The Ministry of Justice is getting in position to change the discount rate applied to personal injury settlements as early as next summer with a new call for evidence.
The government is changing the law on setting the discount rate through the Civil Liability Bill, currently awaiting royal assent. It has previously been suggested the current negative rate of -0.75% - supplementing payouts to victims – could be altered as soon as next summer.
This deadline looks more realistic given the MoJ has now asked for evidence on where to set the rate even before the bill comes into law, and will close this consultation at the end of January.
In a foreword to the call for evidence, justice secretary David Gauke says calculating the rate was a ‘demanding and technical exercise’ which must be set fairly and accurately. ‘Your contribution may make the difference between victims of dangerous driving, clinical negligence or workplace accidents receiving the right compensation and their awards being inadequate or excessive,’ adds Gauke. ‘Excessive compensation unfairly diverts money that could be spent on hospitals and other frontline public services and drives up the cost of insurance, particularly for motorists.’
The call for evidence asks for information on investments available to and made by claimants, investment advice provided, taxation, inflation and investment management costs.
The Civil Liability Bill provides that, in setting the rate, the lord chancellor must start a first review within 90 days of the legislation receiving royal assent, and must determine the rate within 140 days of the review starting. Subsequent reviews will take place at least once every five years.
For the first review, the lord chancellor must consult with the Government Actuary and the Treasury: for the second and subsequent reviews he must consult with an expert panel chaired by the Government Actuary, and the Treasury.
Insurers complained bitterly when former lord chancellor Liz Truss changed the rate in 2017 from a discount of 2.5% to the current -0.75%. The 2.5% rate had previously been in place since 2001.
The government’s has previously said its evidence shows that the present system regarding the setting of the discount rate is likely to be producing ‘significant levels of over-compensation’.