The aim of compensation in clinical negligence cases (and all personal injury cases) is to put the claimant in the position they would have been but for the negligent event to the extent money can do that.

There are various awards made to a claimant: (i) damages for pain, suffering and loss of amenity (general damages); (ii) damages for losses accrued to the trial date (special damages – past losses); (iii) damages for ongoing and future losses beyond the trial date (special damages – future losses).

Future losses often include an advance lump sum payment under heads such as care, loss of earnings and accommodation. The parties effectively map out the future requirements of the claimant. The challenge is that advanced receipt of compensation means the damages can be invested with returns exceeding inflation. Accordingly, the claimant may be overcompensated as time progresses.

The value of a future lump sum losses is determined by “multiplier/multiplicand” approach. The multiplicand is the annual loss the claimant is expected to suffer at today’s rate. The multiplier is calculated based upon actuarial tables taking into account statistical data, categories of claimant, & risk characteristics as against the length of time such a loss will continue. The discount rate then adjusts the amount of compensation that a claimant will receive.

Pursuant to the Damages Act 1996 a court shall take into account such rate of return (if any) as may from time to time be prescribed by an order made by the Lord Chancellor. By 1999, no such rate had been prescribed.

The House of Lords in Wells v Wells (1999) the court assumed that claimants would invest in very low risk products and mapped the discount rate to index linked government stocks. A 3% discount rate was applied.

In 2001 the Lord Chancellor did prescribe a rate of 2.5%. However, in 2017 this was revised to a rate of -0.75%. The minus rate reflects the likelihood that a claimant’s lump sum is likely to depreciate over time if invested in a very low risk portfolio.

The effect of this change to the insurance market was dramatic as damages payable increased. Allianz claimed its £121m profit for year 2017 was £22m less than it would have been but for the change in discount rate. Insurance premiums were subject to an increase to pay for this change.

The Civil Liability Act 2018 altered the formulation of the discount rate. The Lord Chancellor was to now assume investment in a mixed portfolio of low risk (rather than very low risk) investments. This acknowledged that claimant’s actually invested in more profitable portfolios than index government linked stocks. Account has to be taken for tax, inflation and investment management costs. Based upon this new methodology, in 2019, the Lord Chancellor prescribed the rate -0.25% and which would be reviewed 5 years thereafter.

The Ministry of Justice called for evidence in January 2023. A second call for evidence was made January 2024. The Lord Chancellor must determine the rate by January 2025.

It may be noteworthy that government actuary who will provide advice to the Lord Chancellor carried out the same exercise locally to the Isle of Man. The discount rate was revised from -0.25% to 1% in October 2023. While this does not bind the Lord Chancellor when setting the UK discount rate, and economic conditions may well change, this may well signal a positive discount rate from January 2025. Compensators will no doubt breathe a collective sigh of relief if that is the case but all remains to be seen.