Assumed rate of return on investment of damages

Part of Civil Liability Bill [Lords] – in a Public Bill Committee am 2:45 pm ar 11 Medi 2018.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Bambos Charalambous Bambos Charalambous Llafur, Enfield, Southgate 2:45, 11 Medi 2018

Let us be clear what we are talking about with the discount rate: damages for people who have suffered catastrophic, life-changing injuries. The lump sum they receive is to last them their entire life and is to pay for urgent treatments, care, support, adaptations—a whole host of things. We need to be very careful how we deal with this, as very small variations in the discount rate can have serious impacts.

As an example, I have been advised by a leading law firm that it settled a claim in 2015 for a client in her 30s who suffered cardiac arrest and irreparable brain damage due to negligence. She was awarded £9.95 million when the discount rate was 2.5%. That award was to pay for extensive medical treatments, childcare and live-in carers for the rest of her life. Had the claim been settled in 2017, when the discount rate was changed to -0.75%, it would have resulted in a settlement of £20 million.

Such cases are relatively few in number, but when they do occur, we must make sure that they are dealt with as precisely as possible, without leaving such large fluctuations to chance. We would all agree that the time between the setting of the two discount rates was far too long. I very much support a shorter period of time for that to take place. Someone who receives such a lump sum would surely choose to invest it in as low risk a manner as possible—they would not want any risk if possible—because it has to last them their entire life. The discount rate should be set on the basis that the investment will be very low risk.

In setting the discount rate, the Lord Chancellor is given wide-ranging discretion. That opens up potential for other factors to influence the Lord Chancellor, which could adversely impact the compensation received by someone who has suffered catastrophic injuries. We need to be clear about the reasons why the Lord Chancellor will be setting the rate. As my hon. Friend the Member for Lewisham West and Penge mentioned, the Justice Committee recommended setting up an independent panel of experts to advise the Lord Chancellor on setting the rate. It also recommended that the panel’s advice be published in full. The Bill has removed that transparency. I have grave concerns about the reasons for that and how the rate will be set. We need to know how the rate has been set. When the Bank of England sets interest rates, it has a panel of experts and it gives reasons why. A similar system should apply here.

I support the amendments and new clause. It would be right and proper for the power to be taken away from the Lord Chancellor and for the rate to be set by an independent panel of experts, at regular periods.