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Compensation payments

Compensation payments

In the news recently, has been an announcement by the Lord Chancellor, Liz Truss, that the discount rate applied to personal injury compensation payments, principally in catastrophic injury cases, is to be reduced from 2.5% to minus 0.75%. So what – we hear you all say. Actually, this is highly significant.

When large compensation packages, particularly in relation to the victims of severe medical negligence or severe brain or spinal injury, negotiate settlement of their claim, the discount rate with the percentage linked in law to returns on the lowest risk investments, typically index-linked gilts is applied. In terms, therefore, people receive a lump sum which is discounted by this amount to reflect the fact that they are in a position to invest it straight away. It is theoretically supposed to last for a lifetime.

Problem – It does not because interest rates have been so historically low for so long and retail price inflation and other costs have continued to increase (by and large) means that the money awarded to last for life for these terribly injured people, will theoretically run out. By lowering the discount rate, the Lord Chancellor has recognised this and recognised that these investments cannot be gambled and have to last for a long time, and by lowering the discount rate to a negative substantially increases and lengthens the prospects of the damages lasting in the case of what are known as ‘Lump Sum Awards’.

Within minutes of the announcement, the Association of British Insurers threatened you with a £75 hike in your insurance premiums. They have tried to stop this step and put forward a load of bloated figures suggesting that it is unnecessary and unfair (to them and their shareholders) which it is not.
There is no evidence to support the assertions that they are making nor the assertions made by the National Health Service Litigation Authority who say that the costs of the NHS will rise from legal cases by a further billion this year as the discount rate has risen. Again, there is no real evidence to support this and most of the NHS Litigation costs arise from the fact that the NHS refuse point blank in most cases to admit any responsibility for medical negligence by doctors, nurses, surgeons and so forth. Often, these cases are fought to the bitter end and thus resulting in much higher costs. Ultimately, if you or your relatives have been seriously or catastrophically injured, then this is good news and should be read as such. The rate has not changed since 2001.

In catastrophic injury cases, the court does have the power to award what are called ‘Periodical Payments’. These are amounts paid to a victim of an accident be it medical negligence or a work or road traffic accident, which are paid on an annual basis for the life of the Claimant and are often in addition to a smaller lump sum designed to combat problems with the discount rate that have now prevailed for some years. Nonetheless, they are not always appropriate and this change is extremely welcome. You should assume it is welcome because the insurance industry is telling you it is not. If you or a member of your family has had a catastrophic head, spinal or other injury, and/or has been the victim of serious medical negligence, please contact Boyce Hatton and speak to either Mark Pierce or Stephen Hanbury on 01803 403403 or email

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