Significant news on the discount rate in Northern Ireland

Officials from the NI Department of Justice gave evidence this afternoon on the way forward following consultation over the summer on the mechanism for setting the personal injury discount rate. There are two significant developments:

  • First that the officials indicated that on balance the Department had concluded it would not proceed to reset the existing rate based on the 1996 Act, ILGS yields and Wells v Wells.
  • Second is that the Department will seek to introduce legislation quickly to deliver a new legal framework for setting the discount rate.

The first is something of a surprise, given indications from the Justice Minister in February that the rate under 1996 Act could be around -1.75% if it was to be reset at that time. The second perhaps less so, given that the DoJ’s consultation which ran over the summer proposed either of the relatively new English or Scottish approaches. Officials indicated that the preferred way forward was to adopt the Scottish model despite saying clearly that the majority of the 28 responses received favoured the English approach.

While it is true that the consultation analysis is not just a numbers game, it will be interesting to see the full reasoning for favouring the Scottish approach when the Department publishes a summary of responses.

At today’s hearing the officials indicated that the Scottish model, which prescribes the notional investment portfolio and technical adjustments on the face of the legislation, was thought to offer greater clarity and transparency up front when compared to the English model (where these factors are described as matters to which the rate setting Minister must have regard). An added point was that because the Scottish approach resolves the political aspects of rate-setting during the debates on the Bill, the subsequent calculation of the rate becomes much more of a technical task which may be assigned to the Government Actuary.

The DoJ intends to introduce the Bill in either January or February 2021 and is seeking an ‘accelerated passage’ through the Assembly. If that was secured, it was said the Bill could receive Royal Assent by September 2021. If it closely reflects the Scottish approach then it may also feature a 90 period after implementation in which the rate must be set, which would suggest that a new rate could be set by December 2021. There was some noticeable push back from the Committee on the possibility of accelerated passage and this point remains unclear for the time being.

On the practical side, the decision not to move to an ‘interim’ rate appears to mean that present difficulties in trying to progress claims to resolution against a technically applicable 2.5% rate that is seriously disputed by claimants look set to remain in place until a new rate can be introduced.

Despite the friction about the possible speed of new legislation – with the Committee Chair observing sharply (i) that the Assembly’s Standing Orders oblige a Minister moving a Bill to come the Committee to explain the need for acceleration and (ii) that the initial view of the Committee at this stage was not to accede to accelerated passage without further clarification from the Department – the clear stand out headline from this afternoon’s Justice Committee hearing is most definitely the DoJ’s intention not to reset the discount rate now to something which might have been close to the -1.75% figure aired in February.

This development is likely to be taken by claimant interests as, frankly, a bit of a kick in the teeth and might even be subject to formal legal challenge. On the other side, defendants’ and compensators’ concerns about such a very low rate operating over the short term will have been allayed to some extent (even if they might have preferred adoption of the English model in the new approach).

The following look to be the immediate next steps and we’ll monitor them closely:

  • the publication by the Department of its analysis of the responses to the consultation and its proposed next steps.
  • the Transcript of this afternoon’s hearing being made available in the NI Assembly Hansard, and
  • the Justice Committee setting out its reservations to the Department on the accelerated legislative passage sought for the new Bill.

Alistair Kinley, Director of Policy & Government Affairs

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