Exactly when a new discount rate might apply and whether the new rate-setting process is enacted on the basis now proposed in the Civil Liability Bill remain to be seen.