Meeting of the Parliament 18 December 2018
The bill has been more interesting than I think that some committee members might have anticipated. The bill may affect a relatively small number of people, but how compensation is calculated is of immense importance. The whole question of a lump-sum settlement, and how it is invested, is a tricky one.
There seems to be widespread agreement that the present system, which is based on index-linked gilts, needs modernising, while keeping intact the fundamental principle of 100 per cent compensation so that neither party should gain or lose. As an aside, on the question of gilts, it seems to me that there is something fundamentally wrong when a saver gets a lower rate of interest than inflation. However, I accept that that is a wider question and beyond the scope of the bill.
Overall, I agree with the Government approach that we should move towards a cautious but low-risk portfolio. We heard evidence from defenders, including insurers and the NHS, of the risk of overcompensation. Clearly that would hit the premiums of others who take out insurance, or the public purse in the case of the NHS. However, evidence from pursuers’ spokespeople raised the risk of undercompensation, which is certainly not desirable when a person may have suffered horrendous life-changing injuries.
In practice, a perfect balance, with no risk of over or undercompensation, is impossible to achieve, as there will always be uncertainties in such cases; for example, some people live longer and some for shorter periods than had been expected. The Government has argued that we need a standardised approach, and most witnesses and the committee agree. However, there will always be disagreements on how a hypothetical investor will invest their lump sum and whether the assumption of a 30-year period is reasonable, as others have indicated. The Government has indicated that it is open to more than one rate if that seems to be needed, for example by having a 15-year rate and a 50-year rate as well, and that is welcome.
Particularly contentious for defenders has been the further margin adjustment of 0.5 per cent on the discount rate. On the one hand, that is seen as reducing the risk for the injured party; on the other hand, it is seen as moving away from the concept of 100 per cent compensation—no more, no less. We heard that the injured party or pursuer takes on a range of risks, including living for longer than expected, higher inflation, or stock markets plunging, as they did in 2008. On the other hand, if investments do well, the pursuer might gain.
Another interesting area, which I think that my colleague Angela Constance will touch on, is periodical payment orders. The discussion has focused on whether we should move away from the current position, in which PPOs happen only when both parties agree. As an outsider looking on, PPOs can seem an attractive option, as they can take away some of the injured party’s risk, for example the risk of living longer than expected. However, we heard arguments against PPOs, including the pursuer not wanting an on-going relationship with the defender; the financial solidity, or lack of it, of the defender; possible restriction of the pursuer’s need to spend more up front, for example on accommodation; and defenders not liking PPOs as they add uncertainty to their financial position and, in particular, to their financial statements.
The committee was reluctant to go the full way of giving courts complete autonomy on this. That is why conclusion 10 in our stage 1 report suggests an amendment that would provide for a statutory presumption in favour of the pursuer’s preference. I note the minister’s reluctance to limit the court’s ability to make the best decision, and I think that we need to consider that further after today’s debate and at stage 2.
I think that there is general support for the bill. The committee supports the general principles of the bill and I am happy to align myself with that position.
16:13