UK: UK Government Announces Plans To Change The Discount Rate

Last Updated: 15 September 2017
Article by Elena Fry and Kate Donachie

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 three questions; how should the discount rate be changed, when should it be changed and by whom? Those questions are answered in the UK Government's proposal as follows:

  1. How? - with reference to the actual investment practice of claimants and the actual investment returns to be expected.
  2. When? - every three years or more frequently. Once such a review begins it must be concluded within 90 days.
  3. By whom? - the Lord Chancellor, who is obliged to consult a panel of experts. The panel will be chaired by the UK Government actuary and will include four others including those with expertise as an actuary, an investment manager, an economist and someone with expertise in consumer investment affairs. The HM Treasury will be a statutory consultee at all such reviews.

This represents a fundamental change to the current principles. The existing law was set down by the then House of Lords' decision in Wells v Wells 1999 1 AC 345. In that case it was stated that the rate should be calculated on the basis that the claimant is a "very risk-averse investor". Application of that principle resulted in the rate being fixed with reference to yields on index linked gilts. The current proposals require that the claimant is viewed as willing to take "more risk than a very low level of risk but less risk that would ordinarily be accepted by a prudent and properly advised individual who has different financial aims". The focus is on what claimants actually do and what returns they can actually expect. In that regard the proposals appear eminently sensible.

It was accepted by financial advisors responding to the consultation that claimants are never advised to invest exclusively in Index Linked Gilts. nor do they; the notional claimant who took almost no risk was just that, notional.

Responses to the consultation were not agreed in relation to the correct timescale for review of the rate. The current proposal is that the rate should be reviewed at intervals no greater than three years. There is obviously a balance to be struck between ensuring an accurate rate and avoiding uncertainty about the value of claims. At present it is difficult to estimate the likely effect of such frequent reviews although it should be noted that there is no requirement for the rate to change at each review. It will also be possible to have a review within a shorter timescale, if there is reason to do so.

There was also a lack of agreement about who should make the decision. It has been concluded that there should be full political accountability for the decision and that therefore it is ultimately for the Lord Chancellor to determine the rate. This proposal will disappoint those who argued that the decision-maker should be politically independent. Their concern was that policy and economic considerations may prevent the correct rate being set. The proposed system can be compared to the current Bank of England system for fixing interest rates.

The current proposals allow the UK Government to maintain its commitment to the principle of 100% compensation. That is, that a claimant should be compensated for all of their loss, but no more. Some of the responses to the consultation suggested that this principle should be abandoned because the cost of claims was otherwise intolerably high. The UK Government's proposals include the conclusion that the current discount rate results in over compensation and in that way the UK Government avoids difficult questions about economics and funding policies. However, as the application of the 100% compensation principle should remove such economic and policy considerations, the need for political accountability is a little difficult to understand.

What are the practical implications?

The response contains only proposed legislation. It is stated that responses to the proposals are sought but no final date for such responses is given. If the proposals do become a Bill, it will be subject to the scrutiny of Parliament. Despite the UK Government's statement that it will legislate promptly and its obvious desire to change the rate as soon as possible, it seems unlikely that the legislation will be passed before the end of the year. Although the Scottish Government could pass its own legislation sooner, it seems more likely that it will await a decision in England and Wales before making changes in Scotland.

If the proposed legislation is passed, the Lord Chancellor will have a further six months in which to arrive at a new discount rate.

If the proposals are accepted, the discount rate will increase and thereafter be reviewed on a regular basis. However the immediate timescale for any such change remains unclear and it could be as long as a year before the current discount rate is changed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.