02 October 2019
The Government Actuary has published his review and determination of the discount rate to be applied in Scotland. It has been determined that the rate should remain at -0.75%.
This means that there are now three different rates to be applied across the United Kingdom: -0.25% in England and Wales; -0.75% in Scotland and 2.5% in Northern Ireland.
At first glance, it may be difficult to understand why the rate in Scotland should be different to the rate in England. However, as highlighted in our article of 18 July 2019 (Discount rate in England and Wales increased to -0.25%: The Implications for Scotland), there are important differences in the way in which the Government Actuary must approach the discount rate in Scotland. These are set out in Damages (Investment Returns and Periodical Payments) (Scotland) Act 2019.
The 2019 Act prescribes a period of investment of 30 years, rather than 43 years used by the Lord Chancellor. The 2019 Act also sets out a notional investment portfolio. The Government Actuary is to have regard to these when arriving at the gross percentage return above inflation, before adjustments. The Act is prescriptive and sets out standard adjustments which must be made to the gross percentage return which are 0.75% for taxation and expenses and 0.5% for a margin for error.
The Government Actuary’s review confirms that using the principles set out in the 2019 Act, the gross return above inflation over a 30-year investment period is likely to be 0.5%. The standard adjustments are then made which results in a discount rate of -0.75%.
The 2019 Act confirms that once set, the discount rate is to remain fixed for a period of 5 years when the Government Actuary must carry out a further review. The Scottish Ministers can request an earlier review as required. The Government Actuary in his review highlights that possible future changes to the RPI (Retail Price Index) may warrant a review to confirm that the discount rate remains appropriate.
The implication of the determination is that there will be increased awards for damages in Scottish claims with an element of future loss when compared with England & Wales. There is also a risk that we will see an increase in ‘forum shopping’ by pursuers choosing to litigate in Scotland rather than England & Wales if they can find a basis on which to do so.
A link to the Government Actuary’s review and the 2019 Act is below.
Katie Anderson, Senior Solicitor firstname.lastname@example.org T: 0141 221 8012