Discount rate & PPO legislation passes stage 1

The Scotland-specific legislation was discussed by the Parliament in yesterday’s Stage 1 debate on its general principles.  The Minister in charge, Ash Denham MSP, bookended the debate during which a number of points were highlighted for further scrutiny at subsequent stages, including moving the frequency of rate reviews to a five-year cycle.

The Minister was clear that there was firm support for reforming the present basis for setting the discount rate, with 78% of respondents in favour of change. The new method would be “an actuarial exercise in which there should be no need to exercise political judgment”. This is different from England & Wales, where the legislation requires the Lord Chancellor to set the rate.

Despite the Minister stating in her recent letter that “It would seem to be [sic] make little sense for damages to be calculated by reference to the rate of return that applied at any point in time other than the point in time at which damages are calculated” she nevertheless said she had not ruled anything out as yet and “would reflect further on the matter”. She also undertook to reflect on the proposed scheme for periodical payments, with a number of MSPs appearing to suggest that the pursuer’s choice in this regard should carry particular weight. Several referred to it being “disempowering” to remove the pursuer’s choice of settlement mode.

There was some discussion of the potentially cautious nature of proposed notional investment portfolio, the yield on which would drive rate-setting. Concern about the so-called further margin of a 0.5% adjustment in order to minimise the risks of under-compensation were well-summarised by Conservative Dean Lockhart MSP: “Although we understand the Government’s approach of legislating in favour of a risk of overcompensation rather than risking undercompensation, we have to recognise that this will come at a cost. The costs associated with paying more than 100 per cent of compensation will fall on insurers and ultimately on their customers, medical professionals, the national health service in Scotland, and other public bodies that self-insure.”

The motion to agree the general principles of the Bill was approved and it will make further progress in the New Year.



Authored by Alistair Kinley, director of policy and government affairs

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