Discount Rate: July 2017

On 27 February 2017, the Lord Chancellor announced that the personal injury discount rate would be changed from 2.5% to minus 0.75%. Furthermore, the Government issued a consultation which closed on 11 May 2017. This considered:

• Whether the rate should be set in future by an independent body;
  
  
• Whether more frequent reviews would improve predictability and certainty;
  
  
• Whether the methodology (assumption of a claimant’s investment in gilts) is appropriate.

Following the consultation, the Government promised to “bring forward any necessary legislation at an early stage”. The Government are due to issue a response by 3 August 2017, although there are rumours that this might be delayed until September.

How this issue will develop, given competing Government priorities, is unclear – however, we do not expect this matter to disappear entirely. The Government has a vested interest to reduce the rate, being a large compensator itself- the Chancellor Philip Hammond’s Budget in March 2017 confirmed that the cost to the public purse was just shy of £6bn. With the Chancellor remaining in post after the election and the appointment of a new Lord Chancellor (David Lidington, seen by many as a safe pair of hands), we can expect the Government will do what it can to ensure that it protects its own financial position. This is especially important because it is set against the backdrop of a large amount of pressure on the Conservatives to drop many of its previously stated austerity measures.

The Queen’s Speech on 21 June confirmed that the Government intend to introduce the Civil Liability Bill to implement its whiplash reforms; this Bill provides the perfect legislative vehicle for any discount rate changes that require legislation.

Keoghs will stay close to this issue as it develops, and will continue to assist with the industry’s parliamentary and Government engagement where necessary and appropriate. We understand what an important issue this is to our clients, and appreciate the enormous financial impact that the change in the discount rate to -0.75% will have. We have, therefore, prioritised and focused our efforts on assisting with the industry’s lobbying to highlight the importance of this issue to the Government.
Since the High Court’s decision rejecting the ABI’s legal challenge on 20th January, the Keoghs Market Affairs team met and spoke with various senior officials and parliamentarians. These include:

• a visit to the Downing Street Policy Unit on 24th January;
  
  
• a conference call with the Head of Insurance Sector Policy at the Financial Services Group at the Treasury on 27th January; and
  
  
• a meeting with Craig Williams MP (then Parliamentary Private Secretary to David Gauke MP, Chief Secretary of the Treasury) on 30th January.

Throughout this engagement, we have been keen to point out the inherent flaws in the methodology for calculating the Discount Rate, and why it is not fit for purpose. More importantly from a political perspective, we have stressed that a decrease in the Discount Rate would mean that there will be:

• A significant increase in insurance premiums for motorists and businesses;
  
  
• A disproportionate impact on motor premiums for young and older drivers;
  
  
• A real risk that premium increases would increase the propensity to drive uninsured; and
  
  
• Increased costs to UK PLC and other compensators such as the Government (particularly the NHS) and Local Authorities.

Keoghs will continue to engage both at a civil servant and parliamentary level to ensure that this issue receives the due consideration that is required.