The Government must clarify its aims, gather proper evidence about how claimants invest lump-sum damages and whether investment covers their future losses, and ensure adequate safeguards to prevent under-compensation of the most vulnerable claimants.
The Government asked the Committee to undertake pre-legislative scrutiny of the clause contained in the recent consultation paper The Personal Injury Discount Rate: how it should be set in future.
Government's proposed legislation
The Government proposes to maintain the objective that claimants should receive 100% compensation for losses they incur.
The Government intends that the discount rate applicable to lump-sum damages received by claimants should no longer be set with reference to returns from very low risk Index Linked Government Securities.
Instead the draft legislation provides that the discount rate should be set on the assumption that claimants will invest lump sums in “low risk” investments, and having regard to actual investments made by claimants.
Committee Chair Bob Neill MP said:
"Setting the discount rate is much more than a technical decision.
It is about how we as a society treat people who have been seriously injured, whether through medical negligence, road traffic accidents or by other means.
It involves balancing the interests of claimants with defendants, and also balancing the social costs of increased clinical negligence payouts and increased insurance premiums with protecting the interests of vulnerable claimants."
"If the Government remains convinced that it must change the assumptions it makes about how damages will be invested, to adjust the balance between the interests of different groups in society, it should say so.
It is vitally important that we get this right, and that changes are evidence-based."
More evidence needed on claimant investment behaviour
The Committee welcomes the Government's commitment to the principle of full compensation for claimants, but recommend that it clarifies what it means by this, given that lump-sum awards will nearly always either under or over-compensate individual claimants.
The Committee advises caution in considering evidence of claimants' behaviour to set the discount rate: the risk they accept may be driven by the rate itself.
The report concludes that while it may be reasonable to change the assumptions on which the discount rate is calculated if they are no longer representative of 'real world' behaviour.
Clear and unambiguous evidence should be gathered about the way claimants invest their lump sum damages, the reasons for their choices and the extent to which they obtain fair compensation.