Will serious injury claims remain more expensive in Scotland and Northern Ireland? - Ali Tyler and Kim McLeod

One basic principle of personal injury compensation is the same throughout the UK – the injured person should be restored by the wrongdoer, so far as an award of money may allow, to the position they would have been in had the wrongful incident not happened. This is the “principle of 100 per cent compensation” or “no more but no less”.

Ali Tyler is Legal Director at Clyde & Co

As damages for lost future income or care needs are often paid as a lump sum, account needs to be taken of the likely investment returns available to avoid over- or under-compensation. The aim of the personal injury discount rate (PIDR) is to do this.

From February 2002 to March 2017, the PIDR was the same across the whole of the UK: 2.5 per cent. From March 2017 to now, PIDRs have differed across the three legal jurisdictions of the UK - Scotland, Northern Ireland and England & Wales.

This has arisen from different decisions made by politicians at the Scottish Parliament, Northern Ireland Assembly and the UK Parliament. Although different decisions, all with potential long-term consequences, were made in these places, all decisions were, presumably, guided by the same underlying principle of 100 per cent compensation and driven by the same aim of the law, UK-wide, to implement this principle in personal injury claims.

Kim McLeod Senior Associate at Clyde & Co

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 different PIDRs 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 as a result of an incident for which someone else was at fault, compensation for the cost of care as a lump sum would, to the nearest £100,000, be £13.9 million on a minus 0.75 per cent PIDR (Scotland), £19.1 million on a minus 1.5 per cent PIDR (Northern Ireland), and £11.5 million on a minus 0.25 per cent PIDR (England & Wales).

There are, as can be seen, massive differences, despite the underlying principle of the law being the same. The additional cost for compensating claimants in Scotland and Northern Ireland ultimately falls on those who pay insurance premiums and tax, when the liability falls in the first instance on insurance companies or public bodies such as the NHS.

All three current UK PIDRs are scheduled for statutory review in 2024. Stark differences could remain afterwards because both the Scottish and Northern Irish legislation lays down strict formulae to be applied by the Government Actuary in setting PIDRs.

On the contrary, the legislation in England & Wales affords the Lord Chancellor a degree of political discretion in setting the PIDR, albeit this may be exercised only after consultation with a panel of experts chaired by the Government Actuary.

Scottish and Northern Irish legislation allows Scottish Ministers and the Department of Justice (for Northern Ireland) to change the constituent parts of the statutory formulae, for example on the make-up of the notional investment portfolio, notional period of investment and percentage adjustments – to allow for tax and investment advice, for example – to the rate of return. Certain changes to these formulae could mean less difference between the three legal jurisdictions after the 2024 reviews.

The number of PIDRs across the UK might even increase beyond three after the 2024 reviews. This is because the Ministry of Justice (MoJ) is conducting a “call for evidence” to explore the option of more than one PIDR for England & Wales. The suggestion is that different PIDRs for different durations of future losses, or for different “heads of loss” (for example, lost future income or future care needs), might allow the law to better meet the principle of 100 per cent compensation.

Although Scottish and Northern Irish legislation envisages the possibility of more than one PIDR, fresh regulations would be needed before the 2024 reviews if more than one PIDR was to be introduced in Scotland or Northern Ireland after those reviews. We have yet to see any activity to that effect but the findings from the MoJ’s “call for evidence” could point to the way forward for the devolved powers.

Ali Tyler is Legal Director, and Kim McLeod Senior Associate, at Clyde & Co