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Lord Faulks tables CLB amendment to be debated 10/15 May: How could this impact the discount rate?

Blogs26/04/2018

These amendments will be debated at Committee Stage (10/15 May).
 

State funding issues

The revision concerning state funding and extending the court’s powers could be seen, on the one hand, as tackling the flaws of Section 2.4 and the current system that permits double recovery in our system. Our view is that the way to tackle this issue may not be through the discount rate, but rather to review Section 2.4 generally, and in the context of Periodical Payments, to give the court the power to order reverse indemnities in every case where PPs are the adopted form of award.

“It’s about time”

Some commentators are reporting that we may see a new Discount Rate by April 2019 but unfortunately we believe this is incorrect. The April date appears to have come from the following exchange:

Lord Sharkey (Lib Dem) commented:

“I now turn to Part 2 of the Bill, dealing with the personal injury discount rate, and I should say at the outset that I agree there is an urgent need to change the basis on which the rate is calculated. But I have several concerns. The first is to do with timing. It is clear that the current discount rate needs amending, but the process proposed in the Bill means that there would be no change until 2020.”
 

And Lord Keen responded:

“On that last point, I appreciate the concern about the delay in respect of the discount rate. We are proposing to carry out the first review as swiftly as possible. I understand that we are aiming for April 2019, not 2020 as has been suggested. There is a 90-day period and then a 120-day period. There is a need to have an expert panel in place, but considerable steps may be taken in anticipation of the Bill passing to ensure that we have the machinery in place for the swift appointment of an expert panel, so that the review can be carried out as soon as possible. I will take further advice from officials on the question of how far we can go with that sort of preparation prior to Royal Assent of the Bill, in order to move swiftly on that matter.”
 

In our view Lord Keen may be talking about commencing the review in April 2019 rather than achieving a final rate by then. Our Director of Market Affairs, Samantha Ramen, believes that the earliest the Bill can receive Royal Assent is most likely February/March 2019. The first review must then be commenced within 90 days (or 10 days if Lord Faulks’ amendment is accepted). This could happen immediately, therefore the review could commence as early as April 2019.

There is then a 180 day period within which the Lord Chancellor must not only set the rate, but also set up and consult the expert panel. This panel might convene and make decisions quickly but this is very unlikely given the experts will want to do the job to the best of their ability and will not want to be subject to later judicial review if they are seen to have rushed the exercise. An unknown factor is how much preparatory work can be done in advance of Royal Assent.

The original draft of the Bill allowed the Lord Chancellor to make the rate determination without consulting the experts, however the Government accepted the Committee’s recommendation that the expert panel should be involved in the first review. That could slow the review down significantly if they use anything close to their full permitted time.

It appears the very best we can hope for is an announcement of an immediate review in or around April 2019 and then a minimum of three months for the rate to be announced. So a new discount rate could be in place around July 2019, fingers crossed. Clearly if Royal Assent were achieved more quickly, the dates come forward. 

Split rate

There seems to be some attraction to a split rate based on the response to the Select Committee report. The original GAD report clearly established that the rate of return on investments over a 5, 10 and 15 year period was lower than that over a 20, 30 or 40 year period. That was based on modelling 1,000 scenarios using an Economic Scenario Generator. Now that the Government has accepted the Committee’s recommendation that a different rate can be set for losses over a different period it is more likely that the expert panel will consider that different rates should be adopted for losses over a shorter and longer period. This would be a welcome move and establishes a regime much more in line with the rest of the world.
 

Returns in excess of RPI and after tax, investment fees, management charges and adviser fees (Source: Government Actuary’s Department Report, 19 July 2018)

 

Conclusion

No doubt these issues will have more twists and turns to negotiate on the way to urgently needed reform.

For further information please contact:

Andrew Underwood
Parther, Head of Complex Injury
T: 01204 677164
E: aunderwood@keoghs.co.uk

Mike Renshaw
Partner, Technical Director Complex Injury
T: 02381 907019
E: mrenshaw@keoghs.co.uk