The new Labour government will today start a review into the personal injury discount rate. In a statement to the London Stock Exchange, the Ministry of Justice said it will immediately begin work on what will be the second review of the rate since the Civil Liability Act 2018.

That legislation requires that the lord chancellor - Shabana Mahmood MP (pictured above), who will be sworn in this afternoon - must determine whether the rate should be changed within 180 days of starting the review. The process will therefore be complete by no later than 11 January 2025.

The discount rate is a percentage figure used to apply to personal injury damages, to take account of victims’ future losses and expenses.

It has been set at -0.25% since August 2019, effectively meaning that damages are increased to account for the lack of potential returns on future investments. This had been adjusted from -0.75% which was introduced by then lord chancellor Liz Truss in March 2017, to the fury of the insurance industry. Previously the discount rate had been 2.5% since 2001.

The Civil Liability Act started the process for regular reviews of the figure in England and Wales, and earlier this year the MoJ completed a call for evidence on how the rate should be calculated.

During that call for evidence, the Association of Personal Injury Lawyers urged the government to take into account the costs of handling investments and the increased tax burden before contemplating adjusting the rate.

Meanwhile, the Association of British Insurers has told the government to ‘reduce the impact’ of the rate on insurance premiums. It said in April: ‘We think the rates in the UK should be re-evaluated to better reflect the real returns accumulated by low-risk investors of lump sums and have been working to feed into calls for evidence which will inform a decision this year.’

Alistair Kinley, director of policy and government affairs at international firm Clyde & Co, said the government will be guided by detailed advice from the actuary's department and HM Treasury about how invested damages will perform. It will also pay close attention to the outcome of similar reviews affecting the discount rate in Scotland and Northern Ireland, due in early October.

Kinley added: ‘We’ve always had a single PIDR in England & Wales and despite the Ministry of Justice exploring potential dual discount rate models in 2023, our current thinking is that a single PIDR model is likely to be retained.

‘Dual rates could increase complexity, cost and delay, none of which seems to be in the interests of ensuring fair and timely compensation in severe injury claims.’

 

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