What is the personal injury discount rate?

The personal injury discount rate is an actuarial tool that is used when helping to calculate future losses in a personal injury case (‘past losses’ are the losses that the Claimant has incurred up to the date that the case is settled or the date of the trial, and ‘future losses’ are any losses that they will have beyond that date such as future care costs or future treatment costs). The level of the discount rate is based on assumptions about what returns a Claimant will be able to get on their compensation after the case is settled (ie from investing the money or placing it in bank accounts). A higher discount rate means that the government has effectively decided that a Claimant may be able to get higher returns on their investment. If the discount rate is higher, this effectively means that the amount that a Claimant will receive for their future losses is lower.  

Increase to the personal injury discount rate

Up until January 2025, the discount rate in England and Wales has been -0.25%. In December 2024 however, the government announced that they would increase the discount rate to 0.5%  with effect from 11 January 2025 – an increase of 0.75%.  

This was not entirely unexpected (as the government had already made similar changes in the separate jurisdictions of Scotland and the Isle of Man), however it was of course disappointing. This change will mainly affect those Claimants with the most severe, permanent injuries (as these are the types of Claimants who tend to claim for significant future losses). The government appears effectively to have decided that Claimants may in the current economic climate be able to get better returns by investing their money than they could in the past. Leaving aside the question of whether the financial climate really has improved, this appears to demonstrate a real misunderstanding of the position of personal injury Claimants. They are not ‘average investors’, who may be prepared to risk part of their money on the stock market in the hope of higher returns. A Claimant who has been left with life changing injuries is often in a far more vulnerable position and needs the compensation to last for the rest of their life in order to pay for needs caused by these injuries, such as medical treatment, equipment and care. They also need regular access to their money. They generally cannot afford to chance their compensation on the ‘ups and downs’ of the stock market. 

Misleading claims

The motor insurance industry has claimed that the savings that insurance companies will get from this change will benefit consumers, because it will allow them to reduce insurance premiums. However, recent experience has shown that this is very unlikely to happen. A few years ago, the previous government introduced sweeping reforms to the whiplash claims process. These drastically slashed the amounts that insurers would have to pay out for car accidents involving whiplash injury. Since then, although the number of road accidents per year has increased, data from the government shows that the number of claims for road accident injuries has gone down very considerably. At the time that the whiplash reforms were introduced, insurance industry representatives promised that the savings arising from these reforms would be reflected in our car insurance premiums. Anyone who owns a car will know, however, that in recent years the cost of motor insurance has increased significantly. I am concerned that, as with the whiplash changes, the only effect of this change in the discount rate will be to boost the bottom line for insurance companies.

How Moore Barlow can help

Our personal injury lawyers offer a comprehensive range of services to help secure the best possible compensation to fund medical treatment, care, rehabilitation, and other ongoing support after you or a loved one has experienced a serious personal injury.

If you have any questions about the personal injury discount rate, please get in touch with our Personal injury team.