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Setting the Personal Injury Discount Rate – New Legislation in Scotland Proposed

by Personal Injury Claims Blawg on July 5, 2018

The setting of the personal injury discount rate has historically been a contentious issue for both the insurance and personal injury sectors because of the impact it can have the size of awards received by claimants. The subject has come to the fore again recently with the news that the Scottish Government intends to introduce legislation to govern how the rate will be set in Scotland.

The Discount Rate

The discount rate is the percentage used to adjust accident claims compensation awards for victims of serious personal injury, according to the amount they could expect to earn by investing it. Its application is an important part of the calculation of awards and it only relates to compensation for future loss.

When a claimant is awarded damages following a personal injury the adjusted awards should put claimants in the same financial position they would have been in had they not been injured – they should receive neither more nor less than full compensation.

New Personal Injury Legislation

The Scottish Government has introduced its Damages (Investment Returns and Periodical Payments) (Scotland) Bill to the Scottish Parliament, which it says will address concerns that the current process for setting the personal injury discount rate lacks transparency and has not been reviewed frequently enough. The discount rate was last reviewed in February 2017 and resulted in a substantial shift to the rate, which was reduced from 2.5% to minus 0.75%. This increased the size of awards received by claimants.

If the Bill is approved by Parliament and passes into law, it will:

  • Put in place a new methodology for calculating the discount rate which should be applied to such losses
  • Require the discount rate to be reviewed by the Government Actuary every three years
  • Give courts in Scotland the powers to impose periodical payment orders for future financial loss

A periodical payment order is an alternate way of paying damages which spreads the payments over the period which they are intended to cover – usually via an annual payment. Currently in Scotland, where damages for personal injury are payable, the courts may make a periodical payments order but only if both parties agree to this. In England and Wales the courts have the power to impose such an order.

“This legislation is part of our wider programme of civil law reform which aims to ensure the system keeps pace with modern Scotland and the needs of its people,” explained Minister for Legal Affairs Annabelle Ewing. “While the number of people affected by the discount rate is relatively small, we know that those cases tend to involve catastrophic injury with little prospect of the individual’s full recovery. That is why it is so important the law determining how the discount rate is set is clear, fair, transparent and credible.”

The UK Government also intends to legislate on the setting of the personal injury discount rate in England and Wales, and provisions to this effect are contained within its controversial Civil Liability Bill, which is currently making its way through Parliament

These provisions will:

  • set the rate with reference to ‘low risk’ rather than ‘very low risk’ investments as at present, better reflecting evidence of the actual investment habits of claimants;
  • establish a regular review of the rate, the first within 90 days of the legislation coming into force and at least every three years thereafter;
  • establish an independent expert panel Chaired by the Government Actuary to advise the Lord Chancellor on the setting of the rate.
Personal Injury Claims Blawg

Personal Injury Claims Blawg

PI claims blogger at PIClaimsBlawg
Personal Injury Claims Blawg is a personal injury law blog, inviting contributions from practitioners, PI law firms and legal academics across the UK, US and beyond. The post above has been published because of the high value associated with the author's work. Contact us if you'd like to get published today.
Personal Injury Claims Blawg
Personal Injury Claims Blawg

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