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Better safeguards are needed to ensure that vulnerable claimants do not lose out because of planned changes in the way personal injury compensation payments are calculated, a parliamentary committee has said.

The Ministry of Justice is consulting on proposals to change the way it calculates the “discount rate” applied when victims are given damages as a lump-sum payment.

A cut in the rate from 2.5% to minus 0.75% introduced earlier this year sparked protests from insurance companies, who said it would drive up premiums because claimants would be entitled to larger lump sums.

Proposed changes would allow ministers to limit the impact on premiums while still ensuring victims receive 100% compensation for the impact of their injuries over the rest of their lives, by ditching a presumption that lump-sum payments will be invested in very low-risk index-linked government securities, which deliver poor returns in comparison with other schemes.

A report by the cross-party House of Commons Justice Committee said that while the reform may be “reasonable”, ministers should exercise caution and act only if they have “clear and unambiguous” evidence of the likely impact of victims’ investment behaviour in the real world.

Lower lump-sum payouts may in themselves encourage victims to invest in riskier schemes, the committee warned.

Committee chairman Bob Neill said: “Setting the discount rate is much more than a technical decision. It is about how we as a society treat people who have been seriously injured, whether through medical negligence, road traffic accidents or by other means.

“It involves balancing the interests of claimants with defendants, and also balancing the social costs of increased clinical negligence payouts and increased

“If the Government remains convinced that it must change the assumptions it makes about how damages will be invested, to adjust the balance between the interests of different groups in society, it should say so. It is vitally important that we get this right, and that changes are evidence-based.”

The Medical Protection Society’s director of claims policy, Emma Hallinan, said: “The Justice Select Committee is right to acknowledge that a balance must be struck between the interests of the claimant, and the affordability of rising clinical negligence payments to society.

“Without prompt action to change how the discount rate is set, the cost of clinical negligence to the NHS, society and healthcare professionals risks becoming unsustainable.

“The Government has said it intends to legislate promptly, to ensure the way the discount rate is set is put on the best possible footing at the earliest practicable date.

“We would encourage the Government to keep to their commitment to ensure this important legislation comes into force swiftly.”

Marjorie Ngwenya, president of the Institute and Faculty of Actuaries, said: “We welcome this report and the committee’s request for clarification on what is meant by 100% compensation.

“Such compensation will rarely be precisely achieved in practice. We are especially pleased to see this report identifying the risk of claimants exhausting funds due to living longer than expected.”

A Ministry of Justice spokesman said: “Ensuring personal injury victims receive full and fair compensation is absolutely central to our discount rate proposals, which have been drawn up in the light of evidence from stakeholders and financial experts.

“We are grateful to the Justice Select Committee for the thorough scrutiny it has given to the draft legislation. We will of course carefully consider its recommendations, along with the other responses we have received, and respond in due course.”

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