03/01/2019

In February 2017, the then Lord Chancellor, Liz Truss, announced a major change to the discount rate, reducing it to -0.75% from 2.50%.

While the change appears insignificant it has made a big difference to insurer costs. There has also been a knock-on effect on the NHS with a reported £6 billion gap in NHS funding because of the discount rate cut, affecting services and increasing the burden on taxpayers.


Assessing claims for damages can be complex, particularly for the most serious injuries, with some claimants needing lifelong care. Settlements are awarded by the courts, with Judges using the Ogden tables to calculate compensation, with sums running into millions of pounds. 

The courts then apply a calculation, ‘the discount rate’, set to reflect the return on the lowest risk investments including government-backed index-linked gilts. However, a claimant will generally use a financial adviser who may recommend a more diversified strategy than gilts and, while still low risk, result in a higher return. 

The government have acknowledged this issue, and in September 2017, the government said the discount rate would be reviewed in acceptance of a broader investment strategy undertaken by claimants.

A more balanced approach to setting the rate is being considered with a revision expected sometime this year resulting in stability for the insurance sector and the NHS, while continuing to provide claimants with equitable settlements.

This indication could be affected by several external factors, such as Brexit, interest rates and UK inflation. However, it will not turn the clock back and claims will still cost more in the interim period.