Fresh Consideration of How Discount Rate Is Set Is a Post-Election Priority - Shirley Denyer, Shirley Denyer LLP & FOIL
26/05/17. Since the Lord Chancellor announced a change to the discount rate on 27 February, the Government has also triggered Article 50 and announced a general election. Whilst these events may have eclipsed the Lord Chancellor’s decision in the headlines, the effect of such a significant rate change is still being felt by insurers, compensators and the public sector – and given the delay in Parliamentary activity brought about by the general election - will be felt for some time yet.
To get back to basics, whilst research shows that claimants are generally unaware of the discount rate and the role it plays in calculating damages awards, it has a very significant effect on the sums they receive. An award of compensation is based on the principle that a claimant should receive full compensation to restore him or her to the position they were in before they were injured - no more nor less. When damages are paid by way of a lump sum the claimant will be able to invest the money and receive a return, which, if full damages had been paid at the outset, would result in the claimant being over-compensated. To prevent this occurring, damages are reduced by the application of a discount rate which factors in the return that the claimant will obtain, and reflects inflation, so that the lump sum and the investment return together provide full compensation.
As anyone with savings will be only too aware, not all investments are the same. To ensure that...
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