Personal Injury Discount Rate

15 Jul 2018

Couched as The Civil Liability Bill, the government aims to introduce new legislation to address the so-called US style ‘compensation culture’ they believe has emerged over recent years. As reported by the Association of British Insurers online, these changes are necessary as evidenced by this statistic: since 2005, road accidents have fallen by nearly 30% but personal injury motor claims are up 40%.

The Bill had its third reading in the House of Lords on 27th June 2018 and now goes to the House of Commons for consideration.

What is the Bill about?

According to the Law Society Gazette, the new Bill will ban offers to settle compensation claims without medical evidence as support. It will also introduce a fixed tariff on the maximum amount of compensation payable for whiplash injuries. The ultimate aim is to, ‘crack down on fraudulent whiplash claims’ with a consequent reduction of motor insurance premiums for drivers of around £35.

The Government states that the Civil Liability Bill will, ‘tackle the rampant compensation culture and reduce the number and cost of whiplash claims [… to ensure that there is…] a fair, transparent and proportionate system of compensation in place, for damages paid to genuinely injured personal injury claimants […in order to…] put money back in the pockets of motorists through reduced insurance costs’.
However, there is another aspect to the Bill, which aims to make changes to the way the personal injury discount rate is set.

What is the personal injury discount rate?

The Discount Rate is used when calculating future losses in large personal injury claims.  A future loss is calculated by multiplying a multiplicand (the loss per year) by a multiplier (reflecting the number of years into the future that the loss will be incurred).

The theory behind applying a Discount Rate to the multiplier is that by receiving a lump sum for future losses, the claimant will be able to achieve an annual rate of return upon that sum by investing it.  Were a Discount Rate not applied this would potentially lead to overcompensation.

Wells v Wells

The Discount Rate is set by the Lord Chancellor, following the House of Lords case of Wells v Wells [1999] 1 A.C. 345, in which it was held that the Discount Rate should be based on the assumption that as a risk-averse investor a personal injury claimant would invest their damages in Index-Linked Government Stock (ILGS).  As a result the Discount Rate would reflect the annual rate of return achievable from investing in ILGS, and reduce the multiplier in a future loss calculation accordingly.

The problem with this situation is that before the recent change, the Lord Chancellor last set the Discount Rate in 2001 to reflect the annual rate of return then available on ILGS at 2.5%.  As time has passed the real rate of return available on ILGS has decreased, particularly following the world financial crisis in 2008, as risk free, secure investments have become more and more difficult to find, and the yield available on them has shrunk.

As a result personal injury claimants have been under-compensated for their future loss claims, as multipliers have been reduced by a Discount Rate set in 2001 reflecting a rate of return on ILGS which in reality has been completely unachievable.  Therefore, following a Judicial Review by APIL, in February 2017 the Lord Chancellor amended the Discount Rate to -0.75% from 20th March 2017 in order to reflect the current reality of investing in ILGS.

A negative Discount Rate now has the effect of increasing the multiplier used to calculate future loss rather than decreasing it.  This has had the effect of increasing the value of personal injury claims with a future loss element overnight, often by as much as 100% or more.

In reality, the negative Discount Rate only reflects the gap between the current rate of return available on ILGS and the increasing rate of inflation making, for example, the cost of care, more and more expensive for a personal injury claimant reliant upon care for the rest of their lifetime.

The decreased discount rate

However, the insurance industry is highly critical of the change, primarily because the adjustment resulted in an increase in insurers’ potential liabilities in the event of a personal injury compensation payout. Indeed, the Director General of the Association of British Insurers was quoted in the Telegraph, ‘the minus 0.75% rate would be a bigger hit to insurers’ finances than all of the flooding in the North of England put together’.

In addition to these complaints from the insurance industry, in May 2018 Lord Keen told the House of Lords that because damages awards were currently averaging around 120% of the true value of injuries, review was urgently needed. Those who represent claimants point out that this figure is entirely fabricated and shows a misunderstanding of what is necessary to ensure fair and full compensation to those who have suffered life-long injuries through no fault of their own.

So what happens now?

The Civil Liability Bill means that the Lord Chancellor may consider setting different discount rates for different cases, taking into account tax, inflation and investment advice costs. It recommends that the first review of the rate will be announced within 90 days of the commencement of the Civil Liability Act and future reviews will be carried out every 3 years.  The Bill seeks to establish a new principle that claimants must be expected to invest in “low risk” investments, rather than the lowest risk investments

In order to make any decision on the discount rate, the Lord Chancellor will be advised by an expert and independent panel. The aim will be to devise a rate that is fair and protects the interest of claimants. It is anticipated that the modernisation of the discount rate calculation will reflect how claimants really invest their money. In addition, the government hopes that the 3 year review interval will give clarity to claimants and to those who underwrite the costs.

Increased discount rate in the pipeline

In light of concerns from the insurance industry and Lord Keen, the government intends to review the discount rate as soon as possible. It plans to increase the rate and therefore reduce compensation awards. The insurance industry at least is relieved with this plan: as reported in Insurance Business Magazine online, ‘the proposed new framework for the discount rate is to be welcomed […as it will…] accurately reflect the way injured people invest their compensation awards’. Those who represent claimants however regard this as an attack on the principle of full compensation, which is to put the claimant back in the position they were in before an accident in as far as possible. Given that the government is also the largest compensator in the country due to NHS blunders, their proposal also sees a clear conflict of interest in setting the basis for compensation awards.

To speak with a lawyer in our Personal Injury team, please contact us on 020 7485 8811 or fill in an online form.

Share this article

Speak to us

For a free initial conversation call 0207 485 8811

Email us Send us an email and we’ll get back to you






    • "Jan Atkinson is extremely experienced and an expert in this area of law. She is utterly pragmatic, always looking at what the client wants to achieve. She can be extremely tough when she needs to be but always knows when to compromise"

      Legal 500 2021

    • "Guy has been so helpful. He responded promptly to my queries, explained things clearly, no jargon, and has been warm and human throughout. I felt well supported and would recommend Osbornes to anyone looking for legal help, their service is excellent and fairly priced."

      Property Litigation Client

    • Shilpa gave us very useful advice and much appreciated help during a lengthy dispute. We were very satisfied with the outcome and, also, particularly impressed by her friendliness and by the professional way she ensured that all of our costs were paid, rightly, by the other side.

      Property Client

    • "It has a strong and experienced team of solicitors who don’t take bad points, work sensibly to get a settlement and who you can always pick up the phone and speak to. They are good lawyers and know the strengths and weaknesses of their clients’ cases. They don’t posture and always pursue their clients cases appropriately. "

      Legal 500 2021

    • I sincerely appreciate your help in securing a successful appeal. I would recommend Osbornes to anyone.

      Housing department client

    News & InsightsVIEW ALL

    1. 19.10.2022

      Award nomination for catastrophic injury lawyers at Osbornes...

      The personal injury team at Osbornes are delighted to be finalists at The Personal Injury Awards 2022 in the category of ‘...

      Read more
    2. 5.10.2022

      Cyclist Receives £50,000 After Hit by Sports Car

      Andrew Middlehurst, a lawyer in the specialist cycling injuries team at Osbornes Law, recently settled a claim for a cyclist...

      Read more
    3. accidente de bicicleta
      25.7.2022

      London cyclist struck by 4×4 receives settlement

      Andrew Middlehurst, a lawyer in the specialist cycling injuries team at Osbornes Law, recently settled a claim for a cyclist...

      Read more
    4. Ambulance
      28.2.2022

      Client left with brain injuries after car accident...

      Our Spanish client was the front seat passenger in a car driven by her husband which was involved in a...

      Read more
    5. 9.1.2022

      Settlement secured for head injury caused by hammer...

      Osbornes Law has secured a £100,000 settlement for her client who suffered serious head injuries after being attacked in prison by...

      Read more
    6. 24.11.2021

      Ben Posford named catastrophic injury lawyer of the...

      Osbornes Law are delighted to announce that Ben Posford has been named as ‘Catastrophic Injury Lawyer of the Year’ at...

      Read more
    7. school children writing
      17.11.2021

      £270,000 settlement for school accident

      Osbornes Law secures a £270,000 settlement for a Polish woman who slipped as a schoolgirl on a wet floor at school....

      Read more
    8. shopping bags
      17.11.2021

      £100,000 settlement for tripping at work

      Osbornes Law secures £100,000 settlement for Hungarian woman who tripped over a shopping bag at work Siobhan McIvor, a Partner in...

      Read more
    9. factory worker
      17.11.2021

      £165,000 settlement for factory accident

      Siobhan McIvor, a Partner in the Personal Injury Department of Osbornes Law, has secured a £165,000 settlement, with the help of...

      Read more
    10. house builders
      16.11.2021

      Significant lump sum for below the knee amputation

      Mr N, a Romanian man in his 30s, came to the UK to work with his father-in-law in early 2018. He...

      Read more
    11. 5.11.2021

      Seven figure leg amputation settlement

      Mr S was walking across the yard at work when he was run over by a forklift truck from behind....

      Read more
    12. Ambulance vehicles at the Royal London Hospital
      26.10.2021

      Examples of Serious Head & Brain Injury Settlements

      C–v-N Child pedestrian crossing road knocked over by car when running into road sustaining a traumatic brain injury and...

      Read more
    13. man riding motorcycle
      6.10.2021

      Multi-Million Settlement After Motorbike Accident

      Our lawyers achieved a £5m settlement for a 54-year-old man following a motorbike accident. As a result of the accident,...

      Read more
    14. 23.9.2021

      Croydon Tram Crash Inquest Recommendations Welcomed

      The families of victims killed in the Croydon tram crash today welcomed a coroner’s recommendations to prevent another tragedy....

      Read more
    15. 31.8.2021

      Client pursuing head injury claim after life changing...

      A young woman has told of the moment her head was completely scalped and lost her ear when her hair...

      Read more
    16. 26.8.2021

      Osbornes Sponsor Leading Medico-Legal Conference

      Osbornes Law is delighted to be the principal sponsor of the Cambridge Annual Medico-Legal Conference. This year conference, which is...

      Read more
    17. red moped
      9.8.2021

      Motorcycle Accident Case Settles for £400,000

      Mr C, an Italian man working in a 5 star London hotel was riding a moped home from work at night...

      Read more
    18. red motorcycle
      9.8.2021

      Motorcycle accident case settles for £90,000

      Mr H was a hard-working security operative. He and his wife both worked full time and they were planning to...

      Read more
    19. 2.8.2021

      London Tube Sign Causes Head Injury

      Serious brain injury claim after falling London tube sign knocks pedestrian unconscious. An airline pilot ‘miraculously’ survived after a 20kg...

      Read more
    20. 22.7.2021

      Croydon Tram Crash Inquest Concludes

      Families of Croydon tram crash victims disappointed by Inquest conclusion The families of victims killed in the Croydon tram crash...

      Read more
    21. 1.7.2021

      Limb amputation to pedestrian awarded £1.8million

      Our client suffered life-changing injuries as she was walking home from work. A speeding driver lost control of his vehicle...

      Read more
    22. 23.6.2021

      Osbornes Helps Client Following Amputation at Work

      Mr C a young Romanian national, came to this country for work in 2015. He soon found work as a cleaner...

      Read more
    23. 17.6.2021

      Life changing injuries following motorbike accident

      Our client, who is from Hungary was riding his motorbike in London when a lorry turned across a junction and...

      Read more
    24. Serious Orthopaedic Injury Settlement for £1million

      Our client was a 25-year-old Spanish resident who was travelling in his works’ van when the van was hit by...

      Read more

    VIEW ALL