Full Compensation & The Discount Rate: Revisited

Julian Chamberlayne, Head of International Injury, reviews the Justice Committee's report on the discount rate

The Justice Committee acknowledges early in its recent report, issued as part of its inquiry into draft legislation related to the personal injury discount rate that 'a negative discount rate was counterintuitive because it requires that a sum paid now will be worth less in the future. It is usually the other way around: people would ordinarily expect to earn a positive return on the sum received,' (see Pre-legislative scrutiny: draft personal injury discount rate clause, 30 November 2017).

This quote reminded me of Daniel Kahneman's seminal work, Thinking, Fast and Slow. Kahneman observed that our initial reactions are frequently directly contrary to what careful analysis of statistics and evidence would lead you to. The Justice Committee quite rightly flagged the danger of thinking too fast on this issue commenting: 'The evidence currently presented by the Government concerning claimant investor behaviour is thin'. Sensibly, the committee has called on the Government to clarify its aims, gather proper evidence about how claimants invest lump-sum damages and ensure adequate safeguards to prevent under-compensation of the most vulnerable claimants.

The Justice Committee also recognised that there were other aspects of the law of damages that needed to be addressed in tandem with any discount rate...