The NHS is facing an extra £1.5 billion-a-year cost for medical negligence under controversial plans drafted by Justice Secretary Liz Truss to increase compensation payouts, HuffPost UK has learned.
Millions of motorists, as well as the Ministry of Defence, are also set to see insurance bills rise under the proposal to radically change the ‘discount rate’ for compensation awards.
In a little-noticed move, the London Stock Exchange has been notified that Truss is set to make an announcement on Monday on the outcome of a review of the system.
The Justice Secretary delighted personal injury lawyers – but infuriated insurance firms – by agreeing to look into the discount rate late last year.
The changes will have huge impacts on key public bodies such as the NHS and the MoD – the two biggest compensation payers in Whitehall.
But some MPs, as well as insurers, are furious that Truss has so far gone ahead without any Parliamentary scrutiny at all.
Some point out the NHS’s finances are already under strain, while others say motorists’ bills have been hit hard by the Treasury’s new insurance premium tax hikes.
The discount rate adjusts personal injury compensation payouts to take into account how much an individual can expect if they invest a lump sum over their lifetime.
Designed to ensure that claimants are not under- or over-compensated, the rate has been set at 2.5% since 2001, when the Lord Chancellor was Lord Irvine.
Any cut in the rate will benefit the thousands of individuals who suffer from medical negligence, car accidents and other personal injury incidents, but will land Whitehall with extra bills.
Insurance firms are also set to pass on the cost in the form of higher car insurance, particularly for the youngest and oldest motorists – who are most at risk of either causing on being in a road accident.
The Tory-Liberal Democrat coalition vowed to look at the discount rate but left it unchanged.
To the surprise of insurers, as well as other Government departments, Truss decided on a review last December after personal injury lawyers said the current system failed to reflect modern rates of return on investment bonds.
Actuarial projections drafted by one leading insurance firm, and passed to HuffPost UK, reveal the potential cost to the NHS will soar, depending on the extent of the changes the Ministry of Justice announces.
HuffPost UK understands that in private discussions, civil servants have not disputed forecasts that the changes could land the NHS with such a huge bill.
The MoD, which also has to pay out for negligence cases where servicemen and women are injured, is the second biggest potential loser after the health service.
Truss’s critics argue that while everyone wants the best possible compensation for victims of personal injury, she has failed to realise the knock-on effect on insurance bills and public sector body costs.
Insurance firms argue that using index-linked Government bonds to calculate payouts would distort prices and are not used by real claimants to invest lump sums.
Truss had said in December that she would announce her review conclusions on January 31, but then delayed the decision.
The Ministry of Justice said in a statement: “On 27 January the market was informed that the Lord Chancellor would announce the result of her review of the discount rate for personal injury claims by the end of February.
“The Lord Chancellor will make the announcement on the morning of 27 February.”
There have been no Written Ministerial Statements to Parliament on the discount rate despite the Stock Market notifications since December.
MPs have asked Parliamentary Questions about the possible impact on the NHS and on insurance costs for consumers, but have received replies simply stating that the Stock Exchange will be informed of any announcement.