horwich farrelly

Lord Chancellor announces change to Discount Rate

February, 27, 2017

The Lord Chancellor, Elizabeth Truss, has today published the result of the long awaited review of the discount rate (‘DR’). The DR has been fixed at 2.5% since 25 June 2001; from 20 March 2017 the rate will be -0.75%.

The tables available from this link detail the multipliers now to be derived from Tables 1- 12; the discounting factors for a term certain from Table 27; and the multipliers for a term certain found in Table 28.

As the following examples illustrate, this reduction in the DR will have a significant impact on the value of lump sum settlements. The multiplicand in each case (from Table 1 or Table 2) is for long term care at £100,000 p.a. Normal life expectancy is assumed.

SexAgeMultiplier at 2.5%Damages (£)
Multiplier at -0.75%Damages (£)
Male2032.103,210,00088.968,896,000
Female2032.973,297,00094.999,499,000
Male5022.692,269,00041.444,144,000
Female5024.142,414,00045.724,572,000

It remains to be seen whether the increased multipliers are sufficiently attractive to move claimants away from periodical payment orders and back to lump sum settlements but it seems likely that they will do so.

That may be an unwelcome consequence of the review for the PPO funders of choice (MIB/NHSLA/MOD) but it will be interesting to see whether compensators in general might revisit their approach to such settlements, perhaps using the option of a PPO as a part of the claims negotiation process.in circumstances where many claimants remain keen on lump sum settlements.

Certainly the potential impact of the changes is such that the Lord Chancellor has already announced that she will be launching a consultation to consider options for reforming the way in which high value compensation payments are calculated.

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