CALCULATIONS: report calls for award of 1% above base

The way courts award interest on debts and damages is confused, arbitrary and outdated, the Law Commission has said.

Criticising the current rules as too complex, with solicitors using different methods to calculate interest, the commission recommended that the courts should award a specified interest rate of 1% above the Bank of England base rate to end the uncertainty.

Claimants would be able to ask the court for a higher rate if they could show that they had had to borrow at higher rates.

The commission also suggested that the courts should have a power to award compound interest.

Where past pecuniary damages amount to 15,000 or more, the commission proposed a presumption that interest would be calculated on a compound basis.

However, the report said there should be special rules for clinical negligence claims.

Because a high proportion of such claims involve a gap between loss and payment of 15 years or more, the commission estimated a 20-25 million cost to the taxpayer if the rules proposed were applied in full.

It said it would be possible to make a special rule for clinical negligence claims which limits compound interest to new causes of action.

Patrick Allen, partner at Hodge Jones & Allen and former president of the Association of Personal Injury Lawyers, said: 'Interest calculations can be extremely complicated and so anything that clarifies them and makes them easier is to be welcomed.

Compound interest will be fairer, and using the base rate plus one will make the system more straightforward, as solicitors won't have to wait for the courts to publish their own rates.

But I question a special rule for the NHS because clinical negligence claims could also be against the private sector.

Why should you have a special rule for the NHS in any event?'

Rachel Rothwell