Setting the Personal Injury Discount Rate: The Role of the Government Actuary's Department

Published 1 octubre 2018

The Civil Liability Bill will introduce major changes to the methodology for setting the Personal Injury Discount Rate in England and Wales, together with a timetable for the first review of the rate and for future reviews.  As part of this process, the Government Actuary's Department (GAD) will play an important role, advising the Lord Chancellor in the first review and chairing the expert panel to provide expert advice to the Lord Chancellor in future reviews. The Lord Chancellor will make his determination of the rate based on the advice provided by the Government Actuary.

The Civil Liability Bill continues to progress through Parliament, and will return to the House of Commons for Report and Third Reading (which we anticipate to be around mid-October) before any proposed amendments are considered in the House of Lords; the Bill could receive Royal Assent by 1^st November 2018.

The process by which the discount rate will be reviewed will follow a 140 day (maximum) timetable which must start within 90 days of Royal Assent. The Government Actuary will be consulted within 20 days of the start of the review (by day 110) and respond within 80 days (day 190), before the Lord Chancellor determines the new rate (by day 230). Assuming that the Bill receives Royal Assent on 1 November 2018, the outcome of the first review under the new Act will be published by 18 June 2019 at the latest.

The advice of the Government Actuary to the Lord Chancellor will, to a large extent, be framed by the instructions he receives in the Terms of Reference which are to be set.  Unless the Terms of Reference instruct him to propose dual dates, we do not anticipate his recommending them, and it will be important for the Terms of Reference to reflect Government policy objectives as clearly and unambiguously as possible. The more lax the terms of reference, the more likely it is that the Government Actuary's advice will provide a range of possible outcomes.

The Government Actuary plans to issue a call for evidence on which he can base his advice on the appropriate discount rate, having regard to the factors he must consider as set out in Schedule A1. He is likely to seek evidence on:

1. how claimants actually invest their damages;

2. how claimants are advised to invest their damages; and

3. how claimants should invest their damages.

The Government Actuary's advice to the Lord Chancellor will depend on the evidence provided to him and we expect him to report back with a range within which the Discount Rate should be set. 

The level of inflation to be allowed within the calculation will be for determination by the Lord Chancellor, probably on advice from the Treasury. Although RPI is no longer a national statistic, it may still be the index used for setting the discount rate as it may be seen as a proxy for the combined effect of earnings inflation and price inflation.  A suitable allowance will also be made for investment charges and tax.

We hope to see the review proceed more quickly than the 230 day maximum period, although the Government Actuary warns of the need for the statutory process to run its course. Our assessment is that a conclusion by the end of Q1 2019 still a realistic possibility. 

The Government Actuary Martin Clarke was speaking at an ABI event, alongside Andrew Parker, DAC Beachcroft's Head of Strategic Litigation. This note is based on the presentations and discussion at the DAC Beachcroft Claims Ltd sponsored event.