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Industry Regulator Statement - Discount Rate

Released 07:00 15-Jul-2019

RNS Number : 4482F
Ministry of Justice
15 July 2019


Personal Injury Discount Rate - Statement from the Lord Chancellor

Today I will lay a Statutory Instrument in Parliament to change the discount rate applicable to personal injury lump sum compensation payments, to minus 0.25%.

Under the Damages Act 1996, I as Lord Chancellor, have the power to set a discount rate which courts must consider when awarding compensation for future financial losses in the form of a lump sum in personal injury cases.

A new framework for setting the rate was established by the Civil Liability Act 2018. It makes clear that claimants must be treated as 'low risk' investors, reflecting the fact that they may be financially dependent on this lump sum, often for long periods or the duration of their life. The new methodology also requires that I, acting as Lord Chancellor, consider:

·    actual returns available to investors;

·    actual investments made by investors of relevant damages;

·    such allowances for tax, inflation and investment management costs as thought appropriate; and

·    wider economic factors.


The discount rate was last set in 2017, by the then Lord Chancellor, Rt Hon Elizabeth Truss MP, at a rate of minus 0.75%.

Having completed the process of a Call for Evidence and statutory consultation with the Government Actuary and HM Treasury, I am satisfied that the rate should be minus 0.25%. A full statement of reasons, explaining how I have decided upon this rate, will be placed in the Libraries of both Houses. The Statutory Instrument to effect this change has been laid today, and will become effective on 5 August 2019.

The Government Actuary also, provided an analysis of dual rates. This would involve a lower short term rate, followed by a higher long term rate after a 'switchover' period. Although I consider their analysis interesting with some promising indications, I do not consider it appropriate for this review, noting the lack of quantity and depth of evidence required to adopt a dual rate. The potential of the dual rate to be appropriate for future reviews is one that I will consider in more detail through a consultation, which the Ministry will launch in due course.

Nonetheless the Government, in accordance with the new legislative methodology, will review the personal injury discount rate within a five year period following this review, to ensure that it remains fit for purpose in the future. Future reviews will be conducted using an expert panel specifically established for the review.

I recognise the impacts this decision will have on businesses, the public sector and charities on the amount of damages that may be payable in any personal injury action to which they may be party. Alongside the Statutory Instrument, I will also lay an impact assessment before both Houses. 

RT Hon David Gauke MP

Lord Chancellor

15 July 2019

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Industry Regulator Statement - Discount Rate - RNS