Hansard

I trust that all members present have read our stage 1 report, which is a classic of the genre. Neil Findlay is not present on this occasion to ask me a question about that particular line. I would not comment on whether the report falls within Mark Twain’s definition of a classic as

“something that everybody wants to have read and nobody wants to read”,

but I am sure that the minister has read it. I thank her and her officials for engaging constructively with the committee.

Personal injury cases might seem small in number, but the impact for the individuals affected and for their families is considerable. We are talking about catastrophic life-changing events, compensation for which should be calculated in a fair and transparent manner. That is also a matter of concern to those who pay the compensation.

The Association of British Insurers said that the current system was “broken” and that the bill took a “much more modern” approach:

“We are therefore very supportive of this legislation, which changes the framework for setting the rate to one that bears much more relation to what happens in reality.”—[Official Report, Economy, Energy and Fair Work Committee, 30 October 2018; c 3.]

The minister has helpfully set out the context and content of the bill, so I will focus my remarks on the committee’s findings.

We welcome the additional clarity on how the discount rate—the adjustment to a compensation award to cover future loss—is calculated. That welcome was shared by the majority of respondents to our call for views, but opinion was split on the detail of the bill, with pursuer representatives on one side and defender interests on the other.

The pursuers felt that any investment risk added to other risks, such as the cost of care or of modifying accommodation. Those were risks that the victim of injury would not face had they not been wrongfully injured, and they would be on top of the risk, or perceived risk, in seeking legal redress in the first place. The culmination of those risks could, in their view, lead to undercompensation.

From the defender perspective, the concern was overcompensation and that any discount rate not reflecting the ordinary and prudent investment was unfair and that adjustments to include higher-performing assets would result in better returns. That, as they saw it, was a blunt instrument.

The committee recognises that the calculation of compensation is not an exact science. The approach is of a hypothetical investor with a notional portfolio for a theoretical period of 30 years. We have little information on actual investor behaviour, but the point is not what people do in reality. Rather, it is to provide a standardised approach that works across a range of cases.

The committee asked for more detail on keeping the 30-year figure under review. We do not always receive a response to a committee report before the debate, but we did on this occasion. We can only hope that the minister’s fine example is not lost on her ministerial colleagues.

The discount rate has several adjustments factored in, which are intended to reduce the risk of undercompensation. They cover inflation, tax and investment advice, and underperformance. On balance, the committee is satisfied with that approach. We are also content with the role of the UK Government actuary in setting the rate, which, we heard, was a technical rather than a political exercise—accountability is to be found in setting the legislative framework.

We were also told of concerns about gaming the system—holding back or pushing forward proceedings to suit the timing of a review. One suggestion was to work from when the claim was raised, rather than the date that it is settled. We asked the Scottish Government to consider the merits of such a change. The minister’s response was reflective, if rather sceptical, although she has not ruled anything out, which we appreciate.

This is a complex policy area, and the impact on both the pursuer and defender must be appraised carefully. Let us not lose sight of what this bill is about. The Association of Personal Injury Lawyers told us:

“The award of damages is not an investment pot—it is not a reward. It is a sum of damages ... to look after somebody’s needs for the rest of their life.”—[Official Report, Economy, Energy and Fair Work Committee, 23 October 2018; c 26.]

I turn to the review period. A review held in 2017 was the first for 15 years, and its outcome was not well received by defenders or insurers. The bill proposes that the discount rate be reviewed every three years, with a review of the portfolio preceding every regular review and a ministerial power to call for out-of-cycle reviews. The committee considers that to be a suitably rigorous approach. In the interests of balancing flexibility and certainty, we recommend a five-year review cycle. I am pleased that the minister agrees and that, as she has said today, she is committed to lodging an amendment at stage 2.

On the matter of periodical payment orders, we asked that more weight be given to pursuers’ views. PPOs are regular instalments paid over time, rather than a lump sum on conclusion of a case. The minister has said that she will reflect on the matter, which is welcome, as is her willingness to explore how barriers to the take-up of PPOs can be overcome.

We thank all the witnesses who helped to inform our scrutiny. We are content that the bill’s provisions are consistent and credible and that the change in the law will balance the interests of pursuers and defenders. We look forward to further consideration of the points that I have outlined and which the minister has undertaken to look at in advance of stage 2.

The author Ambrose Bierce defined the future as

“That period of time in which our affairs prosper, our friends are true and our happiness is assured.”

His was a sardonic take on life, but the reality is that victims of personal injury face risk and uncertainty. They contend with trauma and ill health, often for long periods, which have resulted from catastrophic injuries that they have suffered. They encounter a legal process that often seems drawn out, and they should have a fair and transparent compensation system. We commend the general principles of the bill.