An inquiry into the Damages (Investment Returns and Periodical Payments) (Scotland) Bill has resulted in a Holyrood Committee concluding that the process of calculating long-term personal injury compensation should be both fair and transparent.

Reforming the discount rate

The principles of the Bill would amend the law so that the discount rate would be set by UK Government actuary instead of Scottish Ministers. The discount rate applies to awards for future pecuniary losses – such as any long-term care costs or loss of earnings for the personal injury victim.

The Bill would require the discount rate to be calculated on the basis that the hypothetical investor will be investing over 30 years. This method is intended to provide a standardised approach that will apply across a broad range of personal injury cases.

The Bill features a "notional portfolio" which will be made up of low-risk investments that are designed to meet the needs of the personal injury victim.

Set adjustments would be made to the discount rate to reflect the hypothetical investor investing in the notional portfolio. These adjustments are:

• the impact of inflation
• a deduction of 0.5% to represent tax costs and investment advice, and
• a deduction of 0.5% as a ‘further margin’ to reduce any risk of under-compensation.

The Bill would also enable Scottish courts to impose periodical payment orders (PPOs) rather than a lump sum payment where appropriate, even where the parties do not consent to do so.

The committee reported that personal injury victims already deal with many risks in the process of achieving compensation, such as ensuring their award is in line with their life expectancy and coping with the costs of inflation. The committee concluded that victims should not have to carry any additional undue risk.

Gordon Lindhurt MSP, Convener of the Economy, Energy and Fair Work Committee, stated:

“The Committee welcomes the introduction of this legislation and are content that it will in principle achieve fairness and transparency across a range of cases and for both sides.”

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