Government to change basis of calculating PI discount rate

The personal injury discount rate will be calculated in future by reference to "low risk" rather than "very low risk" investments, the UK Government announced today.

Lord Chancellor David Lidington said in a statement that legislation would be introduced to implement the change, and for the rate to be reviewed at least every three years.

He estimated that, if the new system were to be applied today, the rate might be "in the region of 0% to 1%".

The present rate of –0.75% was set by the then Lord Chancellor, Liz Truss, in February this year. Replacing a rate of 2.5% that had stood since 2001, it caused controversy as insurers complained about the dramatic increase in damages awards that would result, while claimant firms claimed that insurers had enjoyed the benefit of the higher rate long after it ceased to reflect market conditions.

The rate is applied to awards of damages for loss covering a period of years in the future and is intended to reflect expected returns on investment of an award. The proposed shift to "low risk" investments is said to be based on evidence gathered during a consultation on the basis of calculation, held following the February increase.

Mr Lidington said: "We want to introduce a new framework based on how claimants actually invest, as well as making sure the rate is reviewed fairly and regularly. In developing our proposals, we have listened carefully to the views of others, and we will continue to engage as we move forward."

The Ministry of Justice will publish draft legislation for public comment. A review of the discount rate would be started within 90 days of the new law coming into force.