Discount rate cut 'doesn't add up'

PERSONAL INJURY CLAIMS: Lord Chancellor denies courts the right to set their own rates

The Lord Chancellor's Department (LCD) was this week accused of having got its sums wrong over its decision to reduce the 'discount rate', despite the move being welcomed by personal injury lawyers.The discount rate is the deduction made from personal injury compensation awards, on the basis that the claimant will invest the damages and increase the value of the original sum.The decision by the Lord Chancellor to set the rate at 2.5% means it will no longer be decided at the court's discretion.

Courts generally used a rate of 3%, so awards will go up as a result.

Mark Harvey, secretary of the Association of Personal Injury Lawyers, said the decision would come as 'a great relief to injured people'.

But he said the Lord Chancellor should make provision for a regular review of the rate, to ensure that it continues to reflect market opinion.But Paul Kitson, partner with Russell Jones & Walker who acted in the House of Lords' case Wells v Wells - which decided the basis on which the Lord Chancellor should calculate the discount rate - this week wrote to the LCD saying it has got its sums wrong.The 2.5% level is worked out from the average gross redemption yield on index-linked government stock.

The LCD said the correct figure over three years to June 2001 is 2.61%.But Roland Hogg, an auditor who gave evidence in Wells v Wells, said: 'I calculate the figure as 2.14%, and so it follows that the LCD should have set the discount rate at 2%.'Jeremy Fleming