All change – new discount rate

posted in: Ana Samuel, News | 0

On the 27th February 2017 the MOJ announced that the discount rate, previously set at 2.5%, would drop down to -0.75% with effect from the 20th March 2017.

Whilst a drop had been expected no one could have predicted such a massive decrease. 
The resultant effect will be a significant increase in respect of future losses in personal injury claims.

Whilst the government has imposed the change it has failed to provide amended Ogden tables to accompany the rate change. However, PI calculator has provided amended calculations to assist in the short term.

What does this change mean?

  • Claimants are likely to withdrawn part 36 offers.
  • Defendants are likely to try to accept part 36 offers before they are withdrawn.
  • JSM’s are likely to be postponed as Claimant’s seek to re-calculate and Defendant’s await the possibility of the discount rate being re-visited following potential judicial review.
  • There are likely to be arguments over the applicability of part 36 offers and whether they afford cost protection in the future.
  • Schedules and Counter-schedules will need to be re-drafted.
  • There may be arguments over the calculation of a -0.75 discount rate given that it is not as straight forward as averaging the rates for 0-.5% and -1%.
  • PPO’s are arguably redundant, as it would make little sense for a Claimant to choose a periodical payment when they could have a lump sum calculated on a negative discount rate.
  • Costs are likely to increase given that an increase in damages will make higher cost bills proportionate.
  • Insurance policies are likely to increase in cost to cover the additional financial liability.
  • What becomes of Table 27?

Does this impact on all future losses?

– It is unclear at present whether it applies to Roberts v Johnstone calculations for future accommodation costs. If it were to apply then this would lead to a negative outcome, which can’t have been intended given that the basis for altering the discount rate was to make future loss figures fairer for Claimants.

Conclusion

The imposition of a negative discount rate absent guidance will lead to uncertainty, increased costs and satellite litigation.

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