Discount rate is reduced for personal injury damages
- 27.02.2017
- GaryHerbert
- Personal-injury, Opinion, Personal-injury, Opinion
I welcome the news that the Lord Chancellor Liz Truss has reduced the discount rate for personal injury damages, although stresses that this is not a ‘windfall’ for Claimants with brain and spinal injuries.
The discount rate is often misunderstood by members of the public. The simple principle is that if a Claimant receives damages at the present time that they don't need to spend until later, he or she will have the additional opportunity to invest it and secure more money. If unchecked this could leave Claimants over compensated for their injuries. The Court therefore reduces the damages paid to Claimants in the expectation of the returns that they can receive in safe investments.
However the rate also needs to take account of the effect of inflation, so that Claimants are still able to afford the care they need as the cost of providing that care rises in the future.
The rate prior to today’s announcement was 2.5%. This meant that a Claimant needed to be able to secure a rate of interest of 2.5% after tax and above the rate of inflation. Given the current RPI rate of inflation of 2.6% and tax rates of 20%, this has left Claimants needing to secure interest rates of over 6% per year, which has not been possible in the recent economic climate.
This has meant that for many years vulnerable Claimants have been left with the unpleasant choice of either having to cope without the care and support that they need, or gambling with their investments in the hope of bridging the gap.
Today’s announcement recognises the reality that current interest rates are less than the RPI rate of inflation. The new rate means that the most vulnerable Claimants can now afford the care that the Courts assess they require. It does not provide them with a ‘windfall’ or a ‘win’ but instead recognises the reality of the current economy and puts them in the position they should always have been in.
Gary Herbert is a personal injury solicitor with PotterReesDolan. Should you have any queries about personal injury issues or indeed any other aspect of this article and wish to speak to Gary or any other member of the team please contact us on 0161 237 5888 or email Gary through his profile page.