The government is expecting to legislate on changes to the discount rate early next year, MPs have been told. Speaking to the House of Commons justice committee, justice minister Lord Keen of Elie (Richard Keen QC) said lord chancellor David Lidington will then set about fixing the discount rate ‘as soon as he can’.
‘We do not anticipate a lengthy window before the discount rate is reviewed for the first time,’ said the minister.
Keen told committee members last week that the process for setting the rate will be more transparent in future, and will be reviewed more regularly.
Former lord chancellor Liz Truss revised the rate – which sets the level of deduction from personal injury awards – from 2.5% to an uplift of 0.75% in February. It was the first alteration of the rate since 2001.
Lidington said in September that the rate would be set by reference to rates of return on ‘low risk’ rather than ‘very low risk’ investments as at present, with the new figure set to be ‘in the region of 0% to 1%’.
Keen confirmed that the panel of experts helping the lord chancellor to set the rate will include an economist, an investment manager and someone concerned with consumer aspects of financial investment.
The minister denied that the new system would be unfair to claimants, adding: ‘It would be extremely surprising if the lord chancellor found himself fixing a discount rate in which many were undercompensated and a few were overcompensated.’
Keen said there was ‘no compelling evidence’ that vulnerable claimants were investing purely in index-linked gilts and therefore had a lower expectation of returns than ordinary investors.
He noted that one motor insurer, LV, had already publically stated that it would reflect any savings in premium reductions, adding that ‘if one of the leaders in that market is going to pass on those savings, it would be surprising if others did not feel obliged to do the same’.