So did the ambulance chasing lawyers outfox Lord Chancellor Liz?

THE decision to change the formula for calculating compensation payments is a huge victory for personal injury lawyers.

It was legal action by their lobbying group the Association of Personal Injury lawyers that prompted Monday’ s announcement by Lord Chancellor Liz Truss.

For motorists the consequences will be catastrophic, pushing up bills by £300 for older motorists and for as much as £1,000 for young drivers. It comes on top of a string of insurance tax hikes over the last two years which have pushed up premiums and led to accusations ministers are milking the motorist.

Insurance premium tax was raised by George Osborne in 2015 and 201 . In last year’s autumn statement Chancellor Philip Hammond announced another rise from 10 to 12 per cent.

When it comes into force in June, IPT will have risen from per cent to 12 per cent in two years, raising more than £2billion a year. The average premium, according to the AA, has risen by nearly £40. Nor is it just motorists who will suffer – any business with employer or public liability insurance will pay more. For small firms set to be hit as a result of the business rates review, it is the last thing they need.

Miss Truss took the decision following legal advice that if she didn’t, the courts would have made it for her. She adjusted the so-called ‘Ogden rate’ which is used to calculate compensation based on the likely interest victims of serious accidents will earn on lump sum payouts.

The rate has been unchanged at 2.5 per cent since 2001, when interest rates stood at 2.5 per cent. But with interest rates now at just 0.25 per cent, the likely return on investments is much lower. Miss Truss set the rate at - 0.75 per cent, arguing that bonds – the safest form of investment – were returning a negative yield.

But critics such as Andrew Tyrie, the chairman of the Treasury select committee, point out that returns on bonds are artificially low because of the Bank of England’s policy of printing money since the financial crisis.

Returns on high street bank accounts are much higher.

Previous lord chancellors have resisted making a similar move, fearing a likely public backlash. Last night Miss Truss’s allies accused them of ‘kicking the can down the road’. Government sources said people who suffered ‘catastrophic life changing injuries’ were currently getting a ‘raw deal’ and deserved more.

Insurance firms are furious at the rise, but government officials point out they have benefited from a crackdown on whiplash claims to the tune of £1billion.