Discount rates review

Posted 19/08/2012

Justice secretary Kenneth Clarke has at last opened talks amidst concerns that claimants are missing out on the full value of their claims.The discount rate, as it is known, is the reduction in a claimant’s compensation to allow for the interest that will accrue on the money once it is invested.  This is necessary as the aim of the claimant’s solicitor is to put the injured person back in the same position (at least financially) as they were before the accident.  For this reason we must factor in the potential income generated from investment of the damages.Since 2001 this rate has been set at 2.5%.Recently there have been a number of campaigns, most notably the Association of Personal Injury Lawyers’ threat of a Judicial Review, claiming that this figure is now out of date.  This is understandable given the decline in interest rates and the general downward trend in the financial markets over the past few years.Whilst a discount rate of 2.5% may not sound much, Ashtons Legal deals with many catastrophic brain injury, spinal injury and cerebral palsy cases in which multi-million pound settlements are not uncommon.  2.5% of the damages awarded in these cases can equate to tens or even hundreds of thousands of pounds.As a result of this lobbying Mr Clarke and his counterparts in Scotland and Northern Ireland have announced a review of the process by which the discount rate is calculated.The consultation is expected to end on 23 October 2012.