Discount Rate developments

Developments come thick and fast with progress in both Scotland and Jersey in quick succession. 

Here, the Keoghs Market Affairs team take a closer look at key questions arising from both developments.

Scottish Damages Act 

Scotland passes legislation on personal injury damages

The Scottish Parliament has given royal assent to the Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019, which is split into two main parts.  Part 1 of the Act has been designed to allow the Scottish Government to set what the discount rate should be north of the border, and Part 2 allows Scottish courts to choose periodical payment orders over lump sums when it comes to payment of damages in personal injury cases.

Why is the Scottish Government making these changes?

Following the joint consultation between the UK and Scottish Governments on reforming the Discount Rate, the Scottish Government needed to pass an Act of Parliament to allow itself to bring any proposed changes into effect. This Act simply provides the Scottish Government with the powers it needs to make these changes in Scotland.  

Could we see a different Discount Rate north and south of the border?

Yes – the Damages Act 2019 gives the Scottish Government the powers it needs to set the Discount Rate but is more prescriptive than the Civil Liability Bill as to the assumptions that have to be adopted:

• The investment portfolio is prescribed in the legislation
• The period of investment return is set at 30 years
• The deduction for tax and investment charges has been set at -0.75%
• There is an additional deduction of -0.5% as a further margin to reduce the risk of investment underperformance

None of these are specified in the Civil Liability Bill giving the Government Actuary Department and the Lord Chancellor wider scope for setting the rate.  The additional “further margin” adjustment is likely to mean that the rate in Scotland is at least 0.5% below that in England and Wales. 

What are the next steps?

The Scottish Government will propose a date for Part 1 of the Act to come into force as part of a “commencement order”. Scottish Parliament rules and convention mean that this commencement order won’t be passed straight away - it should sit before Parliament for 14 days – but when it has, the legislation is free to come into effect on the date proposed in the commencement order. 

Part 2 of the Act, which covers periodical payment orders, will be a longer process as it requires changes to the rules of courts.

So when will the Discount Rate actually be changed? 

It’s by no means an immediate process, as changes require input from the Government Actuary Department (GAD). They will be tasked with working on the Discount Rate in Scotland on the day legislation comes into effect and will take up to 90 days to give their input.

After that though, things can move quite quickly, as the Scottish Parliament doesn’t have to approve the proposed new rate. The Scottish Government simply presents the GAD’s report before Parliament and the new Discount Rate will come into effect immediately.                                                                                                                                                        

Keoghs viewpoint on the Scottish rate? 

With concurrent procedures happening in Scotland and Westminster, it seems increasingly likely that all concerned will be working with a new rate by the end of the summer. Barring any delays, the new Discount Rate will be in force in Scotland by September, shortly after the review is set to complete in Westminster.

The border issue will create some interesting issues if we end with two rates and / or two different PPO statutory environments.

For queries regarding the Scottish Discount Rate, please contact, Douglas Cowan

The Jersey Discount Rate announcement

The Damages (Jersey) Law 2019 received Privy Council Assent on 10 April, was registered by the Royal Court on Friday and will come into effect on 3 May.

In terms of the discount rate it proposes a two-tiered discount rate:

• +0.5% where the whole of the award is to cover a period of 20 years or less
• +1.8% where the award is to cover a period of more than 20 years. 

So far so good one might say?

However - there is a sting in the tail for this jurisdiction as the law also provides for court awarded variable PPOs, with variation being triggered by either side “if there is a material change in circumstances”.  The devil will be in the detail but at face value this could add very significant cost and uncertainty to long tail claims, both in terms of damages and legal costs. The policy behind this provision is unclear, but any move to trigger a similar approach in England and Wales would be contrary to the generally accepted attraction of certainty of value (on the balance of probabilities) on the evidence at the point of settlement (variations in our jurisdiction are of course permissible but within strictly limited circumstances and only on one occasion.)   

The Keoghs Market Affairs Team will continue to focus on developments in this field.