16 November 2017
Or perhaps not, given the recent flurry of legislative announcements which will have a bearing on the insurance industry and personal injury litigation both in Scotland and across the UK.
Discount Rate
The Lord Chancellor issued a statement on 7 September 2017 and placed a command paper before Parliament dealing with how it was proposed that the Discount Rate should be set in the future. The proposals only apply to England & Wales for the moment. However, the Scottish Government is expected to follow suit given its recent announcement that it would amend the Discount Rate following consultation with the UK Government.
The new rate is proposed to be set with reference to the investment practices of claimants and the real returns expected from those investments. It is to be reviewed every three years or more frequently and when a review commences it has to be concluded within 90 days. Finally, and perhaps most importantly, the review will be undertaken by the Lord Chancellor. It will be chaired by the UK Government Actuary and will include four others, including an actuary, an investment manager, an economist and an expert in consumer affairs.
The Lord Chancellor’s proposals represent a radical departure from the current principle, set out in Wells v Wells, 1 AC 435, that the Discount Rate should be calculated on the basis of a claimant being assumed to be a very risk averse investor. Wells resulted in the rate being set with reference to Index Linked Gilts which, in practice, claimants did not solely use to invest their damages. The practical reality has been for claimants to spread their damages across a range of investments. The proposals are welcome as they appear to take account of the reality of what claimants do with their damages.
The UK Government’s paper invites comments and suggests that if the rate were set today the real rate may fall within the range of 0% to 1%. It is not clear when the proposed legislation will be brought forward but it is clear that the new rate will not apply retrospectively. What is also clear is that the present -0.75% rate will continue to apply until the first review of the rate under the new regime is completed. That is to be done within 270 days of the new provisions coming into force, 90 days for the Lord Chancellor to initiate the review and 180 days thereafter to complete it.
There is no timescale for the proposals to be formed into a Bill which will then be scrutinised by Parliament. However, the Justice Select Committee has been asked to produce its report by 30 November 2017 and a decision on any potential sessions for oral evidence to be heard will be taken in the week following that once the evidence has been assessed.
The intention of the UK Government appears to be to legislate quickly but it remains to be seen if that will be possible. It therefore may yet be some time before any change to the Discount Rate is made.
Contact:
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Mark Hastings |