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Scotland to reform law on personal injury discount rates

The discount rate applied to lump sum personal injury damages awards in Scotland would be reviewed every three years under new legislation put forward by the Scottish government.19 Jun 2018

Under the plans, the government actuary in the UK government would serve as the official rate-assessor, replacing Scottish ministers in the role, although courts would be free to apply an alternative rate in individual cases if "more appropriate in the circumstances".

The Damages (Investment Returns and Periodical Payments) (Scotland) Bill also contained a new methodology for calculating the discount rate.

The courts would also have the power to issue periodical payment orders which would serve to spread damages payments out over the period of time the award is designed to cover, according to the proposals.

"The legislation will provide, in an accountable way, the framework in which the rate should be set and thereafter the mechanics of determining the rate will sit with an appropriate professional," the Scottish government said in a policy statement published alongside the Bill. "This will remove the exercise of determining the rate from the political arena where there is the potential for pressure from external interests to attempt to influence the outcome."

"The review of the discount rate will be firmly focussed on ensuring those who have suffered loss and awarded damages for future pecuniary loss receive the full compensation, neither more nor less. This should provide fairness to all parties involved. The government actuary will publish their reasoning in pursuance of professional standards along with a rate ensuring the transparency of the process," it said.

The proposed change in the law comes after insurers criticised the way the current personal injury discount rate is calculated, and reflects similar changes being introduced in England and Wales. The UK and Scottish governments earlier held a joint consultation on the issue.

The discount rate is a percentage applied by the courts to lump sum compensation awards, in order to ensure that the actual amount received by the individual reflects the return they can expect to earn if they had invested the payment. A new discount rate of minus 0.75%, down from 2.5%, came into force on 20 March 2017 in England and Wales and 28 March 2017 in Scotland, effectively increasingly lump sum compensation awards in order to reflect assumed loss of value.

The change to the discount rate was the first since 2001 and was criticised by the insurance industry, which said that it reflected a flawed method for setting the rate and ultimately over-compensated payments.

"While the number of people affected by the discount rate is relatively small, we know that those cases tend to involve catastrophic injury with little prospect of the individual’s full recovery," said Annabelle Ewing, Scotland's minister for legal. "That is why it is so important the law determining how the discount rate is set is clear, fair, transparent and credible."