Compensation reform will lead to significant legal cost rise in England

THE Lord Chancellor, Liz Truss, has today announced a cut to the discount rate applied to personal injury claims from 2.5 per cent to minus 0.75 per cent. The effect will be an increase in the size of compensation payments, leading to significant new costs for the NHS and medical defence organisations (MDOs), such as MDDUS.

MDOs are not-for-profit financial mutuals, wholly-owned by their medical and dental members. As such, the subscription rates they charge have to reflect their best actuarial estimate of the likely liabilities which they face. Today’s decision will lessen the impact of the efforts which MDDUS, working with the Department of Health, NHS England and others, have been making to restrain the cost pressures already in the pipeline because of the higher number of claims and the higher costs already associated with them.

The "discount rate" is based on the assumption that claimants receiving compensation awards are able to invest that lump sum and earn a rate of return – so a portion of this return can be deducted from the total awarded.

The discount rate has been set at 2.5 per cent since 2001 but the Government has decided to revise it because the return on low-risk investments has fallen sharply. The cut to minus 0.75 per cent means that that MDOs and insurers will have to pay out significantly more in lump sums.

Speaking after the announcement, MDDUS Chief Executive Chris Kenny said: "Everybody agrees that those who suffer medical accidents should be properly and promptly compensated. The increase in claims awarded shows that this is already happening.

"Today’s decision, based on a consultation undertaken in 2013, does not reflect that fact nor anything which has happened in the economy and healthcare in the intervening period – nor what is likely to occur in the coming years as a result of Brexit and other pressures. It takes no account of the interests of the NHS, facing acute financial challenges. It ignores the impact of unavoidably high indemnity fees on morale and recruitment in primary care. Future decisions simply must be more joined up."

MDDUS believes three things are now essential. First, doctors and dentists must be fully protected from the cost of this decision. We welcome Government’s commitment to this for GPs in the first instance and will work closely with them to achieve it. Second, there must be no delay in producing proposals for the establishment of a better system for setting the rate. These must be radical in content and rapid in implementation, perhaps through the current Prison and Courts Bill. Finally, Government needs to produce timetabled proposals to address the wider issue of tort reform in parallel with changing the basis for setting the discount rate.

Chris Kenny added: "We look forward to seeing specific action in each of these areas. In the short-term, however, we continue to explore the implications of the decision closely and do not discount any action which gives a reasonable prospect of achieving a better, fairer and more affordable deal for our members."

This page was correct at the time of publication. Any guidance is intended as general guidance for members only. If you are a member and need specific advice relating to your own circumstances, please contact one of our advisers.

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