With the unprecedented and frequent changes to the Bank of England interest rate, it raises the question of how this can affect your claim.
The first consideration is the basis on which you are claiming interest. Generally, this will be either contractual interest or statutory interest.
Contractual interest is where the terms of the contract entitle a party to claim interest on the sums owed to them. Two common examples of this might be ‘interest at 5% per annum’ or ‘interest at 2% above the Bank of England base rate’. If the terms of your contract set a fixed rate of interest (such as example one) then the interest rate rises will not entitle you to claim more interest under the contract. Of course, you might want to revise the terms of the contract for future agreements.
If the interest rate is based on some other variable (example 2) then depending on what that variable is, it may entitle you to an increased interest rate. On 22 September 2022, the Bank of England increased the rate to 2.25%, in this scenario therefore, the combined contractual interest rate would be 4.25%.
In a similar way to contractual interest, you may be able to claim an increased rate of interest if the statutory provision contains a variable, as opposed to flat rate.
Most claims for unpaid debts attract interest pursuant to Section 69 of the County Courts Act 1984. The current rate of statutory interest is 8% per annum and in a similar way to fixed contractual interest rates, the changes in the Bank of England interest rate will not affect it. Of course, legislatures could amend this interest rate and on occasions, a judge could decide that 8% is not an appropriate rate and award differently.
For commercial contracts where goods or services have been sold or provided, the Late Payment of Commercial Debts (Interest) Act 1998 provides that interest (as well as compensation and reasonable costs) can be claimed at 8% above the Bank of England base rate. Accordingly, the interest rate claimed is therefore subject to this variable and in the current circumstances, this can mean interest being claimed as high as 10.25% per annum.
Our online portal calculates interest pursuant to the type of interest that you elect to claim and explains in more detail when and why certain interest types apply.