What is the discount rate, and what does the latest change mean for personal injury claimants?

Today the Lord Chancellor and Justice Secretary, David Gauke, has announced a change in the personal injury ‘discount rate’ to minus 0.25%. The change will take effect from 5 August 2019 and the rate will be reviewed within a five year period to ensure that it remains fit for purpose.

The discount rate is used when calculating any annual future loss a claimant may have, for example loss of earnings or care and support. The purpose was to ‘discount’ the lump sum received by the claimant for early receipt with the idea that they could invest those funds and make up the difference.

In reality, current low-risk investments are not able to keep in line with the level of inflation, meaning that claimants actually lose money over time. This meant that the rate changed to minus 0.75% in March 2017. Predictions were that the rate was going to change today to be between 0% and 1%.

On announcing the change to minus 0.25%, David Gauke has said:

“It is vital victims of life-changing injuries receive the correct compensation – I am certain this is the most balanced and fair approach following an extensive consultation.”

It is not right that a claimant should gamble their damages in risky investments as they do not have the luxury of having a pot of money to play about with. Damages are not a ‘win’ or profit, but necessary to allow the claimant to live and receive the care they vitally need.

If seriously injured claimants are not properly compensated by insurers then they will have no choice but to rely on public services when their damages run out. In a period of austerity and where our NHS is woefully underfunded, cuts are being made to the welfare state and social care is not fit for purpose, where do they turn?

Today’s announcement is welcomed but perhaps its time we change the term ‘discount rate’?