Rules for NHS compensation are to change again after costs spiral

Authors: Clare Dyer 

Publication date:  11 Sep 2017

The UK government is again to change the method for setting the personal injury discount rate, after deciding that the last change, made six months ago, has overcompensated people who have been seriously injured through negligence.[1]

The rate, the notional return to be expected from investing a lump sum award, is used in calculating payouts for injury, including those for clinical negligence. It is intended to provide full compensation, neither more nor less.

Calculated in relation to the retail price index, the rate was slashed last March from 2.5%, set in June 2001, to −0.75%, causing the NHS compensation bill to soar. Compensation for a child who was seriously brain damaged at birth, with a normal life expectancy and needing 24 hour care, rose to more than £20m (€22m; $26m). The cost of clinical negligence payouts for NHS trusts in England had been forecast to double over four years to 3.2bn by 2020-21.

The current figure for the discount rate is set on the basis that injury victims will adopt a “very low risk” approach to investing, putting their money in index linked gilts (government bonds). The new approach will assume investment in a low risk diversified portfolio instead, which should produce a higher return.

The change, which will be enshrined in a new clause to the Damages Act 1996, will apply only to England and Wales. The draft clause provides that the lord chancellor will set the rate, advised by an expert committee, and review it every three years. The Ministry of Justice suggests that the rate might be between 0% and 1% if it were set today.

The Medical Defence Union, which provides indemnity cover to GPs and private practitioners, welcomed the move but said that GPs were currently facing claims valued at £20m per claim and that the change did not go far enough.

Matthew Lee, professional services director at the MDU, said, “The MDU has held off passing on the cost of the previous discount rate change to GPs—which would be simply unaffordable for many—to give the government time to develop a promised solution to protect GPs.

“The high cost of indemnity, which GPs themselves have to pay, is driving doctors out of the profession and could put off junior doctors from choosing a career in primary care.

“The proposed change in the discount rate, even if enacted, will take time to implement, and it won’t address the fundamental problem that compensation costs are out of control. We urgently need far more radical tort reform.”

The plan for new legislation to reform the discount rate came on the same day that the National Audit Office called for a “coherent, cross-government strategy” to try to curb the spiralling cost of clinical negligence claims.[2] Its report said, “The government needs to take a stronger and more integrated approach to fundamentally change the biggest drivers of increasing cost across the health and justice systems. It will require significant activity . . . in the areas of policy and legislation.”


  1. Ministry of Justice. The personal injury discount rate: how it should be set in future. Updated Sep 2017. [Link] .
  2. Torjesen I. Government needs coherent policy to tackle rising clinical negligence costs, says financial watchdog. BMJ  2017;358:j4159 [Link] .

Clare Dyer The BMJ

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