All three parts of the United Kingdom have different laws of damages and the personal injury discount rate (PIDR) is governed by three separate statutes, each of which in their turn reformed the Damages Act 1996.
The English PIDR is set according to the Civil Liability Act 2018, with the Scottish and Northern Irish rates subject, respectively, to the Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019 and the Damages (Return on Investment) Act (Northern Ireland) 2022.
The formal ‘call for evidence’ on the PIDR earlier this year related strictly only to England & Wales and we expect some form of response document from the Ministry of Justice (MoJ) by the end of July. However, as of 31 May, the devolved administrations have now issued their own requests for views on the relevant statutes and the factors that influence the particular discount rate in force.
These new requests are framed in rather more broad terms than the specific questions set by the MoJ earlier in the year and are set out below. The letters from each department are all but identically worded. As with the ‘call for evidence’ in England & Wales, these exercises do not amount to the formal rate reviews required under the respective Acts.
Our catastrophic injury and large loss practice group will be coordinating our responses between now and the deadline of 11 July. We would be very happy to discuss views in more detail. Please get in touch with any of the three of us should that be of interest.
Text of letters dated 31 May from the Justice Directorate in Edinburgh and the Department of Justice in Belfast - detail specific to the latter is shown in italics.
Personal Injury Discount Rate
As you may be aware, under the Damages Act 1996, the Government Actuary is to begin reviews of the personal injury discount rates (PIDR) for Northern Ireland and Scotland on 1 July 2024. [The Department of Justice in Northern Ireland will be working closely (but separately) with Scottish Government colleagues and the Government Actuary on this exercise.]
The PIDR is an adjustment of an award of damages to reflect the fact that the injured person is able to invest the money before the loss or expense for which it awarded has actually occurred. That investment will generate a return and the PIDR aims to take that into account so as to avoid over- or under-compensation. The current rate in Scotland is -0.75% and was set in September 2019. [The current rate in Northern Ireland is -1.5% and was set in March 2022.]
The method for calculating the PIDR is set out in for Scotland in Schedule B1 and for Northern Ireland in Schedule C1 of the 1996 Act. The framework is designed to create a fair and accurate way to set the discount rate, taking account of a range of factors.
The range of factors to be taken into account when calculating the PIDR in Scotland includes:
• the makeup of the notional portfolio (as laid out in paragraph 12 of Schedule B1 in the Act) [Schedule C1 for Northern Ireland];
• the assumed period of investment (currently 30 years); [43 years in Northern Ireland]
• the impact of inflation (currently allowed for by reference to the Retail Prices Index); and,
• the standard adjustments that must be made by the rate-assessor to a rate of return (currently set at 0.75% which represents the impact of taxation and the costs of investment advice and management; and 0.5% which is the further margin involved in relation to the rate of return).
Scottish Ministers [The Department of Justice] may, by regulations, adjust these factors. We now intend to consider whether or not any such adjustments are merited. We would therefore welcome your views on the need or otherwise to adjust any of these factors and request any evidence that you can provide to support these views.
In addition, to these factors we would welcome your views/evidence on whether a single or multiple rates should apply (see paragraphs 21 and 22 of Schedule B1 of the Act) [Schedule C1 for Northern Ireland]. If there were to be a multiple rates [sic], we would also welcome your views on a preferred model.