MoJ To Announce Results of PI Discount Review

This week, a threat of legal action from The Association of Personal Injury Lawyers (APIL) has forced the Lord Chancellor, Liz Truss, to finally announce the result of the long awaited review of the discount rate for personal injury claims.

The Ogden Tables, currently in its 7^th edition, are used to calculate lump sum damages for future losses in personal injury and fatal accident cases. The methodology is long-established whereby multipliers are applied to the present day value of a future annual loss with the aim of producing a lump sum equivalent to the capitalised value of the future losses. This calculation must take into account other factors such as mortality risks and in relation to claims for loss of earnings and pension, discounts for contingencies other than mortality. It must also take into account the interest that the claimant could earn should he invest the damages he receives and this is known as the discount rate. The introduction of the Ogden Tables, sets out nicely the purpose of the history of the discount rate in its introduction which is written by Robin de Wilde QC. It states:

‘This methodology was endorsed by the House of Lords in the famous case of Wells v Wells [1999] 1 AC 345. In that case the Court determined that the discount rate should be based on the yields on Index Linked Government Stock. The discount rate is now fixed by the Lord Chancellor of the day pursuant to his powers under the Damages Act 1996. The above method was further endorsed by Lord Chancellor Irvine in his decision of July 2001, when he fixed the Discount Rate as being 2.5%’. [i]

The discount rate has since remained at 2.5%. However, it has been argued that this rate is long out of date and does not reflect the lower investment returns available in the current economic environment due to the substantial reduction in yields on Index Linked Government Stocks (ILGS) since 2001 and so therefore overestimates the amount of return on an investment and under compensates the claimant. In 2010, around the time that the 7^th edition of The Ogden Tables were published, the then Lord Chancellor, Kenneth Clarke indicated his intention to reconsider the discount rate and announced a review of the rate, but the MoJ’s consultation on the issue entitled ‘Damages Act 1996: The discount rate – how should it be set?’ was not published until August 2012. This was followed by a second consultation in February 2013 which ran until May 2013 with a government response being due in July 2013. However, there has, until now, over three years later, been no reply to the consultation.

The announcement from Liz Truss this week declares that the results of the 2013 review will be published by 31 January 2017 and it has been reported that this was spurred by the threat of judicial review proceedings being brought by APIL. APIL claim that the failure to review the discount rate for personal injury claims has resulted in seriously injured people having been undercompensated for years. Neil Sugarman, the president of APIL stated:

‘People with lifelong injuries are continuing to be undercompensated, in some cases, by hundreds of thousands of pounds, because successive governments have dragged their heels and failed to review the discount rate to reflect changes in the economy’.[ii]

With the Lord Chancellor also announcing recently her intention to push ahead with the PI reforms, it would seem that the personal injury sector is under the microscope more than ever.

It remains to be seen whether alongside the results of the consultation on the discount factor the government will also fund the 8^th edition of The Ogden Tables which the Ogden Working Party said was much needed in the introduction to the 7^th edition due to many other figures, as well as the discount factor, needing to be updated. The need for the 8^th edition of the Tables seems particularly strong following the decision in Knauer v Ministry of Justice [2016] UKSC 9, which changed the date at which financial losses should be calculated from, from the date of death to the date of trial.