The Northern Ireland Department of Justice NI today issued, as had been expected before the summer break, a consultation paper on changing the legal framework by which the personal injury discount rate (PIDR) may be set. By coincidence, the consultation follows only a week after a similar exercise was launched by the Justice Department in Dublin.
This latest consultation from the DoJ NI closes 5pm on 14 August 2020. The Department has confirmed that this new consultation does not affect its rate-setting obligations under the existing law (Damages Act 1996). Consideration of that is ongoing and it should be borne in mind that the Government Actuary had indicated earlier in the year that the 1996 Act approach (based on the now-outmoded link between the PIDR and investment returns on Index-Linked Government Stock) could lead to a PIDR as low as negative 1.75%. That said, it does not now appear likely that the 1996 Act process could deliver a re-set NI PIDR of around that level before the autumn.
Unsurprisingly, the structure and tone of the consultation reflects a great deal of the background to the relatively recent changes in PIDR legal frameworks in England & Wales and in Scotland from March 2017 to September 2019, noting that “In Northern Ireland, in the absence of a Minister after March 2017, the rate remained unchanged. From this point on, the rate in Northern Ireland has been at considerable divergence from the rates in the other UK jurisdictions.”
One key paragraph indicates the DoJ’s reasoning for now proposing a change to the legal framework around the PIDR and is worth quoting in full (bold emphasis added):
“We do not think there is any reason to believe that the investment decisions of claimants in Northern Ireland are likely to be significantly different from those made by claimants in other jurisdictions. The Department therefore considers that, while claimants in Northern Ireland should continue to be assumed to be more risk averse than ordinary investors, the discount rate in this jurisdiction should also now be set to reflect more closely how they invest in reality, so as to better protect against the risk of over-compensation, and any potential unfair financial burden on public bodies, businesses and consumers.”
This is the essence of the consultation, and having laid this out as the justification for making a change, there is then a very clear statement that “The two obvious precedents for a new legal framework for setting the rate in Northern Ireland are the frameworks for England and Wales and for Scotland” where the respective PIDRs are -0.25% and-0.75%.
If either of those approaches were adopted, the present notional discount rate in NI of +2.5% would of course be lowered, but nowhere near to the same extent as under the 1996 Act which, as noted above, appears likely to lead to a PIDR of around -1.75%. The financial implications of even small changes in the PIDR are significant because of the compounding effects across years or decades of future losses and/or needs. These are illustrated by this table taken from the consultation paper and the accompanying impact assessment.
|Effect of different discount rates on an award covering annual care costs of £100,000 for the rest of the claimant’s life in two scenarios|
|Discount rate||Total award|
|40 year old male with normal life expectancy||10 year old female with normal life expectancy|
As was the case in England & Wales during 2017, we will be working closely with our insurer clients over the coming weeks to address the questions in the consultation paper and to make strong representations on the case for changing the law surrounding the PIDR in NI. It is highly likely we will organise (remote) briefings about the issues raised in the paper and the overall context and themes of PIDR reforms across the UK and Ireland more widely.
Please get in touch if you would like any further information about the DoJ’s consultation or to discuss how we might assist you in responding to it.
Please visit the BLM website for all updates from across the firm.
Alison Cassidy, Partner