Natalie Gibb

The personal injury discount rate (PIDR) is an allowance for investment assumed to be earned once the damages have been paid, so the higher it is, the lower the compensation (and vice-versa). Over a maximum period of 90 days starting today, the Government Actuary’s Department will review the Scottish PIDR.

From February 2002 to March 2017, PIDRS were the same across the UK, at 2.5 per cent. From March 2017, there have been different PIDRS among the three legal jurisdictions – Scotland, Northern Ireland, and England & Wales. The differences arise from different decisions made, at different times, by devolved administrations and the UK Parliament

The current PIDRS are minus 0.75 per cent for Scotland, minus 1.5 per cent for Northern Ireland, and minus 0.25 per cent for England & Wales. What do they mean in practice?

Modelling a hypothetical, but realistic, case of a seriously injured 17-year-old male needing care costing £150,000 per year for life following an incident caused by another’s fault, compensation for the cost of care as a lump sum would, to the nearest £100,000 and using the PIDRS above, be: £13.9 million in Scotland, £19.1m in Northern Ireland, and £11.5m in England & Wales.

So, there can be massive differences in outcome across the UK. The additional cost for compensating claimants in Scotland and Northern Ireland falls, ultimately, on those who pay insurance premiums or tax when the liability lands on insurance companies or on public bodies such as the NHS.

The new, or reviewed, Scottish PIDR will take effect by automatic operation of law shortly after the review concludes, most likely on or around 1 October, applying to all ongoing claims governed by Scots law at that time.

It is difficult to speculate with any certainty on whether the new, or reviewed Scottish PIDR will be higher or lower than – or the same as – the current figure. The Scottish government has recently made changes to the ratesetting formula that, will – or are likely to – drive a lower rate, but this anticipated lowering effect could be offset, at least to some extent, by the summer 2024 outcome of other elements of the formula.

The Northern Irish PIDR is being reviewed in tandem with Scotland. It is being conducted under separate legislation, but the Northern Irish and Scottish PIDRS are very likely to be aligned after 1 October. England & Wales will likely see a new, or reviewed, PIDR by 11 January next year. The legislation governing the PIDR in England & Wales is very different from the legislation in the other two jurisdictions in that it does not set out a formula. The absence of a formula or prescribed methodologymeansitallows for an element of political discretion, so the outcome of the 4 July general election might have a bearing on the determination.

So, different roads have been taken across the UK in this area. The question now is whether they will continue to drive differences in different parts of the UK in awards made to injured people and in the effects on insurance policyholders and taxpayers.

Natalie Gibb is a legal director at Clyde & Co