UK Government Announces Plans To Change The Discount Rate

Yesterday, the UK Government published a paper along with draft legislation in response to this year's consultation on the discount rate. The proposed changes are likely to result in a discount rate between 0 and 1%. The timescale for any such change is not set out but it seems it may not happen any sooner than 12 months from now. However, the paper does provide answers to questions that have been asked but left unanswered by successive governments; how, when and by whom should the discount rate be changed?

The discount rate is used to calculate a lump sum for future ongoing losses. The current discount rate is -0.75% and was changed to that figure in England on 20 March 2017 and in Scotland on 28 March.

When she announced the change in England, the Lord Chancellor also announced a consultation on the correct mechanism for fixing the discount rate. Her discomfort at the new discount rate was obvious, however she considered herself bound by the current law to fix the rate at -0.75%. The consultation was therefore to consider changes to the underlying principles that dictate the calculation of the discount rate. The consultation closed on 11 May 2017 and a response was planned for 3 August 2017. However no response was issued on that date and the following day it was announced that there would be an unspecified delay.

That delay did not come as a surprise. There have been several previous consultations which sought to answer the same questions; stakeholders were asked for their views on the correct way to calculate the discount rate in 2012, 2013, 2015 and 2016. Yet none of those consultations reported with recommendations.

However, yesterday the UK Government did finally publish a response to the most recent consultation, a paper on the correct method for determining a discount rate along with draft legislation.

Although the consultation was a joint one, held by the UK and Scottish Governments, the current proposals extend only to England and Wales. However the Scottish Government has previously stated that there is no basis for a different approach north of the Border. Further, the Scottish Government's legislative programme for 2017/18 (published on Tuesday) includes a Damages Bill, which will "amend the law on the discount rate following the joint consultation with the UK Government". Accordingly, it seems likely that the Scottish Government will follow the UK Government's lead in any changes.

What is proposed?

The consultation posed...