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The discount rate: seeking to square the circle

The government proposals to set the discount rate in personal injury claims by ?reference to returns from a mixed portfolio does not accord with established ?compensation principles, says Richard Edwards

18 January 2013

Last August, to fend off threatened judicial review proceedings from the Association of Personal Injury Lawyers (APIL), the Lord Chancellor issued the consultation paper ‘Damages Act 1996: The discount rate – how should it be set?’. Oddly, it raised the prospect of departing from the current approach of fixing the discount rate according to yields on Index-Linked Government Securities (ILGS) towards a calculation based on a mixed portfolio of investments. This move would only be countenanced, however, if it could be regarded as being in principle consistent with the House of Lords’ decision in Wells v Wells [1998] UKHL 27.

Known as the principle of full compensation, the objective of damages is to place the claimant in the same financial position as he would have been in had the accident not occurred.

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