The discount rate is used to help calculate lump sum compensation to cover disadvantage such as future salary losses or future care costs in personal injury cases.

The legislation puts in place a new methodology for calculating the discount rate which should be applied to such losses and requires the discount rate to be reviewed by the government actuary every five years.

It also gives courts in Scotland the powers to impose periodical payment orders for future financial loss, meaning payments can be spread over a period, such as the pursuer’s life span – usually via an annual payment.

Community safety minister Ash Denham said: “This legislation is part of our wider programme of civil law reform which aims to ensure the system keeps pace with modern Scotland and the needs of its people.

“While the number of people affected by the discount rate is relatively small, we know that these cases tend to involve catastrophic injury with little prospect of the individual’s full recovery. These changes will ensure that the law determining how the discount rate is set is clear, fair, transparent and credible.”

Lucy Durie, senior solicitor at the Law Society of Scotland, said: “We believe that the reforms introduced by this legislation offer clarity and predictability, in particular in catastrophic personal injury cases.

“The reforms will be an improvement on the current regime around investment returns and periodic payments.”