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APIL puts pressure on Lord Chancellor to review discount rate or face a judicial review

By Dominique Parker, Associate in Personal Injury.

Ken Clarke, the Lord Chancellor has decided to review the discount rate under the powers described in section 1 of the Damages Act 1996. This followed increased pressure from the Association of Personal Injury Lawyers (APIL) who threatened a judicial review to force the issue to be considered.

The discount rate is used to reduce items of future expense in personal injury claims. This means that a lesser amount is paid now for an expense that will be incurred in the future, as the claimant or injured person will have the benefit of investing that money.

The idea is that a claimant will not be overcompensated for their losses in the future. However a balance has to be struck. Whilst we all agree claimants should not be over compensated we must make sure that they can afford to pay for the things that they need in the future as a result of a third party's negligence. After all the principal behind a personal injury claim is that it should put the injured person back into the position they would have been if the incident had not happened.

The current discount rate has been in place for many years and assumes that injured people will be able to get much better interest rates on risk free investments than actually exist. This means that injured people will find themselves in the position where they don't have enough money to pay for things and are either dipping into their own savings or having to rely on public resources. This is clearly wrong if a third party is found responsible for causing the injuries.

For many years the discount rate has been 2.5%. This means that the court assumes that injured people will be able to invest and receive an annual net rate of return on that investment of at least 2.5%, after inflation has been accounted for.

For example, if a claimant requires an operation in five years time and it will cost £5,000, the court will give them approximately £4,400 now to invest. By the time the operation is required it is assumed that the investment will have grown to £5,000. In the current economic climate this is unrealistic and in fact the average yield over the last three years has been 1.05%. It is possible the Lord Chancellor could reduce the discount rate to 1% in the coming months. Using the same example and applying a discount rate of 1% would mean that an injured person would recover approximately £4,750, £350 more to invest for the cost of that operation. There is a better chance that they would be able to afford that surgery on a private basis and not have to fall back on NHS provision.

As members of APIL, all the personal injury and clinical negligence lawyers at Thomson Snell & Passmore are welcoming this news. We hope that the Lord Chancellor will review this matter urgently and make the decision to reduce the discount rate as soon as possible.