Meeting of the Parliament

Meeting date: Tuesday, December 18, 2018

Official Report 1136KB pdf

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Damages (Investment Returns and Periodical Repayments) (Scotland) Bill: Stage 1

The next item of business is a debate on motion S5M-15169, in the name of Ash Denham, on the Damages (Investment Returns and Periodical Payments) (Scotland) Bill at stage 1.

15:38  

I am very pleased to be here to open the debate on the general principles of the Damages (Investment Returns and Periodical Payments) (Scotland) Bill. I thank the convener and members of the Economy, Energy and Fair Work Committee for their insightful scrutiny at stage 1 of what is quite a technical, detailed and, in places, complex bill. I welcome the committee’s positive support for the general principles of the bill, as set out in its report.

I also put on the record my thanks to the Finance and Constitution Committee and the Delegated Powers and Law Reform Committee for their additional scrutiny and consideration. Like the Economy, Energy and Fair Work Committee, I am grateful to all those who provided evidence on the bill. Finally, I thank the Government Actuary’s Department, whose analysis and expertise have been invaluable in informing the bill.

For some time, the personal injury discount rate has been the subject of criticism. Prior to 2017, pursuers’ representatives expressed concern that the rate was, in effect, undercompensating pursuers, and a judicial review was sought. Since the most recent change, there has been criticism from defenders’ representatives and insurers, on the basis that setting the rate by reference to returns on index-linked gilts intrinsically overcompensates many pursuers. There have also been concerns that the duration between reviews has contributed to the scale of the impact of changes, as well as concerns about a general lack of transparency in the process.

When we consulted on the issue in 2017 and asked whether the law on how the discount rate is set should be changed, 78 per cent of respondents agreed that a change is necessary. During the various consultations, common concerns emerged to do with the fairness, clarity, certainty, regularity and credibility of the method and process for setting the rate.

The bill attempts to address those points. It will put in place a new statutory regime for calculating the discount rate that should be applied to future pecuniary losses in personal injury cases. In providing new methodology, the bill requires the Government Actuary’s Department to assume that the damages that are awarded for future loss will be invested in a notional investment portfolio, comprising set classes of investment asset. The portfolio has been designed to meet the objectives and match the characteristics of the “hypothetical investor”, as identified in the bill.

It is encouraging that, in its stage 1 report, the Economy, Energy and Fair Work Committee said:

“the Committee welcomes the additional clarity and transparency provided by having the method for calculating the discount rate set out in legislation.”

The committee noted that that view was shared by most of the respondents to its call for evidence.

As the bill stands, the rate will be reviewed every three years. Currently, there is no statutory requirement for the discount rate to be reviewed regularly. It is clear that the lack of a regular review is detrimental to all parties. Most consultees agreed that the rate should be reviewed on occasions specified in legislation.

The Scottish Government took account of respondents’ views and decided that a review should be carried out every three years, with the possibility of a review being instigated sooner than that, if circumstances require it. Such an approach will provide a significant degree of certainty, tempered with a proportionate degree of flexibility.

Stakeholders suggested that a three-year review period might mean that settlement of cases would be delayed if one of the parties anticipated that a more favourable rate would come into force, and argued that a five-year review period would go some way towards addressing that issue.

The Scottish Government’s view is that it is imperative that reviews are regular. In its stage 1 report, the committee said:

“the Committee believes—in the interests of finding that balance between flexibility and certainty—that five years would be preferable to three.”

As I said in my response to the report, we listened carefully to the people who gave evidence and we considered the committee’s conclusion. I agree with that conclusion. We will lodge an amendment at stage 2 to alter the frequency of review from every three years to every five years. The facility to call for an out-of-cycle review will, of course, remain.

I accept the minister’s point, in broad terms. Will she give some detail about the out-of-cycle review? In a five-year period, assumptions around investments can change radically. That happened at the turn of the millennium, when there was a stock market crash.

Daniel Johnson makes a good point. The general point is that the rate must meet the needs of the hypothetical investor and ensure that they get the right amount of money, so that, at the end of the term, the money is exhausted and the person will not have been overcompensated, and, equally, will not have been undercompensated.

The member is right to say that economic conditions can change rapidly, which is why the bill provides for the facility to have an out-of-cycle review, so that if circumstances should change, the Scottish Government will be able to review the methodology and the distance between and frequency of rate reviews and so on, to ensure that the rate still meets the needs of the hypothetical investor.

The 2017 consultation provided options for those who might set the rate, some of which involved ministers and some of which did not. However, overall there was more support for the options that did not involve ministers. The bill therefore provides that the rate will be reviewed by the Government actuary, and the courts will continue to have the ability to apply a different rate should they decide to do so.

The policy decision to place the duty to review the discount rate on the Government actuary is consistent with and integral to the overall policy aim of reforming the law to make provision for a method and process for setting the discount rate that is clear, certain, fair, regular, transparent and credible. The policy approach has been to regard the determining of the rate as an actuarial exercise in which there should be no need to exercise political judgment. The bill will provide, in an accountable way, the framework in which the rate should be set, and thereafter the mechanics of determining the rate will sit with an appropriate professional. The Scottish Government thinks that that strikes an appropriate balance.

Currently, courts can make a periodical payment order for future pecuniary loss resulting from a personal injury only if the parties consent. In certain situations, periodical payments can be an attractive option to provide a guaranteed payment year on year for the duration of an award. The bill will, for the first time, require courts to consider imposing a periodical payment provided that the source of the funding is reasonably secure.

The committee had concerns about the fact that the court could impose on a pursuer who, for various reasons, might not want a continuing relationship with the defender. Will the minister comment on that?

We have taken account of that. We recognise that there are many reasons why a PPO might not be suitable for a pursuer or a defender, but we think that the court would take that into account. Both parties would be entitled to put their views on whether they saw a PPO as acceptable, and the court would take those views into consideration before it made its judgment.

The bill also provides for the variation or suspension of PPOs and similar agreements. I note that the committee would like the Scottish Government to lodge amendments to attach more weight to the pursuer’s views when a court is asked to decide whether damages should take the form of periodical payments. I set out the Scottish Government’s thinking on that issue in my response to the stage 1 report, and I will continue to give it further consideration.

I also note that the committee asked the Scottish Government

“to outline how it will promote the use of PPOs beyond the public sector.”

The bill, of course, obliges the courts to consider the use of periodical payments in every case. Again, I have responded to the committee on that point, and I confirm that we intend to progress that matter with the Scottish Courts and Tribunals Service and that we will look carefully at what the Ministry of Justice intends to do on the same issue and see whether anything can be learned from that information.

The report made a number of other recommendations that require action on the part of the Scottish Government. I intend to touch on them in my closing speech.

I very much look forward to listening to the debate.

I move,

That the Parliament agrees to the general principles of the Damages (Investment Returns and Periodical Payments) (Scotland) Bill.

I call Gordon Lindhurst to speak on behalf of the Economy, Energy and Fair Work Committee for up to eight minutes.

15:48  

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.

15:56  

I thank those who provided submissions on the bill and the witnesses who attended the three Economy, Energy and Fair Work Committee sessions that were dedicated to the bill. As the minister said, the bill is technical, but it is important. It provides for a new statutory regime to calculate the personal injury discount rate that applies to compensation awards in personal injury cases.

Under Scots law, the role of compensation is to restore the injured party—to the extent that a financial award can—as closely as possible to the position that they were in before they were injured. When assessing the amount of a lump-sum award, courts take into account the net rate of investment return that a claimant might expect to receive from a reasonably prudent investment of the lump sum. That is referred to as the discount rate.

As the committee’s convener and the minister said, the committee heard evidence that pursuers and defenders want a more stable, transparent and fair method for setting the discount rate. The bill takes into account a number of factors in how the discount rate should be calculated.

First, the bill defines a hypothetical investor. It says that the discount rate should be calculated by reference to the assumption that the hypothetical investor will invest over 30 years and that they will invest in a notional portfolio that is made up of investments in a fixed class of assets. In addition, the bill proposes making a series of standard adjustments to the discount rate—an adjustment to reflect the impact of inflation; a deduction of 0.5 of a percentage point to represent the costs of tax and investment advice; and a further deduction of 0.5 of a percentage point, which is referred to as the further margin—to reduce the risk of undercompensation of the party that suffered loss. The bill also provides for regular reviews of how the discount rate is set and gives courts additional powers to impose periodical payment orders.

There was consensus among defender groups and pursuer groups on a number of areas, including the need to update the system; the need to increase the availability of periodical payment orders and give courts further powers on them; and the need for regular reviews of the discount rate. We are grateful that the Scottish Government is to follow the committee’s recommendation that the review cycle for the discount rate should be over five years instead of three years.

The committee heard differing views on particular aspects of the bill. I will raise three areas where there was a lack of consensus in the evidence.

There is concern among defender groups that the notional portfolio is overcautious and is too highly invested in fixed assets, which offer a lower return than higher-returning investments in equities. The proposed portfolio assumes that only 20 per cent of the investment would be in equities, which is lower than the percentage in a typical balanced investment portfolio. That is important because the interest rates on Government bonds have historically been much lower than the higher returns on equity investments.

I thank the member for giving way. I accept some of what he is saying, but does he not accept that the language being used—the talk of a portfolio of balanced asset classes—is language that many people being awarded damages will simply not be able to navigate and that we also need to take that into consideration in relation to our so-called hypothetical investor?

The member makes a fair point. That is why the further adjustments that we will come to—such as the 0.5 per cent deduction to pay for professional advice in this area to ensure that the injured person has all the necessary professional advice—are an important part of the protection mechanisms that the bill puts in place.

Defender groups acknowledged that the Government will have regularly to change and update the notional portfolio through secondary legislation to take into account market changes. With some time available before stage 2 of the bill, it would be advisable for the Scottish Government to stress test the composition of the notional portfolio to ensure that it does indeed provide the right balance of investments.

The second area that attracted differing views was the further margin adjustment of 0.5 per cent. Defender groups have expressed concern that this further margin adjustment will increase compensation payments beyond the level of 100 per cent, which is the general principle. They argue that a cautious portfolio, which is already baked into the legislation, is likely to produce overcompensation, so there is no need for a further adjustment to deal with the risk of undercompensation.

In the bill’s policy memorandum, the Scottish Government recognises that there is a probability of overcompensation as a result of the application of this further adjustment of 0.5 per cent. Although we understand the Government’s approach of legislating in favour of a risk of overcompensation rather than risking undercompensation, we have to recognise that this will come at a cost. The costs associated with paying more than 100 per cent of compensation will fall on insurers and ultimately on their customers, medical professionals, the national health service in Scotland, and other public bodies that self-insure.

Parliament should recognise as a matter of public policy that if the further margin provision of 0.5 per cent is passed into law, it comes at a cost.

Will the member accept that it is inevitable that some people will be undercompensated and some will be overcompensated? It is not possible to exactly compensate everyone.

That is a fair point to make, although the vast majority of the evidence sided with the probability that overcompensation would be the likely result of these new provisions.

The third area where there has been some disagreement relates to the assumption that the hypothetical investor will hold assets for 30 years. A longer period of investment would increase the likely returns and therefore increase the discount rate. It was not obvious from the evidence given to the committee why a period of 30 years should be used. We heard evidence to suggest that the average for a settled claim could be much longer and last around 40 to 45 years.

That led the committee to call on the Government to assess how the 30-year period would work in practice and we are grateful to the minister for confirming that her department will keep under review the operation of the 30-year period of investment to ensure that in reality it does not produce a significant divergence in returns.

Will the member give way?

I am literally about to wrap up.

The Damages (Investment Returns and Periodical Payments) (Scotland) Bill is technical, but it is vitally important for those affected and we believe that it will provide greater clarity and certainty for everyone involved.

16:03  

I, too, thank the clerks and members of the Economy, Energy and Fair Work Committee for their excellent work at stage 1 of the Damages (Investment Returns and Periodical Payments) (Scotland) Bill. I acknowledge the many organisations and individuals who participated in the consultation process.

Scottish Labour welcomes the introduction of the bill. The bill seeks to calculate personal awards of damages through the injury discount rate in a way that is

“clear, certain, fair, regular, transparent and credible”.

Ultimately, the bill is about providing security to those who have been injured through the actions of others, often leaving them with life-altering conditions and with substantial life decisions to make.

As members have noted, although this is a technical bill, at its heart is something fundamental and understandable. It is about protecting vulnerable people and making sure that we have in place a system that is fair and equitable, so that they can make the decisions that they need to make in very difficult circumstances. Importantly, it is also about finding the right balance so that our public bodies, in particular the NHS, do not incur unreasonable costs and liabilities. There is also the important point that undercompensating can lead to many such bodies having large bills. If we undercompensate—if we give people too little—often it is the NHS that ultimately picks up the bill.

Although Labour agrees with the broad principles that are outlined in the stage 1 report, we recognise that there are parts of the proposed legislation that need to be tested robustly as the bill proceeds through stages 2 and 3. I will outline two or three such areas in my speech. The first area that requires scrutiny is the make-up of the notional portfolio, which we have already heard about. Concerns have been raised that it is too cautious and too focused on fixed assets at the expense of equities, even though equities would deliver a higher rate of return.

However, we need to strike a cautious note, in particular around the notion of the hypothetical investor. Although it is reasonable to assume that vulnerable people will invest, it is not reasonable to assume that they will become investment experts, or that they should assume risk or that they require to be speculators. It is not reasonable that they have to put their damages award under a metaphorical mattress, but nor should we expect them to bet on the stock market and to base their future on such speculation.

The notional portfolio would need be updated regularly to keep up with market changes, but it is unclear whether the Scottish Government or the UK Government Actuary’s Department would be responsible for doing that. Likewise, it is unclear whether the series of adjustments that are set out in the bill would be adequate to cover the cost of inflation, tax and investment advice or underperformance. We must test all those aspects as the bill proceeds.

Periodical payment orders would allow courts to make awards for future economic loss and for payments to be made in a periodic manner, thereby increasing the security of such payments. We welcome that provision, which can mitigate against some of the uncertainty that is associated with lump sums. For vulnerable individuals in particular, it can provide welcome certainty. However, more weight should be given to a pursuer’s views when a court is asked to decide on a PPO and members have already raised that point. Ultimately, the bill should seek to empower those who seek compensation, instead of taking away any more of their control.

On the 30-year period, despite evidence that suggests that the average life expectancy following a serious personal injury claim with damages of more than £250,000 is 46 years, the bill creates an assumption that the hypothetical investor will hold their assets for a 30-year period. In her evidence, the minister stated:

“There is no authority on which to base that figure; it was chosen merely as a useful duration that was neither too short nor too long.”—[Official Report, Economy, Energy and Fair Work Committee, 6 November 2018; c 8.]

It is important that the period is examined and carefully considered so that the bill provides for a payment period that is realistic.

Labour welcomes the bill and supports its aim of creating a

“fair, ... transparent and credible”

personal injury discount rate. Although it represents progress, the bill is far from perfect and the proposed legislation must be tested robustly and scrutinised closely as it moves forward. Changes in the areas that I have mentioned will help strengthen the bill to provide greater security to those people who have been injured through wrongful action, while also protecting public bodies from unreasonable costs and liabilities. The bill will ensure that we have in place a just system that is fair and equitable. I look forward to following the bill’s progress through stages 2 and 3.

We move to the open part of the debate. Members have a generous four minutes for speeches.

16:09  

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  

I, along with my colleagues, welcome this stage 1 debate on the bill. Suffering personal injury is never expected. No one ever wants to have to claim compensation for injuries that have been caused by wrongful behaviour. Through no fault of their own, individuals can find themselves in the midst of a confusing legal framework that does not always work in their favour.

It goes without saying that the framework for such cases must not only be in place, but must operate as clearly and fairly as possible—most definitely for the pursuer, but also for the defender. That is how we can ensure that those individuals are treated sensitively and by a credible system.

We can see that the current personal injury discount rate needs improvement. With a lack of frequent reviews, we have a process that can seem ambiguous and unclear to pursuers and defenders in civil action cases. I hope that the introduction of the bill will see a helpful adaption of how the personal injury discount rate is calculated, with careful consideration of periodical payment orders and how best to set the rate of return.

I offer my appreciation for the work of the Economy, Energy and Fair Work Committee on the bill and generally. The committee’s insightful analysis of the bill has offered the scrutiny that is needed. I hope that its recommendations will help to further mould the bill and make an end result that works for everyone.

I have no doubt that the elements contained in the bill are well intentioned. Making the current calculations for allocating compensation fairer and more efficient is clearly necessary. The process for claimants can be technically murky, especially when they face what can be a very stressful period of uncertainty. We know that few personal injury cases need a discount rate to be applied, but it is still fundamental that the legal framework is absolutely clear for individuals and their family members, not to mention for defenders and their representatives. Making the legislation as clear as possible is in everyone’s interests.

The bill will modernise exactly how compensation will be calculated, and I support that. It allows for adjustments to be made to the discount rate and opens the possibility for PPOs to be changed in certain circumstances. Although there are varying opinions on how beneficial that will be, the principle behind those methods is most welcome.

I believe that the bill will be better attuned than the current legislation to how pursuers behave, especially regarding how compensation is invested. Indeed, the idea of a hypothetical investor, as set out in the bill, should encourage a more modernised framework that will allow for greater flexibility for the injured party as well as clarity.

Of course, there are aspects that will be worth examining in further detail. For example, the 30-year period for holding a pursuer’s assets is, for some, not long enough, yet I recognise that that measure is designed to cover a broad range of cases and will be revisited regularly; I hope that that will be the case as necessary. There is also a question of the extent to which the proposed investments and reductions can lead to under or overcompensation. Indeed, the principal aim is to award full compensation—not more, not less—and its importance for those who are involved should never be underestimated. Neither the pursuer nor the defender should be placed at a disadvantage. With that in mind, I hope that the bill’s end result will allow for adjustments that will accommodate for the needs of each individual. That will lessen the potential risk for pursuers and reduce the likelihood of their being undercompensated.

I welcome the bill at stage 1. Although further assurances and examination of certain aspects of the bill would be beneficial, I echo the support that has been given by the committee. Finding a standard that can be implemented across the board—and which works for each case, despite their differences—is quite rightly our goal. Therefore, I hope that the proposed calculations for setting the discount rate will lead to a more credible and fair outcome for those who are affected by personal injury and give the clarity that each party deserves.

16:17  

Although the number of people who are directly affected by the bill is small, the bill is nonetheless crucial. We should always remember whose interests are at the very heart of the bill: the people who have suffered an accident at work, a birth that did not go to plan, or negligence or lack of care by an individual or organisation, which mean that they live with the tragedy of no longer being who they were meant to be or leading the life that they had worked for or, indeed, had dreamed of.

The minister has helpfully put the legislation into the context of a wider programme of reform that abides by the principles of clarity, transparency and fairness. I will return later to the importance of principles.

In the time that I have, I will focus principally on periodical payment orders, because the committee heard substantial evidence about the risks that victims of personal injury bear with compensation, particularly if it is received in a lump sum. No matter how good the legislation, calculating an award for damages, particularly for future loss, is not an exact science and never will be, so the risk of undercompensation can be minimised but never removed.

We have to remember that damages are not surplus funds; they are meant to replace loss of earnings and meet future care costs. Professor Wass advised the committee about inflation-busting care costs, the unpredictability of life expectancy and the costs of specialised accommodation. All of those point to the advantages of a periodical payment order.

The bill will give the courts for the first time the power to impose, without the consent of either party, PPOs. Crucially, courts will only be able to do that where the continuity of payments is secure. However, in his evidence, Patrick McGuire from Thompsons Solicitors expressed concern about the potential for a victim to be forced to accept a PPO and how disempowering that could be for someone who has already suffered a catastrophic injury and endured a lengthy court process.

The committee recommended that the Government lodge amendments to give more weight to the views of the injured person and suggested a statutory presumption. In her transparent and clear response to the committee, the minister said that she did not want to undermine the ability of courts to make the best decision and that courts would inevitably weigh up the views of both pursuer and defender. Far be it from me to be disrespectful to our learned friends of the judiciary, but let us also not be deferential, because we know that little in life is inevitable.

That brings me back to principles: if we cannot have a presumption—and I am not convinced that we cannot—we should at least put some robust principles in the legislation relating to the views and voice of the injured person. There is precedent for that in the Adults with Incapacity (Scotland) Act 2000 and the Mental Health (Care and Treatment) (Scotland) Act 2003, among other legislation. Under such provisions, the court or tribunal, after weighing up all the evidence and hearing all the views, could take decisions to infringe people’s liberty, although it would do so under a clear obligation to listen to the views of those impacted and to demonstrate a wide range of principles.

Let us not add to the feelings of powerlessness and of not being listened to that are all too frequent in the lives of those with significant disabilities, illness or injury. The minister went some way towards recognising that when she acknowledged that PPOs would not be for everyone, given that some people would need a clean break from those who had been responsible for their injury. I am glad that she gave a commitment in Parliament to continue to consider that issue.

16:21  

As a member of the Economy, Energy and Fair Work Committee, which scrutinised the bill, I am grateful to have the opportunity to speak in the debate. Four minutes is not a lot of time to develop elegant arguments—

I can give you five minutes.

Oh, my goodness! I cannot guarantee that my arguments will be any more elegant. Let me cut to the chase and focus on two areas: the discount rate and periodical payment orders.

I appreciate that, as other members have pointed out, the Scottish Government’s intention is that there should be neither overcompensation nor undercompensation for people to whom awards for personal injury are made. The principle of 100 per cent compensation is right—albeit that, in practice, that might be difficult to achieve absolutely.

Those who are responsible for paying out compensation—the defenders—believe that the Government is being overgenerous in its calculations of what people with an award would do with their lump sum. Their view is that the Government is too cautious in its assumptions and that investors should invest in equities, rather than fixed assets, thereby potentially maximising their return. However, that clearly carries a level of risk that might be considered to be too high, given the volatility of markets. On the other hand, those who represent pursuers say that any portfolio should be based on no-risk investment. Although I am minded to agree, I think that the Government’s approach is sufficiently low risk and cautious that it strikes the right balance between the two competing interests.

To be honest, most normal people with a personal injury award have probably never considered an investment portfolio before. They will naturally err on the side of caution, wanting to be sure that they have a secure return for their money and that the money will meet their needs well over their lifetime. However, I know that people will invest on the basis of expert financial advice. The Association of Personal Injury Lawyers welcomed the inclusion of standard adjustments in the bill, but noted that the amount for financial advice and tax was underestimated. It would be helpful for the minister to review that before stage 2.

The second area that I will cover is periodical payment orders. I welcome them, because many people with personal injury awards may have to live with the consequences of their injury for many years and will require varying degrees of long-term care. Periodical payment orders are a useful way of dealing with someone’s needs over their whole lifetime, and they are flexible enough to be reviewed and adjusted if a person’s condition deteriorates significantly, for example.

However, for some people with personal injury awards, the preference is to take a lump sum. That might be because they want to buy a house or adapt their existing home. It might be because they have no faith in the organisation making the payment, because it might have caused the injury in the first place. Whatever the reason, it is important for the court to be flexible and a combination of lump sum and periodical payment might be the best option for some.

I ask the minister to give thought to the committee’s recommendation about giving more weight to a pursuer’s views when the court decides whether to award a PPO. I am entirely with Angela Constance on that. It would be disempowering for somebody who has faced that degree of personal injury to have that choice removed. I listened carefully to what the minister said to John Mason, but I am not convinced that the Government cannot go further towards meeting the committee’s recommendation.

It would also be helpful if she would ensure that, if there is a requirement to vary a PPO because of a change in circumstances, the pursuer would not need to bear the costs of doing so. That is an important principle that we will want to clarify.

As other members have said, it is a technical bill. The Scottish Government has, by and large, taken a balanced approach and, in the main, made the right policy choices, but I will not let the Government off the hook easily. There are always areas that can be improved and I look forward to the minister co-operating with the committee to ensure that we have a fair and transparent system of compensating those who have suffered personal injury.

16:26  

I have not been involved with the bill thus far, but I want to develop a number of its aspects; Jackie Baillie has touched on them already.

The committee’s convener, Gordon Lindhurst, mentioned the balance between pursuer and defender and the different views that can be taken. It is worth saying that the phrase “hypothetical investor” is a good one, because most people who will be in receipt of the kind of compensation that we are talking about are not knowingly investors in anything. They are often investors through their pensions without realising it. Many people have industrial life insurance, which was traditionally sold door to door and for which the money was collected every week, or they might have a life policy.

I had a life policy that I took out in 1975 and took the money out of 31 years later—that is almost exactly the period that we are talking about. I have just done the sums, and the discount rate was just under 6 per cent, but I have not taken account of the value of the insurance part of that, which would make the discount rate a little bit higher. That was before the crash, of course, and discount rates now look rather different. The bottom line is that the hypothetical investor about whom we are talking is a pretty cautious beast, and rightly so.

Jackie Baillie used the phrase “no faith” when she was talking about periodical payments, and that was a fair observation. The bill says:

“A court may not make an order for periodical payments unless it is satisfied that the continuity of payment under such an order would be reasonably secure.”

It then goes on to say that the payment must be assumed to be secure when it is a Government that is paying the money out. The one thing that is not in the bill, and which might usefully be added, is that when the court decides that it is satisfied about the continuity of payment, it should explain why it is satisfied, so that, if there is a different view, that view can be challenged. That is a technical point that protects the person who is in receipt of the compensation payment.

There has been some discussion about the costs of tax and investment advice. I am a bit dubious about the 0.5 per cent deduction. I have the feeling that the costs might be a bit higher than that in the real world, so I am not sure that 0.5 per cent is adequate to cover them. I do not speak with certainty, but it is a question that would usefully bear some—

Will the member give way?

I will give way to somebody who knows more than I do about that matter.

The committee received evidence—I do not know whether the member would agree with it—that perhaps the investment cost would be higher at the beginning and lower later on.

I am absolutely sure that the member is correct, but that goes to the heart of how the compensation is provided: whether it is paid in a lump sum up front or in periodical payments. The actuarial risks associated with the two are fundamentally different. When Dean Lockhart said that a longer period of investment would increase the discount rate, I did not agree. I think that the discount rate is what it is, and that is the actuary’s view. The discount cost goes up as the period increases—rather obviously, because there are more years over which the discount will apply.

I will helpfully supply Stewart Stevenson with the discount rate that he was looking for. The Association of Personal Injury Lawyers supplied us with it: it is between 1.5 and 2 per cent per annum.

That is broadly what I would have expected, so I am obliged to the member for that.

Investors come in all shapes and forms. Over the years, with my wife, I have been an equity investor. We have twice lost all our money on an investment, and in 2008, my bank investment dropped by 96 per cent. Being in the equities market carries a substantial risk. Ultimately, investors in equities are the last creditors to get paid and they may find themselves paying in if the shares are not paid up in value.

The bill strikes a measured balance between the various options. I looked at it for the first time in the past 36 hours. It strikes me as a sensible piece of legislation, which I shall be happy to support.

16:32  

As the stage 1 report states:

“A person can claim compensation if they are injured through the wrongful behaviour of another person or organisation. The role of compensation is to put the person—to the extent that a financial award can—as close to the position they were in before they were injured as possible.”

The bill is necessary, as the Association of British Insurers explained. It said that

“The current framework for setting the discount rate is broken, because, as a result of the damages framework and decision making by the courts, the way in which the rate is set bears no relation to what pursuers do in reality.”

It continued by saying that

“we think that, broadly speaking, the old framework is broken and this new framework is a significant improvement.”—[Official Report, Economy, Energy and Fair Work Committee, 30 October 2018; c 2-3.]

However, there are issues that need further consideration, especially in relation to lump-sum payment adjustments and periodical payment orders. It is a legal principle that a successful pursuer should receive 100 per cent compensation—no more and no less. However, in order to do so, broad assumptions are being made in relation to life expectancy, future care costs and economic conditions.

The vast majority of claims are settled by a lump-sum payment that must support an individual for 30 years or more. As a result, the bill requires that a series of set adjustments be made to the rate, calculated on the basis of the hypothetical investor investing in the notional portfolio. These are the impacts of inflation: a deduction of 0.5 per cent to represent the costs of tax and investment advice, and a deduction of 0.5 per cent to reduce the risk of undercompensation.

The Association of Personal Injury Lawyers highlighted that

“On the standard adjustment rate, two rates are proposed in the bill—one to reflect investment charges and tax and the second to reflect other contingencies. The suggestion in the bill is 0.5 per cent. The committee needs to look at that area in more detail. The information that we have received suggests that the investment charges and the tax costs could be anything from 0.5 per cent up to 1.5 or 2 per cent.”—[Official Report, Economy, Energy and Fair Work Committee, 23 October 2018; c 25.]

Part 2 of the bill gives courts the power to impose periodical payment orders. Currently, PPOs are used only in the most serious personal injury cases, in which compensation for future loss makes up a significant part of the award. There are only a few such cases per year in Scotland. Thompsons Solicitors LLP expressed concern about a PPO being forced on an injured person, and stated that such a situation

“when a person does not want a PPO and wants the choice of a lump sum but the court makes the decision for them—can be very difficult for somebody at the end of what is often an extremely long road to compensation, as catastrophic injury cases inevitably are. The process of finally getting compensation is ultimately empowering and a decision that is forced on a person in many ways disempowers them. I caution against creating a situation whereby the decision can be forced on a victim. That is not necessarily the case for insurers, but if a victim wants a PPO, they ought to be able to argue for that and a court can make a decision irrespective of an insurer’s view.”—[Official Report, Economy, Energy and Fair Work Committee, 23 October 2018; c 32.]

In the future, if more personal injury cases result in PPOs being awarded, consideration must be given to how people’s changed housing circumstances can be funded. A person who has been seriously injured might be forced to move home, or require an extension to be built to their existing home. If they remain in their existing home, they might require adaptations to their house—for example ramp access, wider doors, lower kitchens or installation of a wet room, all of which require capital sums. If a periodical payment order is imposed, depending on the size of the PPO award they might not have the funds to meet the cost of alterations. As Jackie Baillie stated, there might be a need for a combined financing model to meet up-front housing costs.

Although I welcome the provisions in the bill, including greater use of PPOs, the concerns of pursuers or their representatives must be considered in moving the bill forward.

16:37  

I apologise to members; they are getting a double whammy from me this afternoon. I hope that they do not seek damages as a result. I am working on the humour, Deputy Presiding Officer: that is my new-year resolution.

I would like to make a few brief remarks to reflect on comments that have been made in this afternoon’s debate. First and foremost, we have heard loud and clear from all across the chamber about the need to understand the requirements of the individual. The circumstances in which people find themselves when they are awarded damages are often life changing and catastrophic. As we have just heard from Gordon MacDonald, people might have to consider making changes to their homes. Angela Constance pointed out that the person might have to consider not living the life that they had expected to live. That was very well put.

The question, therefore, is this: what is it reasonable for an individual to have to consider, and what decisions is it reasonable for us to expect them to make? That is why I would like to touch on the hypothetical investor. Dean Lockhart set out well the rational considerations that we might expect a person to make about a notional investment portfolio and the balance that it might achieve, but we need also to ask ourselves about the general understanding of investment and about the decisions that people might make.

I gently put it to the chamber that people in such circumstances might not always make the most rational decisions. They will certainly be cautious, as we have heard from a number of members, but the hypothetical investor is quite different. As the bill progresses, we will need to consider whether we are dealing with the average or reasonable investor, or whether we need a portfolio that also accommodates the unreasonable individual or the vulnerable person who might not make the right decisions. We have had a great deal of discussion this afternoon about getting right the balance between undercompensation and overcompensation, but I suggest that we should seek to err on the side of overcompensation in order to accommodate those things. I know that that is part of the calculation process.

That brings me to a point that was made by John Mason when he illustrated some of the challenges. If we look at the past 20 years and think about what a reasonable investor might have done, we see that the situation has altered quite dramatically in quite short spaces of time. There was a time when gilts were seen as a rock-solid, no-brainer investment, but that has been turned on its head in the past 20 years, which is quite a short period. Likewise, the equities market has been back and forth in my adult life. The requirement for the calculation to reflect that and to be agile is important.

Although I understand the arguments that have been made by committee members about three years versus five years for review, it is important that we test flexibility so that when circumstances change—such as in a black swan event—and there are alterations in the underlying market assumptions about what a reasonable investment looks like, the change can be reflected. After all, in our living memories, we have seen such changes.

That brings me to adjustment factors. I understand that it is impossible to make it an exact science, but we need to test the amount that is factored in for investment and tax advice. It seems to be on the low side at 0.5 per cent but, again, that can change. As we speak, there are changes in the market with the development of technology and the lowering of costs, which need to be reflected.

I will touch on the arguments on PPOs that were made by Angela Constance and Jackie Baillie. The matter is important because PPOs provide an awful lot of benefits and advantages for a great number of people. We need to make sure that we are not being overly paternalistic. The presumption towards the pursuer’s wishes is hugely important, but as with much of the bill, we must seek balance. I instinctively feel that PPOs provide huge advantages to people with particular vulnerabilities and with a need for the certainty that a lump sum might not provide. I also note that there are advantages to PPOs over lump-sum awards to self-insured organisations and institutions, including public bodies.

My final point is about gaming the system, which Gordon Lindhurst raised and is a key point. The bill seeks balance: it seeks to speculate against a myriad of different considerations, some of which are not predictable or understood. Above all, it is important that the bill strikes the right balance and has the flexibility to continue to strike the right balance in the future.

I have time in hand, so I can give you seven to eight minutes, Mr Halcro Johnston. I am sure that you can use them.

Seventy-eight minutes?

Did I say 78? No, seven to eight minutes, for the avoidance of doubt. That has taken up a little bit of time.

I understood what you meant, even if others did not.

Thank you very much. I like you, Mr Halcro Johnston, please proceed.

16:43  

I join other members of the committee in thanking our clerking team for their typical diligence in preparing and supporting the drafting of the stage 1 report. I acknowledge the range of written and oral evidence that we have received as part of the process and I extend my thanks to all those who contributed.

The evidence has proved extremely useful in scrutinising the technical aspects of the legislation and providing members with an understanding of how the current law operates in practice. The bill has two major components: provisions relating to the application of the discount rate and those relating to periodical payment orders.

Near the beginning of our report, the committee recognises a very simple concept that remains an important principle of our law. The report states:

“The law requires that, where a person or body has acted wrongfully, they are liable to compensate anyone who suffers loss as a direct result.”

That straightforward maxim has global appeal. Although it is intrinsically linked with Scotland and our legal system, it has also had considerable influence around the English-speaking world and even beyond. In many ways, it gets to the essence of what we have been asked to consider in relation to damages.

Many of the people whom the provisions will touch have been wronged, often significantly, and have suffered considerable and, as Daniel Johnson said, often life-changing injuries and harm. In many cases, those individuals cannot work or their ability to earn is impaired. In the most extreme cases, they might be entirely dependent on care and support for the rest of their lives.

While there is a clear fundamental principle on the compensation of loss, how that principle is exercised can be opaque. As the wronged party, the pursuer is probably uppermost in all our considerations. As Maurice Corry highlighted, no one wants to be in a position in which they must claim compensation for injuries or accidents caused by wrongful behaviour.

However, for the reasons that members have highlighted, it is incumbent on Parliament to ensure an end result in which, as far as is possible, the law will neither under nor overcompensate. We understand compensation to be a fair reflection of loss but, equally, the committee has heard about the dangers of overcompensation. It is not a perfect science when we are considering a lifetime of injury, but we should at least begin with a solid regulatory framework that attempts to find a balance, because overcompensation will have an impact. In a successful personal injury action against the national health service, for example, compensation is a necessary part of righting a wrong. To overcompensate, however, is not about making a required payment but about a direct transfer of funds away from front-line services. We know that millions of pounds are paid out by NHS Scotland in such cases every year. As claims often take many years to process, the backlog of open cases against the NHS is expected to result in payments of hundreds of millions of pounds over the years.

Will the member take an intervention?

Of course.

I thank Jamie Halcro Johnston for giving way. Given that he has 78 minutes to speak, perhaps he will thank me for it.

On his last point, does he also accept that, very often, it is the NHS that ends up picking up the bill if there is undercompensation, because it has to bear the brunt of the additional health costs that are incurred when the individual comes back to the service?

I thank Daniel Johnson for that intervention. He is right; in a number of cases, it can be the NHS that picks up the bill—not in all cases, but certainly in some.

In actions against businesses, the effects often extend more widely. Inevitably, insurance bears the burden of payment in such cases, spreading the consequences beyond the defender and rippling throughout the wider economy. We should rightly be cautious in how the discount rate is applied in principle and in practice. Our recommendations readily acknowledge the importance of the rate to individuals and their families. The bill sets out the means by which it will be calculated. As some members have touched upon, we have considered the impact of the 30-year assumed period, as well as the assumptions on investor prudence. The minister’s responses in those areas have been welcome.

The committee recognises that almost all respondents to our call for evidence supported the provisions around periodical payment orders. As Jackie Baillie and Angela Constance both highlighted, we looked to the flexibility available to pursuers and recommended that the Scottish Government consider approaches that will offer a greater reflection of the pursuer’s views. The minister has suggested that that will impact the ability of the courts to look at a situation in the round. It will be interesting to see how such issues are considered in the later stages of the bill.

I have already touched on the opening speech given by my colleague Gordon Lindhurst. It was interesting to hear both Mr Lindhurst and Dean Lockhart comment on the areas in which defenders’ and pursuers’ groups agreed and disagreed on the terms of the bill as they were considered. As convener of the committee, Gordon also highlighted that there is little evidence of what the actual investor does, so we based all our considerations on a hypothetical investor.

The committee has recommended that the general principles of the bill be agreed to. However, I recognise that there was a significant divide in the evidence that the committee heard, which, we have recognised, can be crudely divided into arguments that are in the pursuer’s interests and those that are in the defender’s interests. I mention that solely as a caution: assuming that the bill proceeds today, an effective balance will have to be struck in any future amendments.

Last week, the committee received the minister’s response to our report. There are clearly areas that are still to be developed and I welcome the minister’s commitment to further careful consideration of calculating the discount rate with reference to when a settlement is reached, rather than when the injury occurred. Although I accept some of her reasoning, there remains scope for gaming actions by extending out the timescale for claims. I will watch with interest to see how the Government’s approach develops.

I gently remind members to use full names when referring to other members in the chamber.

I call Ash Denham to wind up the debate on behalf of the Government. Minister, if you can—you do not have to—please take us up to decision time.

16:49  

Thank you, Presiding Officer. I will do my best to get the timing right.

I have listened with great interest to the debate and the speeches from across the chamber, which have been reflective and thoughtful. I welcome the general support that has been expressed for the bill.

The fundamental aspiration of the bill is to ensure fairness, clarity, certainty, regularity and credibility in the method and process for setting the rate. I am very pleased that the committee supports the bill’s general principles and is content that its provisions have been framed in the interests of achieving

“fairness and regularity ... across a range of cases”,

and for both sides of the argument. As the Faculty of Advocates commented,

“the Bill balances the interests of parties.”

It is clear that, in its scrutiny, the Economy, Energy and Fair Work Committee recognised that the process is not an exact science, as has been echoed in the debate. Although much has been made of investor behaviour, I welcome the committee’s view—which I share—that

“the point here is not what pursuers actually do but to provide a standardised approach that can work in the interests of fairness, regularity and credibility across a range of cases.”

Fortunately, there will, in relative terms, be very few people who will be affected by the discount rate or PPOs, but for those who are—those who have suffered what are often catastrophic injuries that change their lives for ever—the bill is incredibly important.

In my opening speech, I mentioned that if time allowed it I would like to turn to some more recommendations from the committee’s stage 1 report, so I will address a few of them now. I note that, as Gordon Lindhurst said, the committee believes that there is merit in applying the personal injury discount rate that is in force at the time when the claim is raised, rather than the discount rate that would apply when the claim was being settled. In that way, the committee hopes to avoid deliberate delaying of settlements by pursuers and defenders—the practice is sometimes known as gaming—when a change to the rate is anticipated that would obtain a more advantageous outcome. I have to say that I am not entirely convinced by that argument, but I listened carefully to what Gordon Lindhurst said. He was right to note that, at this stage, I have not ruled anything out. I will reflect further on the matter and give it careful consideration in order to establish whether there is a potential way forward.

The committee’s report raises the issue of the Motor Insurers Bureau. As I indicated in my response to the report, I would be happy to undertake to report back to the committee in 12 months on the outcome of our consideration of whether the Motor Insurers Bureau can be designated as a reasonably secure body.

The committee also wanted to know more about what would trigger a move to more than one personal injury discount rate. John Mason raised that issue in his highly reflective speech. As I set out in my response to the committee, ahead of each review, the Government Actuary’s Department will check the returns on the portfolio over different time periods—it will probably do so after 10 to 15 years and after 50 years. If the outcome of that exercise demonstrates a significant divergence in returns, that will point to use of more than one rate for different lengths of award being more appropriate in pursuit of the goal of 100 per cent compensation.

The minister mentioned 100 per cent compensation. Is she still committed to that principle? Dean Lockhart feels that, overall, we are heading towards giving more to the pursuer, whereas Daniel Johnson suggests that we are going the other way and that there is too much risk for the pursuer. Does the minister feel that we are getting the balance right?

The Government is committed to 100 per cent compensation. I will come on later in my speech to address other points that John Mason raised.

For the choice of the assumed investment period and the potential use of split rates, the GAD has cautioned against setting out an approach that is too formulaic, because that would be what it calls “spurious accuracy”. Therefore, interpretation of the outcomes will require judgment rather than application of a formula. However, I reassure Parliament that if the evidence points to the need for a formula, I am open to considering that option.

I will turn to other issues that have been raised during the debate. Dean Lockhart and Daniel Johnson mentioned the mix in the notional portfolio. In the 2017 consultation, a small majority were of the view that the most suitable investment approach was a mixed portfolio that balances a number of low-risk investments, because they believed that that was closest to actual pursuer behaviour in the real world. The matter has been the result of extensive analysis by both the GAD and an investment research firm, so I can assure Parliament that it has been looked at carefully and tested extensively, and that it will be kept under review.

What are the minister’s reflections on my point that it is all well and good to come up with a portfolio for a reasonable investor, but that we need also to consider the unreasonable investor and the need to safeguard vulnerable individuals?

Daniel Johnson is right to raise that point, but he must accept that what is proposed is a proxy that is intended to apply across a broad range of cases. Also, we expect that the person will take investment advice when they are looking at their lump sum, and will use the notional portfolio for that purpose.

A number of members mentioned periodical payment orders, including Angela Constance—in a speech that reminded us all why the bill is so important—and Jackie Baillie. I assure Parliament that I listened carefully to the points that those members and others made about what more the Government could do to increase uptake of PPOs, and to Jackie Baillie’s point about giving extra weight to pursuers’ views about PPOs. I will reflect on those points and see whether what the Government proposes can be strengthened for stage 2.

Not unsurprisingly, there are polarised views on the shape of the reforms: essentially, they have been split along the lines of pursuer and defender interests. It is clear that, although the principle of 100 per cent compensation must—and does—remain key, there are many issues aside from the personal injury discount rate that can impact on people achieving that. Any investment comes with a degree of risk, and the Scottish Government accepts that there is always a possibility of undercompensation or overcompensation. However, I am glad that the committee is satisfied with our approach, which is to apply adjustments with the aim of reducing the risk of underperformance and the probability of undercompensation.

The bill seeks to remove the exercise of determining the rate from the political arena, where there is the potential of pressure from external interests to attempt to influence the outcome. The review of the discount rate will be firmly focused on ensuring that those who have suffered loss and are awarded damages for future pecuniary loss receive the full compensation—neither more nor less. That should provide fairness to all parties that are involved. The GAD will publish its reasoning in pursuance of professional standards, along with a rate, which will ensure transparency in the process. As the Association of Personal Injury Lawyers said in its written evidence to the committee:

“We agree entirely with the Scottish Government’s approach of removing the possibility of political influence over the setting of the rate. There is no legitimate reason or necessity for political involvement. Setting the discount rate should be an actuarial task, not a political one.”

At the most fundamental level, the bill will ensure that reviews are carried out regularly, which should, in turn, ensure that the impacts of changes are minimised. We hope that the provisions on periodical payments will encourage use of PPOs and provide the courts with powers to impose them where they consider that the circumstances are right to do so.

I thank members for their contributions to what has been an interesting and informative debate, and for their support for the general principles of the bill.