How will clinical negligence compensation be affected by the new ‘discount rate’?

By Natalie Cosgrove, Solicitor, Medical Negligence Department

Following an announcement at the end of February, claimant lawyers have been accused of being slow to issue responses to the change to the personal injury discount rate, due to be implemented on 20 March 2017. The new discount rate will potentially have a profound effect on our clients’ cases, such that we have been busy updating our clients’ compensation for financial losses and advising them of the changes.

What is the ‘discount rate’?

As the name suggests, the personal injury discount rate is the rate by which any compensation received to cover future losses is reduced, in order to account for the conflicting effects of interest and inflation. If the discount rate is too high, the value of the award will not keep up with inflation; if the discount rate is too low, the claimant could be overcompensated due to the interest received on the damages. Ideally, by the time the claimant comes to pay for an expense in the future, he or she will have right amount available to pay for it.

How will it change?

On 27 February 2017 the Chancellor announced that the discount rate will change from 2.5 to -0.75 from 20 March 2017. Essentially, the rate is changing to account for low rates of return on certain types of low-risk investments. For some claimants the new rate will have a major impact on the final figures that make up any damages for financial losses.

Why the uproar?

Once the new rate is in place, the amount of compensation received by some of our clients will increase significantly, which means that defendant’s insurers will in turn have to pay out significantly higher sums. The rate has not changed since 2001, however, claimant and defendant lawyers alike have known that an announcement was imminent. Our job here at Switalskis is to represent our clients to the very best of our ability, and throughout the furore we have been focussed on continuing to provide them with clear advice and robust legal support.

The effect of the change will be seen, and rightly so, in the pockets of claimants and not their lawyers. It is imperative that should you believe that the change could affect your claim, you seek advice to ensure that your damages be calculated accordingly.

Roberts v Johnstone

There has been a suggestion that the rate will affect a particular type of award for financial loss related to buying property. Specifically, some believe that cases involving the most severely injured claimants where their home is no longer suitable and they require a specially adapted home could be affected.

This type of  award is referred to as a “Roberts v Johnstone (R v J) claim”, as the rate set in this case is used to work out how much money should be awarded to cover, or contribute towards, the higher costs of buying a larger and/or adapted property (e.g. higher mortgage repayments).

Some have said that the discount rate could mean that claimants will be awarded nothing for this element of their claim. In R v J, the rate used to calculate the damages awarded to cover purchasing a property (initially set at 2%, then increased to 2.5% in 2001) was intended to ensure that a claimant would be able to purchase a property without over-compensating them to the defendant’s disadvantage.

However, it is oversimplifying the situation to suggest that because R v J was set at 2.5% and the discount rate was 2.5% that R v. J will now be -0.75% and therefore claimants will, for all intents and purposes, have to cover the extra costs associated with purchasing a suitable property.

We do not believe that this can be the way in which injured people will be compensated for the cost of acquiring a home. The whole point of a personal injury claim is that the defendant pays compensation to a level that places the injured party in the same position as if the injury never occurred. Whilst this is nearly impossible in catastrophic claims, the injured party should not become the paying party as a consequence of negligent acts to them.

What happens next?

The change is due to be implemented on 20 March 2017. There is likely going to be a legal challenge from insurers, however, we will only find out about this when the rest of the public do. For now, we have our calculators at the ready and we are reviewing all cases where the change will have an impact to ensure that we represent our clients to the absolute highest standard.

Disclaimer: The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice, and the law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice on their own particular circumstances.