When the amount a person receives from a compensation payment is calculated, it is adjusted according to the interest they can expect to earn by investing the lump sum payment. This is called the Discount Rate and is deducted from the person’s compensation by the court.
Susan Liver, Clinical Negligence specialist and a partner at Birchall Blackburn Law, says: “The change to the Discount Rate is welcome but long overdue. We’ve felt that seriously injured medical negligence claimants who have had future loss claims have been undercompensated. Some of the people we work for face life-long injuries and without a fair financial settlement their quality of life can be dire.”
The Discount Rate is linked in law to the percentage returns on lowest risk investments, which is usually Index Linked Gilts. Contrary to the public’s perception of compensation, the lump sum should be carefully invested to ensure that the victim has the long-term financial help and support they will need after a life-changing injury.
Compensation is meant to give the person the same financial security….
The law is clear that claimants must act and be treated as risk-averse investors. This reflects the fact that they are financially dependent on the compensation lump sum for long periods or often for life. Compensation is meant to give the person the same financial security as if they had not been seriously injured, which includes loss of future earning and care costs.
The Discount Rate has not been changed since 2001 when it was based on a three-year average on Index Linked Gilts. The interest rate in 2001 was much higher than it is now, especially since the 2008 Credit Crunch, so the Discount Rate should have been much lower for some years. The Association of Personal Injury Lawyers (APIL) made a judicial review application in 2011 to attempt to promote a change in the rate but it has taken another six years to see that change.
From March 20, 2017, the Discount Rate will be lowered from 2.5% to minus 0.75%.
Susan says: “We’re pleased that the change will benefit our clients with much higher future loss claims. It is good news for their future care and rehabilitation. But there is a balance to be made between the needs of the victim of a medical error and the cost to the NHS. Defendant insurers will have to pay more to victims and inevitably the NHS will have to pay more for omissions and errors through larger personal injury liabilities.”
While lowering the Discount Rate the government has pledged to ensure that the NHS Litigation Authority has appropriate funding to cover changes to hospital clinical negligence costs. The Department of Health has stated that it will work closely with GPs and Medical Defence Organisations to ensure that appropriate funding is available to meet the additional costs to GPs.
In the coming weeks the government is due to launch a consultation to consider whether there is a better framework for claimants and defendants. Chancellor of the Exchequer, Philip Hammond, has committed to meeting the insurance industry to assess the impact of the rate adjustment.
The consultation will launch before Easter and review options for reform. They will include whether the rate should be set by an independent body; whether more frequent reviews would improve predictability and certainty; and whether the methodology is appropriate for the future.