Kirsty Yuill: Personal injury compensation north and south of the border
The differences between Scotland and England on personal injury compensation may increase in the coming months, writes Kirsty Yuill.
The loss of a loved one or a catastrophic injury can be life-changing. When a person is successfully sued for causing such an event, the courts both north and south of the border try, when making an award of money, to put the person who has suffered the loss or injury back into the position that he or she would have been in had the event not happened. The compensation is generally met by an insurance policy. There are no immediately apparent reasons why the amount of money should be different if the event happened in Scotland or England but differences exist and there may be more to come.
A “bereavement award”, currently fixed by law at £12,890, may be made in England to a quite limited class of relatives after a fatal accident. But the equivalent “loss of society” award under Scots law is not fixed in monetary terms and may be made to a wider class of relatives. These awards in Scotland have been as much as £140,000, with the amount depending on a variety of factors including the ages of those involved and the closeness of the relationship.
In both Scotland and England, if a person is badly injured, claims for future financial losses may be made, typically loss of earnings and the cost of medical care. When compensation for future losses is paid as a lump sum the claimant is expected to invest it for use in the future. That investment income has to be factored into calculating the amount by what is known as a “discount rate”. The higher the discount rate the lower the lump sum.
From February 2002 to March 2017, the discount rate was 2.5 per cent in both Scotland and England. In March 2017 it was changed in both Scotland and England to -0.75 per cent. Translating this 3.25 percentage point swing to money shows the dramatic impact that this change can have. For a 17-year-old man who needs future care for life at £150k per year, lump sum compensation would be nearly £5m at the 2.5 per cent rate but over £14m at the -0.75 per cent rate.
The discount rate looks likely to change again both north and south of the border this year. Scotland is now, though, going a different way to England in setting the rate.
By 5 August 2019, the Lord Chancellor must set a rate for England based on investment which involves more risk than a very low risk. In March 2018, the Westminster government predicted a time-sensitive rate in the range of 0 per cent - one per cent on that basis.
For Scotland, the rate is to be set on the basis of a specified investment portfolio with two statutory downwards adjustments of 1.25 per cent in total (meaning that the percentage investment growth in the portfolio must be reduced by that amount). In June 2018, when the total proposed downward adjustment was one per cent, the Scottish government predicted a time-sensitive rate of 0 per cent.
On 19 March 2019, the Scottish government Minister for Community Safety indicated to the Scottish Parliament that a new rate for Scotland would apply from September 2019 and that it would be higher than the current -0.75 per cent.
If, purely for the purposes of a hypothetical example, Scotland had a -0.25 per cent rate and England a 0.5 per cent one, the difference in compensation for the 17 year old man referred to in this article would be around £2.8m depending on whether he was injured north or south of the border.
Assuming that Scotland does end up with a lower discount rate than England, who will pay for the extra cost? For lump sum compensation paid by public bodies, such as the NHS, the taxpayer may have to bear the extra cost. Higher insurance pay-outs in Scotland than in England may come at the price of higher premiums for Scottish insurance customers.
At the other end of the spectrum of injury claims, a statutory framework is now in place for England to have a fixed tariff of awards for whiplash injury. That may come into force in April 2020. There are currently no Scottish government proposals for a similar system north of the border. Current court awards for whiplash injury, throughout the UK, are routinely much higher than the fixed tariff proposed by the English Ministry of Justice.
So, there are already differences between Scotland and England on personal injury compensation. There may be more to come.
Kirsty Yuill is a partner at BLM