After increasing pressure by lawyers concerned with personal injury claims, the Lord Chancellor has agreed to review the discount rate which is applied to an injured person’s compensation. The discount rate is deducted from an injured person’s damages in order to take account for any income that person may receive by investing his damages, thereby making a profit over and above the purpose of his compensation. This rate was set in 2001 by the Lord Chancellor at 2.5%, which was based on yields generated by index linked government stock (ILGB).
However, since 2001, when the current rate was imposed, this discount rate has gradually become out of touch with reality, leading to growing pressure from groups, such as the Association of Personal Injury Lawyers (APIL), advocating for a reduction in the discount rate to take account of economic changes. In fact, over the last three years the average yield has been less than 1%, not the 2.5% at which it is currently set. The consequence of this is that injured persons have been under-compensated for many years now.
It is now hoped that a review of the discount rate will lead to a reduction in the current rate. In particular, in these difficult economic times, it is important that people who sustain injury through no fault of their own are adequately compensated. This review appears to be a step in the right direction.