Discount Rate and PPOs in Scotland: progress of the Damages (Investment Returns and Periodical Payments) (Scotland) Bill

This legislation is due to have its final (stage 3) debate on 19 March 2019.

Discount Rate

The process by which it requires a personal injury discount rate to be set for use in Scotland is more prescriptive and more conservative – small ‘c’ – as regards investment risk than the methodology adopted in England & Wales via part 2 of the Civil Liability Act 2018.

The notional investment portfolio set out in the Bill is fairly cautious. The Bill explicitly refers to allowing for retail prices index (RPI) inflation when adjusting the return(s) on it. RPI, however, is no longer a national statistic, although according to the ONS it was around 2.5% for the year to January 2019. CPI, which is a national statistic, was around 1.8% for the same period.

The two separate half per cent adjustments (i.e. reductions) to the investment return(s) on the notional investment portfolio set out in the schedule to the Bill could be amended in the stage 3 debate. These adjustments are, respectively, first for tax & investment charges and second to act as an extra buffer against a perceived risk of under-compensation. A Scottish Government amendment for debate at stage 3 increases the first of these to 0.75%.

After completing stage 3, the Bill should then go through a process with the law officers to check competence, which would be followed by Royal Assent. It needs a commencement order to take effect (unlike part 2 of the Civil Liability Act 2018, which took effect on Royal Assent). All that could take a couple of months or more. Then there is a specified 90 day period for the rate-assessor (the Government Actuary) to determine the discount rate.

At the moment, the likelihood seems to be that this process will deliver a discount rate (a) some time after the rate-setting process in England and Wales has concluded, since 90 days from May/June takes us to September/October and (b) noticeably lower than that which is thought likely to be introduced in England and Wales. Some indicative possibilities for the discount rate in Scotland – based on assumed real investment returns of between 1% and 4% and on the adjustments specified in the Bill’s schedule – are set in the table out below. It is worth emphasising that whilst the legislation remains under consideration, all predictions on timing and ultimate rate should be treated with great caution. The prospect of an effective discount rate of 0% was mentioned when the Bill was introduced. That would appear to suggest, subject to any amendments, a gross real return on investments of around 3.5% (assuming RPI inflation).

Table1

PPOs

It is also worth noting that this legislation will, for the first time, empower Scottish Courts to impose a periodical payments order (PPO) whether the parties consent or not. The legislation requires the court to always consider a PPO solution, in whole or part, whenever awarding damages for future pecuniary loss in respect of personal injury. A Scottish Labour amendment for debate at stage 3 seeks to give greater weight to what the pursuer wants, and would require the court to “have special regard to the pursuer’s needs and preferences when doing so.”


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Rachel Rough, Partner, BLM
rachel.rough@blmlaw.com

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