MoJ moves to change law on discount rate

The Ministry of Justice has today launched a second consultation on the discount rate, making it clear that it is considering a change in the law.

As long ago as 2010, the former Lord Chancellor, Ken Clarke, announced a review of the discount rate used by the courts to calculate personal injury awards after APIL threatened to bring a judicial review.

APIL argued that the existing rate of 2.5 per cent had not changed since 2001, meaning that claimants had been under-compensated for the last nine years, when average yields had been lower.

Eventually, last summer, the MoJ published a consultation paper suggesting that using index-linked gilts as the basis for calculating the discount rate applied to personal injury awards could be dropped in favour of a “mixed portfolio of appropriate investments”.

At the time MoJ officials said they were not consulting on whether to depart from the principles laid down by the House of Lords in Wells v Wells in 1998 and moving away from gilts could be “potentially consistent” with those principles.

In today’s consultation paper, they said: “This paper is not concerned with the issues addressed in the UK-wide consultation paper on how the discount rate should be set issued by the Ministry of Justice, the Scottish Government and the Department of Justice on 1 August 2012.

“The August consultation paper and the review of which it forms part is solely concerned with how the discount rate should be set under the present law. The present consultation addresses the question of whether the law should be changed. The two exercises are entirely separate.”

In the latest consultation, the MoJ said any problems with the discount rate could be avoided if compensation for future pecuniary loss was paid by way of a series of periodical payments.

Officials also said the review would consider whether the “legal parameters” governing the way in which the discount rate is currently calculated would “produce a rate that is as ‘right’ as it ought reasonably to be so that the person injured is fully compensated but not over-compensated or under-compensated.

“The options are to retain the present law or to change the law so that the rate can be set by reference to higher risk investments, which would produce a higher discount rate and would be expected to produce lower lump sum awards than under the present law.”

In a separate development, APIL has announced that its judicial review, with MASS, of the government’s plans to cut RTA feeswill take place on March 1.

A spokeswoman for APIL said there would be a single ‘rolled up’ hearing, at which the court would first determine whether permission should be granted and then, if it grants permission, the hearing would continue to deal with the substantive claim.