What a shock. No one anticipated such a change.
At face value the announcement is a straight forward admission that claimants have been undercompensated for years.
However as well as announcing the dramatic rate change the Ministry of Justice ("MOJ") have promised another consultation into compensation claims to be "launched in the coming weeks".
Under the Damages Act 1996 the Lord Chancellor must consult the Treasury and the Government Actuary. Why then, as the Bank of England has indicated it's desire to raise the rates of return on Treasury listed stocks, set the discount rate at a level which probably underestimates the rate of return on Treasury stocks in the future.
The change is to be implemented on 20 March and will form a reference point to the MOJ's announcement that:
"the government will launch a consultation in the coming weeks to consider whether there is a better or fairer framework for claimants and defendants, with the government bringing forward any necessary legislation at an early stage"
Today’s decision by Elizabeth Truss to lower the Discount Rate from 2.5% to minus 0.75% was made in accordance with the law and in her capacity as independent Lord Chancellor. The law makes clear that claimants must be treated as risk averse investors, reflecting the fact that they are financially dependent on this lump sum, often for long periods or the duration of their life. Lord Chancellor and Justice Secretary Elizabeth Truss said: The law is absolutely clear - as Lord Chancellor, I must make sure the right rate is set to compensate claimants. I am clear that this is the only legally acceptable rate I can set. The Discount Rate has been unchanged since 2001.