The recent discount rate announcement sent shockwaves through the personal injury world – nobody predicted the reduction from 2.5% to -0.75%.
Since the rate of 2.5% was introduced, it has generally been accepted as unachievable. It meant pursuers were only able to generate enough money and make it last, if they invested in a mixed portfolio. The new rate should give pursuers a greater chance of meeting their lifetime needs.
The Lord Chancellor confirmed that legally she must follow the Wells v Wells principles: the discount rate should be based on an investment portfolio which offers the least risk; a single, fixed rate should be used in all cases and it should be easy to use. She confirmed a further consultation will be launched before Easter to review how the discount rate is set, specifically whether: the rate should be set by an independent body; more frequent reviews would improve predictability and certainty; the methodology assuming pursuers invest only in index linked gilts (ILGS) is correct.
Changes might include: using averaged ILGS rates or a single rate linked to the Bank of England base rate, CPI or RPI or a typical low risk portfolio; applying different rates for particular heads of loss; greater use of periodical payments or provisional damages; recovery of investment and advice fees; a review of Roberts v Johnstone calculations.
It will be interesting to see how long this consultation takes and whether the rate will be reviewed. Anecdotally, we understand some defenders are delaying settlement, hoping for a higher discount rate. The maths tells us that a discount rate of -0.75% still requires a pursuer to take some risk, but by doing so, they should now be able to fund their lifetime losses. On this basis, we believe any increase would be a move away from the principle of 100% compensation.
In this issue
- Pursuers' offers: proceed with care (1)
- Article 50: today, tomorrow and the two-year myth
- Tackling bribery: follow the US?
- Small holdings, big complexities
- Brexit: white paper, muddy waters
- Reading for pleasure
- Opinion: Caroline Kelly
- Book reviews
- President's column
- Land Register applications – the inside view
- People on the move
- Help on our shores
- The importance of thinking differently
- A new crime scene
- Embarking on the UK-EU negotiations
- Pursuers' offers: proceed with care
- From discount to premium
- The law, standing accused
- Equality – the global agenda
- The Discount Rate – what next?
- It's not over until it's over!
- Sheriff and jury – the big changeover
- Rates? Sorry, can’t help you there
- Looking beyond the U-turn
- Planning gain all round?
- Scottish Solicitors' Discipline Tribunal
- Nil rate IHT and the family home
- Voice of experience
- Quality Assurance Criteria amended
- Law reform roundup
- Ask Ash
- All change in the PRS
- I think you would like this
- Master Policy – what will be different?
- Scottish Arbitration Survey: please help
- Q & A corner: client due diligence at a distance
- Cybersecurity demystified
- Confidentiality and third-party complaints
- 1,000 student associates!