Ministers are to consider the case for successful personal injury claimants to receive damages over a period of time rather than in one lump sum.
The Ministry of Justice revealed last week that it is considering a change to the current payments regime – as well as an adjustment to the discount rate with which deductions from compensation are calculated.
The possible changes will be subject to the second part of a consultation on compensation payments opened last week by justice minister Helen Grant.
The government said it was undecided on how much and when damages should be paid, but admitted that ‘initial evidence’ showed successful claimants were investing in mixed portfolios, including higher return investments.
This suggests that the current discount rate of 2.5% is set too low, and would support the case for claimants to be offered staggered payments.
Christopher Malla, partner at national defendant firm Kennedys, said: ‘If claimants want risk-free protection in high-value claims, they should avoid a lump sum payment in favour of an annual periodical payment, which would be index-linked, tax-free and paid for the duration of their life regardless of actual life expectancy.’
Any increase in the discount rate is likely to be fiercely opposed by the claimant lobby, which has long complained it is already too high. The Association of Personal Injury Lawyers had threatened to take the matter to judicial review before the consultation process began.
The current rate of 2.5% was set in 2001 and based on low-risk yields of index-linked government gilts.
The second consultation is open until 7 May.