Pressure grows for compensation rise

Posted: 8th May 2015

InjuryIn an age of low interest rates and perennially poor returns on investment, potential under-compensation of seriously injured crime or negligence victims has become a burning issue. In one such case, a man received £4.5 million in damages, despite his lawyers’ arguments that he would require more than £16 million to last him a lifetime.

The man was aged three when his criminally negligent mother left him unsupervised in the presence of an accessible bottle of methadone. He suffered severe brain damage after drinking the heroin substitute. The Criminal Injuries Compensation Authority (CICA) subsequently awarded him £4,498,335.

That sum was assessed on the basis of the 2.5 per cent ‘discount rate’ laid down by the Lord Chancellor under the Damages Act 1996 and which had remained unchanged since 2001. That rate was used to discount compensation awards to take account of likely future returns on invested capital. The award was later upheld by the First-tier Tribunal.

Before the High Court, the man’s lawyers argued that the 2.5 per cent discount rate no longer reflected reality and that, as a result, the award was likely to be exhausted about half way through his remaining life expectancy. It was submitted that just over £16 million would in fact be required to fund the lifetime of care he would need.

However, in rejecting arguments that the man’s award should be increased, the Court found that the discount rate applies to awards made by CICA just as it does to those made by the civil courts in negligence cases. Although the discount rate has been much criticised as being seriously out of date, the only proper forum for challenging it was by judicial review.