News In Focus
Ministers' order confirms new damages discount rate in Scotland
The discount rate for personal injury awards in Scotland has been lowered from 2.5% to minus 0.75%.
An order made by the Scottish ministers, which takes effect from today (28 March), confirms that Scotland is adopting the same change as was announced south of the border by Lord Chancellor Liz Truss last month.
The rate is applied to capital sum awards of damages that will be invested to produce a return over a period of time. The previous rate was set in 2001, since when the rate of return on investments has fallen significantly.
Insurers and their advisers have warned that as the new rate will result in higher capital awards, premiums will rise. “The change might not seem huge but the effects in practice can be", Iain Buchanan of insurance specialist legal firm BLM observed. "For, say, a 17 year old boy needing a £150,000 per annum care package for life, this could mean a leap from a lump sum payment of around £5m to a lump sum payment of more than £14m."
He added: “The impact in Scotland of the discount rate change may be greater since the Scottish courts can only make lump sum payments whereas in England & Wales, the courts can make orders spreading the payments over the lifetime of the injured person.
“If someone is injured because of someone else’s fault then it is only right that the law should compensate them, but it is important that people are not overcompensated.
“The implications may be that the wider public are faced with picking up that bill through higher insurance premiums, and businesses will be at risk where their insurance cover has a financial limit on it that could be exceeded by the increase in the value of some claims."
However the Association of Personal Injury Lawyers welcomed the news of the Scottish order as meaning that "People who suffer severe life-changing injuries can now be assured that the compensation needed to look after them is calculated correctly and is sufficient to provide care for the rest of their lives."
Describing the change as "long overdue", it added: "Insurance companies, which have saved millions of pounds in unpaid compensation, have been aware that a decision to change the discount rate has been on the cards for six years, since APIL first began judicial review proceedings on the issue. They have had plenty of time to prepare for this change and the fact that many are now saying premiums will have to rise to cover the cost simply beggars belief."
Kim Leslie, convener of the Law Society’s Civil Justice Committee, said: “This is a significant change which will affect all solicitors working on personal injury cases and the advice they offer their clients. We’re pleased that the Scottish Government has acted so quickly to introduce the change to provide certainty for solicitors and their clients.”
For the Faculty of Advocates, Vice Dean Angela Grahame QC commented: "The Lord Chancellor’s announcement about the change in the discount rate was dramatic and unexpected, but it is no surprise that Scottish ministers have decided that here in Scotland, too, the new rate will apply. The change will have a significant impact on all practitioners who work in the field of personal injury. Schedules of damages and advice on values of claims from both sides of the fence could be radically revised in light of this. The Faculty’s Training Committee is discussing an event to consider the implications of this seismic shift."
The Lord Chancellor has also announced that a short consultation would be launched before 30 March 2017 to review how the discount rate is set. This might address concerns that using government bonds to calculate the discount rate doesn’t reflect the reality of how people actually invest their compensation so it is possible that it will not be long before the discount rate is looked at again.”