Dual or multiple Personal Injury Discount Rates : Key issues from the Ministry of Justice’s call for evidence

One week on from the publication of the Ministry of Justice’s (MoJ ) call for evidence and the dust has settled on it a little. What are the key points we’ve drawn over the last few days from reflecting on the 53 pages of material?

• It stands up as a genuine call for views on possible options and does not appear to suggest either (i) that a move away from a single Personal Injury Discount Rate ( PIDR) is the MoJ’s preferred policy, or (ii) even if it were, to express any preference or ranking among the dual / multiple rate options put forward.
   
• It is not a statutory review of the PIDR, i.e. this exercise is not a formal 5-year review of the rate mandated by part 2 of the Civil Liability Act 2018. The materials we have seen to date indicate (at present) that that is unlikely to begin much before Q2 2024.
   
• There is no need for new primary legislation here. The 2018 Act already permits the adoption of dual or multiple rates, as did the earlier statute (Damages Act 1996). When the 2024 rate review concludes, the Lord Chancellor’s decision on a new rate or rates will be implemented by secondary legislation (a statutory instrument made under the powers in the 2018 Act).
   
• The options for dual or multiple rates are summarised rather theoretically. What is missing – and what this exercise should yield – is a sense from practitioners in dual or multiple rate jurisdictions of how those systems operate in practice and a view from English stakeholders about the potential practical impacts were such an approach to be adopted here.
   
• No case studies have been provided. However, developing a full understanding of the potential practical and financial impacts of the various models floated by MoJ will be key. Assumptions will need to be made about the elements of each scheme (eg: short and long rates, switching points and indices) and how adopting those would compare to resolving claims today using the current -0.25% single rate.
   
• MoJ is seeking evidence on investment issues (advice, risk appetite, returns). Unlike under the Scottish and Northern Irish statutes, no investment strategy or portfolio is prescribed on the face of the 2018 Act and the area remains a matter of Ministerial discretion, with the benefit of advice from the expert panel chaired by the Government Actuary.
   
• Evidence on technical adjustments to returns is also requested. How the effects of tax, investment charges and inflation should be taken into account when setting a PIDR (or a dual rate) has a significant impact. As above, these aspects are not prescribed in legislation and remain a matter of Ministerial discretion. [*The precise inflation measure to be used -Consumer Prices Inflation (CPI), Retail Prices Inflation (RPI), or something else entirely - and it’s assumed level over the long term are critical sub-topics here.] 
   
• The vital balance here is between complexity and practicality. Any move to a dual or multiple rate system is inevitably more involved than using a single PIDR. From a policy perspective, the benefits of doing so would need to outweigh the risks of greater complexity, cost and delay in a new system. It is reassuring that the MoJ appears to be alive to this concern, with the point surfacing in several places in the call for evidence.
   
• The section on Periodical Payment Orders (PPOs) is far from an easy read. It looks at inflation and indexation - referring to CPI, RPI and to the Annual Survey of Earnings and Hours (ASHE)  - and appears to describe the possibility of adjusting the PIDR used in the calculation of any future losses in the residual lump sum awarded outside the PP mechanism. It also refers to work the Civil Justice Council might undertake on whether/how agreeing PPOs could be made quicker and/or simpler. Any PPO-related issues will merit further analysis when considering responses to the MoJ.

Clyde & Co’s Catastrophic Injury & Large Loss group will be addressing these aspects (and others) of the call for evidence in more detail in further articles, events and briefings during the time available before the response period closes on 11 April. We look forward to sharing insights and ideas with you over the coming weeks. 

Futher insight  Dual or multiple discount rates: 12 weeks to put views to Ministry of Justice