- 11 Oct 2022
- 2 min read
Court special account interest rate increases further
The government has announced rises to the Court Funds Office special account rate, the latest effective from 2 September 2022.
Not a single person will have failed to note the current economic climate, which has seen significant inflation and a “cost of living” crisis. Part of the government’s plan to address this has seen repeated increases to the Bank of England base rate of interest, in the last year. Many commentators believe the base rate will continue to rise, reaching around 5%, with some even suggesting 7% may be more realistic.
In response to these increases, the Lord Chancellor has, in turn, instigated rises to the Court Funds Office (both special and basic account) interest rates. The special investment account rate had, prior to 2022, been in decline for over 3 decades and been at over 1% for more than 13 years.
On 24 May 2022, the government announced that the special account rate would be increased from 0.1% to 0.645% and the bank account rate would be increased from 0.05% to 0.323% (effective from 29 April 2022).
Then, on 4 August 2022, the government announced that, from 2 September 2022, the special account would increase further, to 1.75%, and the basic account would increase to 1.313%.
The special account rate is, amongst other things, used to calculate the interest (charged at half the special account rate) payable on a Claimant’s financial losses (also called special damages) in a personal injury claim. The increased rate is only applicable from the date of the increase, but as time passes, this is likely to make more of a significant difference to a Claimant’s damages, particularly in a claim with significant past financial losses.
In addition, funds held by the Court Funds Office (for example where a minor received damages for a personal injury claim, until they reach 18 years old), will often be held on the special account. As such, this will mean that the interest paid on these damages will increase.
The interest rate changes also have a potential impact upon Claimants who better their own Part 36 Offer at trial. In those cases, generally interest (on both damages and costs) are sought at 10% above the base rate, which will also have increased.
James Braund, Partner in the Personal Injury and Clinical Negligence team at Trethowans, based in their Poole office, comments: “These increases to both the special account rate are to be expected and are reflective of the wider economic picture, as other interest rates rise across the country. With interest rates expected to rise further, the government will need to keep both account rates under careful review, to ensure that they continue to reflect any increases to the Bank of England base rate.
Whilst these increases in the account rates should mean an increase to Claimants’ damages, it remains to be seen what further impact the wider interest rate developments will have on such claims. For example, the discount rate (the rate applied to future losses to reflect accelerated receipt), which is currently -0.25%, is due to be reviewed in July 2024 (if not before) and if interest rates continue to rise, the discount rate would be expected to do likewise, meaning the amount of future losses a Claimant would receive could be reduced”.