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The -0.75% discount rate

The -0.75% discount rate

When it finally came, the announcement of the discount rate reduction was no damp squib. The differentials will be dramatic: for example, the loss of earnings multiplier to retirement age 70 for a 25 year old man will almost double, from 26.4 to around 51.33 (before applying the non-mortality discount factors). I am not ashamed to admit that my own prediction for the review outcome was much more cautious.

Prudent personal injury and clinical practitioners will therefore be speedily reworking their future loss calculations and making rapid withdrawals – or, on the defence side, acceptances – of existing Part 36 offers. A year or two hence we can anticipate a small flurry of claims against claimant lawyers for failing to take offers off the table before acceptance, and possibly against defence lawyers for not being quicker on the draw.

So: where now? The sting in the tail of the Lord Chancellor’s announcement is the strong hint that Wells v Wells is likely to be reversed by legislation, following the necessary consultation, and soon (‘The Government will review the framework under which I have set the rate today to ensure that it remains fit for purpose in the future… Following the consultation, which will consider whether there is a better or fairer framework for claimants and defendants, the Government will bring forward any necessary legislation at an early stage.’). The strong likelihood must be that investments other than Index-Linked Government Stock will be brought into the mix, with more frequent reviews of the discount rate thereafter. So the end of the long bull market on bonds would see returns going up and multipliers coming down at the next review, and staying down.

Pending any such legislative reversal, many seriously-injured claimants will wish to settle on the basis of the -0.75% discount rate. As ever, defendants will have the opposite incentive.

Joel Donovan QC

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