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Changes to the clinical negligence compensation discount rate

View profile for Judith Thomas-Whittingham
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Proposed reforms on clinical negligence funding

Compensation in clinical negligence claims can often be received by way of a lump sum intended to cover the remaining period of the claimant’s life. The money is intended to put the claimant back into the same position they would have been in, but for the negligence occurring.

If compensation is being received within the lump sum for future losses, such as care needs, then there is a calculation carried out known as the ‘discount rate’. This calculation reflects the fact that the money to cover the future losses is being received now, rather than at that point in the future. The claimant could invest this sum and receive interest on it. A ‘discount rate’ is therefore applied to avoid there being any inflated compensation.  

The Right Honourable Elizabeth Truss MP has confirmed that “ The discount rate was last set in 2001, when the then-Lord Chancellor, Lord Irvine of Lairg, set the rate at 2.5%. This was based on a three year average of real yields on index-linked gilts.

Since 2001, the real yields on index-linked gilts has fallen, so I have decided to take action.

Having completed the process of statutory consultation, I am satisfied that the rate should be based on a three year average of real returns on index-linked gilts. Therefore I am setting it at minus 0.75%.”

The change in the rate has been applicable since 20 March 2017. This is a much fairer percentage reduction for claimants, but it will have substantial implications by way of costs for insurers and the NHS. The Right Honourable Elizabeth Truss MP recognises that “There will clearly be significant implications across the public and private sector. The government has committed to ensuring that the NHS Litigation Authority has appropriate funding to cover changes to hospitals’ clinical negligence costs.”

She has confirmed that there will be a consultation to consider the framework further and address “whether the rate should in future be set by an independent body; whether more frequent reviews would improve predictability and certainty for all parties; and whether the methodology – which in effect assumes that claimants would invest only in index-linked gilts – is appropriate for the future.”

Claimants’ legal representatives have been campaigning for some time for a further reduction to the discount rate, on the basis that the net return on ILGS is significantly below 2.5 per cent. It is argued that this results in a shortfall in compensation.

If you or a loved one has suffered clinical negligence our solicitors can help you. For free initial guidance on your options call a member of our specialist team on 01616 966 229.