The personal injury discount rate matters for those with personal injury liabilities as it determines what discount (or, more recently, uplift) is applied to damages for future losses to recognise that the claimant receives the payment upfront and can invest it and make gains (or, more recently notional losses) on the settlement funds.
We have seen the changes in the discount rate described below affect the value of a case by hundreds of thousands of pounds. The overriding principle of compensation is to restore a person to the position they would have been in had it not been for an injury, the discount rate is meant to prevent windfalls or shortfalls in settlement funds.
Between 2001 and 2017 the discount rate held steady across the UK at + 2.5%, notwithstanding the seismic financial events over that period. Settlements for future losses were therefore discounted to assume a notional return on settlements at 2.5% per annum.
There had been attempts in Scotland to have the court apply different discount rates for individual claims post-credit crunch as bank interest rates tanked, but it was held that the setting of the discount rate is a legislative issue.
After much claimant-interest campaigning, the discount rate was reduced to -0.75% across Great Britain. This meant that claimants received an uplift for early receipt of future losses to reflect the poor investment market.
Consultations north and south of the border led to the Civil Liability Act 2018 and the less concisely named Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019 which set out new (and different) mechanisms for fixing the discount rate in the different jurisdictions. In August 2019 the discount rate was changed to -0.25% for England and Wales. A month later Scotland announced it was holding firm at -0.75% which was not only a disappointment to the defendant community following a more favourable investment market but also created the unwelcome position of having different regimes north and south of the border which might encourage forum shopping.
In September 2024 the Government Actuary set the discount rate at +0.5% in Scotland. The same rate is to apply in England & Wales from 11 January 2025 following a decision by the Lord Chancellor. Whilst some way off the historic +2.5% rates, the return to a positive number, and the alignment of rates across jurisdictions, are welcome and will mitigate the other inflationary increases in personal injury liabilities.
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