A threat of legal action has forced a long-overdue review of the discount rate for personal injury claims by the Lord Chancellor.
The Association of Personal Injury Lawyers (APIL) took the unusual step of starting legal action amid ongoing concerns that seriously injured people have been undercompensated for years.
“People with lifelong injuries are continuing to be undercompensated, in some cases, by hundreds of thousands of pounds, because successive Governments have dragged their heels and failed to review the discount rate to reflect changes in the economy,” said Neil Sugarman, president of APIL.
The discount rate is used to calculate the amount deducted from an injured person’s compensation to account for any income he may receive from investing his damages. The discount rate set by the (then) Lord Chancellor in 2001 was based on yields generated by index-linked government stock (ILGS) and was calculated at 2.5 per cent.
“Since that decision was made, yields have declined to the point that the discount rate is now clearly far too high,” said Mr Sugarman.
Peter Todd, of law firm Hodge Jones and Allen, who acted for APIL said: “I have little doubt that this long running review of the discount rate would have dragged on, unless APIL had started legal action challenging the delay. I am delighted that a date for the conclusion of the review has now finally been announced. I hope the new rate will fairly reflect risk-free index-linked government investment bond returns net of income tax and hence the rate will be very substantially reduced”.
The Government will announce the result of its review by 31 January.