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The Discount Rate and Periodical Payment Orders in Scotland – the latest developments

6th Dec, 2018 / Legal & Law Firm, News

A report’s key findings and recommendations on reform of the Scottish Discount Rate have been published in Holyrood

Overview

The Damages (Investment Returns and Periodical Payments) (Scotland) Bill (“the Bill”) was introduced in the Scottish Parliament on 14 June 2018.

The overall aim of the Bill is to reform the law on the setting of the personal injury Discount Rate and to give courts the powers to impose periodical payment orders (“PPOs”) for future pecuniary losses. For more information on the background to and detail of the Bill, read Weightmans’ update from July 2018.

The Economy, Energy and Fair Work Committee (“the Committee”) at Holyrood has now published its Stage 1 Report on the Bill and this update sets out some of the Committee’s key findings and recommendations.

In detail

The Committee, which took formal evidence on the Bill from various stakeholders in October and November, supports the Bill’s general principles. We would highlight the following conclusions/recommendations:

  1. The Discount Rate

Calculation

The Committee notes the division of opinion between the claimant and defendant community regarding the preferred approach to be adopted; the former highlighted risks such as the costs of care and modifying accommodation which could add to the investment risk while the latter argued that any rate which does not reflect the returns of ordinary and prudent investment is unfair, leading to over-compensation.

The Bill focuses on a ‘hypothetical investor’, investing a compensation award for future losses, and requires the Discount Rate to be calculated on the basis of that hypothetical investor investing over a 30 year period in a ‘notional portfolio’ of investments in various classes of assets.

Noting that there appears to be little or no information on actual investor behaviour, the Committee states that the point of the proposals is to provide a standardised approach that can work in the interests of fairness, regularity and certainty across a range of cases. The Scottish Government has confirmed that it will keep the 30 year period under review and where analysis shows a significant divergence in outcomes over 15, 30 and 50 year periods, it would consider having more than one rate. The Committee asks the Government for more detail on that commitment.

A risk-free approach?

In contrast to the position in England and Wales, the Bill sets out a series of defined adjustments to be made to the Discount Rate. These are, firstly, the impact of inflation (by reference to the Retail Prices Index); secondly, a deduction of 0.5% to represent the costs of tax and investment advice; thirdly, a further deduction of 0.5% as a ‘further margin’ to reduce the risk of under-performance…. READ FULL ARTICLE

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