A former justice minister has floated the idea of compulsory staggered payments for serious personal injury cases, suggesting compensation levels remain too high despite legislation reform.

Lord Faulks (Edward Faulks QC), who was responsible for civil justice and legal policy until he stepped down in 2016, said the current discount rate applied to lump sum payments remained ‘incredibly generous’ to claimants. This was despite the Civil Liability Act changing the method for calculating the rate in 2018, following which David Gauke, then lord chancellor, altered the rate from -0.75 to -0.25%. Although the altered rate was more favourable to insurers and compensators such as the NHS, there remains widespread discontent among the defendant sector – and no prospect of the rate changing before 2024. 

Lord faulks

Lord Faulks: action can be taken to alleviate effects of ‘incredibly generous’ discount rate

Source: Mary Turner – The Times

Lord Faulks, speaking at an Association of British Insurers conference in London, stressed that Gauke had acted within the law - but only just - by opting for the -0.25% rate.

He said: ‘The correct approach would be to try to strike a balance between over and under compensation. It seems to me [the lord chancellor] built prudence upon prudence in coming to the decision he did. The consequences of almost certainly over-compensating is a very big bill for the NHS and insurers and consequently for premiums. The legislation did give the lord chancellor a considerable degree of discretion – it was very close to the margin of what was legally acceptable.’

Faulks suggested that one way to reduce costs to the taxpayer may be for the courts to enforce periodical payment orders (PPOs), where payments are made annually and increase in line with inflation.

‘People should be compelled to take periodical payments,’ said Faulks, who stressed he was talking in a personal capacity. ‘There has always been this power but it has not been exercised – it is possible that judges could be persuaded to do that.’

The issue of PPOs has vexed both claimant and defendant sectors for years. Insurers are inclined to favour staggered payments over large lump sums, although their enthusiasm has perhaps waned as life expectancy increases.

Equally, claimant lawyers would welcome the security of enduring payments, but will often push for a lump sum to help set up clients with modified accommodation to suit their needs.

In public, both sides say they encourage the use of PPOs, but equally they accuse each other of privately rejecting the option. Numbers have fallen in recent years: according to the Institute and Faculty of Actuaries, almost 90 PPOs were agreed in 2012, but just over 30 in 2016.

Meanwhile, the government continues to come under pressure to do something about the cost of clinical negligence claims. In 2018/19, damages payments to claimants in clinical claims rose by 13.5% to almost £1.4bn, taking overall spending on medical negligence to £2.36bn.