Northern Ireland and Scotland launch personal injury discount rate calls for evidence

Earlier this month, the devolved administrations in Scotland and Northern Ireland issued a joint request for views on whether any changes should be made to the range of factors to be taken into account when calculating the Personal Injury Discount Rate (PIDR). This follows the Ministry of Justice (MoJ) in England & Wales at the beginning of the year launching a call for evidence seeking additional evidence and views on the introduction of dual or multiple rates.

Background

The mechanism for determining the respective PIDR’s in Scotland and Northern Ireland is contained within Schedules B1 and C1 of the Damages Act 1996. Scotland’s PIDR currently sits at -0.75%, with Northern Ireland applying a significantly lower rate of -1.5%.

There are a number of factors which are taken into account when calculating the PIDR in both jurisdictions, which can be adjusted by way of regulations. As summarised from the call for views, these include:

• The make-up of the national portfolio.
• The assumed period of investment (30 years in Scotland; 43 years in Northern Ireland).
• The impact of inflation (currently determined by reference to the Retail Price Index).
• The standard adjustments that must be made by the rate-assessor to a rate of return. For example, the impact of taxation and the costs of management and investment advice.

In what would perhaps be the most significant development in this area since the 1999 House of Lords decision in Wells v Wells, the devolved administrations are also seeking stakeholders’ views on whether single or multiple discount rates should be applied in their respective jurisdictions. In the context of multiple rates, views are invited as to a preferred model.

Comment

The introduction of dual or multiple PIDR’s would mark a significant departure from the long-standing use of a single rate across all three jurisdictions in the UK. The MoJ’s call for evidence invited views on how multiple discount rates would operate. One option under consideration is whether different rates could be implemented based on the duration of the damages award. An alternative approach would be to set rates by reference to different heads of loss as is currently the case in the Republic of Ireland. We will be considering the MoJ’s formal response closely once it has been published over the summer.

Given the current rate of inflation and with interest rates expected to rise again, it will be interesting to see how this factors into – and influences – stakeholders’ responses to the devolved administrations’ request for views. There is a significant difference of -0.75% between the respective PIDR’s in Scotland and Northern Ireland. As the devolved powers are working collectively on this topic, can we expect to see a closer alignment of the PIDR’s in Scotland and Northern Ireland following the next formal rates review in July 2024? This remains to be seen.

Responses to the joint request for views must be submitted by 11 July 2023.

Related item: Personal injury discount rate: a global snapshot

Read other items in Personal Injury Brief – July 2023