Meeting date: Tuesday, March 19, 2019
Meeting of the Parliament 19 March 2019
Agenda: Time for Reflection, Business Motion, Topical Question Time, United Kingdom Spring Statement (Implications for Economy and Public Spending), Mental Health and Incapacity Legislation (Review), Damages (Investment Returns and Periodical Payments) (Scotland) Bill: Stage 3, Damages (Investment Returns and Periodical Payments) (Scotland) Bill, Decision Time, Scottish Tourism Month 2019
- Time for Reflection
- Business Motion
- Topical Question Time
- United Kingdom Spring Statement (Implications for Economy and Public Spending)
- Mental Health and Incapacity Legislation (Review)
- Damages (Investment Returns and Periodical Payments) (Scotland) Bill: Stage 3
- Damages (Investment Returns and Periodical Payments) (Scotland) Bill
- Decision Time
- Scottish Tourism Month 2019
Damages (Investment Returns and Periodical Payments) (Scotland) Bill
As members are aware, at this point in the proceedings, the Presiding Officer is required under standing orders to decide whether, in his view, any provision of the bill relates to a protected subject matter: that is, whether it would modify the electoral system and franchise for Scottish parliamentary elections. In the Presiding Officer’s view, no provision of the Damages (Investment Returns and Periodical Payments) (Scotland) Bill relates to a protected subject matter. Therefore, the bill does not require a supermajority in order to be passed at stage 3.
We move to the debate on motion S5M-16394, in the name of Ash Denham, on the Damages (Investment Returns and Periodical Payments) (Scotland) Bill.16:05
I thank members of the Economy, Energy and Fair Work Committee for their careful and helpful consideration of the bill; I have very much welcomed the committee’s thorough scrutiny of the bill. It is clear that members appreciated the importance of getting things right; they also appreciated that the process is not always straightforward. I thank the committee clerks, too, for their hard work.
I also thank the stakeholders who contributed views and opinions as part of parliamentary scrutiny of the bill. The Scottish Government has had useful engagement with stakeholders. At times, we heard differing and—dare I say it?—opposing views on some aspects of the bill, which is perhaps not surprising, given that there are pursuers on one side and defenders on the other.
Despite the differences, there is a commonly held view that the current process for setting the discount rate is flawed, and that the law needs to be changed to make it better. The context of the bill is therefore the widely held view, which is born of extensive consultation over the past seven years, that the law on how the discount rate is set needs to be changed.
I will briefly remind members of the key provisions in the bill, and what they are intended to achieve. Part 1 reforms the law on setting the personal injury discount rate. The provisions are intended to ensure that the method and process for setting the discount rate are—as far as is practical—clear, certain, fair, regular, transparent and credible. The fact that there have been seven years of consultation on the matter serves to demonstrate that this is not an easy subject and that there are no easy answers.
The bill provides that the job of reviewing and assessing the rate will, in the first instance, fall to the Government Actuary’s Department. We have adopted an approach whereby determination of the discount rate is regarded as an actuarial exercise that should be free from political interference. In any system for setting a personal injury discount rate, there must be an element of political judgment. The approach that the bill takes separates the actuarial exercise from political judgments, with the latter being set out transparently in the legislation. The scrutiny process for the bill has provided the necessary parliamentary accountability to ensure that we have a framework that is fit for purpose. It will be for the Government actuary to apply the methodology and arrive at the rate. We are of the view that his professionalism and expertise make him the best fit for that role.
The bill also establishes a timeline for review of the discount rate. That is important, because we are aware that the impact of no change having been made for more than 15 years was considerable. The bill, as introduced, provided for a review every three years, but we listened to stakeholders and the committee on that point and amended the bill at stage 2 to reduce the frequency from every three years to every five years, on the basis that the committee considered that such an approach would represent a
“balance between flexibility and certainty”.
One of the most complex aspects of the bill is the methodology for calculating the discount rate. The bill provides a framework for doing that.
It is important to remember that at the heart of the bill are people who have suffered significant, if not catastrophic and life-changing injury, and their right to fair and full compensation. An award for damages is designed to compensate a wrongly injured person for the losses and harm that are caused by the injury—no more and no less.
That is easy to say, but hard to do. The most likely cause of a person’s damages not being enough or being too much stands separate from calculations around the discount rate: it is the assessment of the person’s life expectancy. There are no absolutes; we can only improve or diminish the chances of overcompensation or undercompensation happening.
When I talk about a framework, that terminology is important. The composition of the portfolio, the standard adjustment and the assumption about the award duration are fully integrated and operate together to produce the discount rate. They are a package. For example, a riskier portfolio would attract a different adjustment for tax and investment management costs.
The courts will now have the ability to impose orders for periodical payment, which is provided for in part 2. It is worth noting that the intention behind the bill’s provisions that require a court to consider whether an award should take the form of a periodical payment order, and whether to make such an order without the consent of the parties, is to address effectively the current scenario, which has sometimes been described as the defender holding the trump card, because the defender can, in effect, overrule the pursuer by simply not agreeing to their preferred method of award. I am sure that we all agree that there are good reasons for remedying that position. Where there is disagreement, it is considered that the best independent arbiter is the court—not one or other of the parties that are involved.
I am convinced that the provisions in the bill will result in methods and processes that are clear, certain, fair, regular, transparent and credible.
That the Parliament agrees that the Damages (Investment Returns and Periodical Payments) (Scotland) Bill be passed.16:11
I, too, thank my colleagues on the Economy, Energy and Fair Work Committee for their work on the bill, and I thank the minister for her work on the bill, including her timely response to the committee’s stage 1 report. Not least, I also thank the clerks and legislation team who have assisted me and all the members who have been involved at all stages of the bill’s passage.
Throughout our consideration, there has been genuine recognition, by everyone, of a number of principles. The first is the importance of the proposed legislation, which will add clarity and transparency by providing a statutory framework for calculating the personal injury discount rate. Clarity and transparency are hugely important to a person who has undergone life-changing events. A number of colleagues laid that out unambiguously during the stage 1 debate, when they described how a person’s life might never be the same again following a life-changing incident, if they become unable to earn and will be reliant on care for the rest of their life. Although they might be few in number, cases that involve the discount rate for future losses will benefit from the bill.
The second principle is 100 per cent compensation and the overarching goal of working out a system that would limit undercompensation or overcompensation as much as possible, while recognising that, of course, there can be no exact science for that—as the minister said—and acknowledging the effects of not getting it right for pursuer or defender. Defenders include not just insurers to whom we might have to pay higher premiums. They also include public bodies that we, as taxpayers, fund—for example, the national health service, which could, as we heard during stage 1, be at risk in both overcompensation and undercompensation scenarios. Broadly speaking, the bill has tried to strike the right balance, and I hope that it has been largely successful in that.
Some of the committee’s concerns at stage 1 have been ironed out during subsequent stages. During stage 1, and in my role as convener of the committee, I raised in our report members’ concerns about gaming, a term that relates to cases in which a settlement might be delayed if one or other party anticipates a more favourable rate coming into force. It was welcome that the minister changed the review period of the discount rate to five years. Keeping up to date with market changes is essential in ensuring that the legislation stays relevant, unlike the current process for setting the discount rate, under which a review that was held in 2017 was the first in 15 years.
A number of members from across the chamber have raised the importance of the pursuer’s views in determining periodical payment orders or lump-sum awards. PPOs can be preferable for some people because they give the certainty of a regular income over time. Others prefer a lump sum in order, for example, to pay for accommodation at the outset.
Amendment 1 at stage 3 set a slightly different tone from amendments at stage 2, by asking that the court
“have special regard to the pursuer’s needs and preferences”,
rather than making a presumption in favour of the pursuer’s preferences.
As the minister said in responding to the committee at stage 1, it is important not to undermine or limit the courts’ ability to make the best decision based on all the facts and circumstances of a particular case. Amendment 1 should not prevent courts from making the best decisions, but I would welcome further comment from the minister on how she envisages a court approaching the matter.
Concerns remain about amendment 9, as outlined earlier by my colleague, Dean Lockhart. The goal of the bill is to stick to the 100 per cent compensation principle as far as possible. Witnesses at stage 1 told the committee that:
“The award of damages is not an investment pot—it is not a reward. It is a sum of damages that is awarded 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.]
There is a risk that amendment 9 will take us beyond the 100 per cent principle and could have significant knock-on effects on insurance premiums and public bodies.
The committee was content with the 0.5 per cent standard adjustments, as, it appeared, the minister was—at least at that stage. Although the change to that is, on the face of it, only a small change, in practical terms it could make a huge difference. That late change by the Government will need to be carefully reviewed, as appropriate, with measures being taken by the Scottish ministers by way of regulation, where appropriate.16:16
I, too, thank the clerks and members of the Economy, Energy and Fair Work Committee for their excellent work on the bill. Speaking on the bill, I feel something of an interloper, given the substantial work and the very difficult subject matter that the committee has been dealing with.
I acknowledge and give my thanks to the many organisations and individuals who participated in the drafting and consultation process. Undoubtedly, their work means that we have a stronger bill in front of us.
Labour supports the bill and welcomes its aim of creating a fair, transparent and credible personal injury discount rate and damages regime. The bill seeks to protect people who have suffered significantly and who, in many cases, will undoubtedly be vulnerable, and to provide greater clarity, transparency and security to those who have been injured through wrongful behaviour.
Ultimately, the bill will ensure that the damages system in place is fair and equitable. It is about creating a system that empowers those who seek compensation, rather than taking away more of their control. As the minister correctly set out in her opening remarks, there are no easy answers. The bill represents a series of balances that have been struck. Through consideration at stages 1 and 2, most of those balances have been struck well.
Let me address some of the amendments that have been agreed to. The bill undoubtedly represents progress. As I said, there is a debate about where the balances have been struck, and we were pleased that progress has been made. Amendment 1 will ensure that the court awarding damages will be required to have special regard to the pursuer’s needs and preferences when deciding whether to impose a periodical payment order. As we have heard, there is a balance to be struck between the preferences of the individual and the ability of the court to decide on the best outcome, given all the facts before it. Amendment 1 strikes that balance, and the bill is stronger for it. It is an important change, which will provide greater security, protection and reassurance for those who pursue damages through the courts.
I turn to amendment 9. Throughout the passage of the bill, Labour has put forward arguments about how we can make the process fairer for pursuers. We welcome the Government doing likewise in some areas, but we have concerns about amendment 9—we feel that it could have gone further. When the bill was drafted, the Government underestimated the cost to the pursuer of inflation, taxation and investment advice. We are pleased that the Government has raised the level of standard adjustment from 0.5 to 0.75 per cent so as to take into account the impact of taxation and the costs of investment advice and management. People will need that advice and support, because they will undoubtedly be facing decisions that they have never had to make before, and speaking to professionals with whom they do not regularly or normally have contact. It is important that people are provided with that level of support.
As I said, it is disappointing that the Government chose to set a rate at the lower end of the range and one that is lower than many would have wanted. Although we support amendment 9, it is important that the matter is kept under review. I welcome the minister’s remarks on that point in debating the amendment.
The bill is an important step forward in providing security to those who have suffered what will often have been traumatic and life-altering events. There is, of course, more that could have been done to provide greater protection to the most vulnerable people who find themselves seeking damages, but the bill is an important step forward.
We urge the Government to keep the measures under review and to be willing to revise and reform the bill’s provisions when it has been enacted, not least with regard to the standard adjustments, as I have outlined.
Labour supports the bill, because it will help to protect vulnerable people who have been injured. Although we recognise its flaws, we welcome its passage and the fact that it will create a fairer, more transparent and more credible personal injury and damages awards regime.16:21
I welcome the opportunity to make a few brief remarks although, like Daniel Johnson, I feel like a bit of an interloper in the debate.
Like others, I pay tribute to the members of the Economy, Energy and Fair Work Committee and its clerks for all the work that they have done on a bill that is technical but hugely important, particularly for people who find themselves having to make a compensation claim. Those people are often vulnerable, and they will possibly be at a low point in their life.
The committee was absolutely right to observe in its stage 1 report:
“The number of people affected by personal injury cases where the discount rate applies may be small but the means of calculating their compensation is of vast importance to them and their families, as well as to pursuer and defender interests (the NHS included) and the insurance industry.”
That encapsulates what we are trying to wrestle with.
As I observed during the earlier proceedings, I have had some engagement with the issues through the Justice Committee’s work on the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018. During that process, the importance of clarity and transparency, which Gordon Lindhurst and Daniel Johnson have made points on, were at the forefront of our thoughts. They are absolutely key. There is a need to try to avoid the risk of undercompensation and, indeed, overcompensation. As the committee observed, that is “not an exact science”. A balance has to be struck.
I will make a couple of observations that follow on from the earlier exchanges, when the amendments were discussed.
I am very grateful to Jackie Baillie for setting out the background to her amendment. I realised that the process was iterative. I am also grateful to John Mason for his observations on that. As I said during the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill scrutiny process, we were concerned then about lump sums being awarded and then not necessarily being used in the best interests of the individual concerned. There was also the risk of some of the lump sum being assigned to legal representatives, and the issue of the compensation that was needed to manage the costs over a lifetime was very much at the heart of what we sought to achieve. A balance has been struck through Jackie Baillie’s amendment to ensure that the pursuer’s needs, interests and wishes are properly respected and reflected in any judgment that the court comes to as a result of the process.
The other concern related to amendment 9. I will not rehearse that, but I was slightly concerned about what the minister set out in response to a recent parliamentary question from Alex Cole-Hamilton, which bears repeating. She said:
“The Scottish Government expects that the UK Government will continue to cover the costs arising from the change in the discount rate to the extent that the rate in Scotland is in line with the rate in England and Wales. The Scottish Government will continue to pass this funding to the NHS in Scotland.”—[Written Answers, 13 March 2019; S5W-21903.]
It is not entirely clear to me how the shortfall will be made up where those rates diverge.
I know that the minister is acting on actuarial advice, but I am interested to know what conversations have taken place with her health colleagues. It would also be interesting to know why an updated financial memorandum was not published ahead of stage 3.
I recognise that there is an opportunity to review the process. Some colleagues wish the rate to be somewhat higher than the minister proposed and others are concerned that it has increased since stage 1. There is a balance to strike and it is impossible to get the approach absolutely right in every instance, but there are concerns about the process that led to this point.
The bill is welcome. Like the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018, it appears to strike the best balance. The bill ensures that people who pursue personal injury cases have the clarity, transparency and security that they need, and it has fairness very much at its heart. On that basis, Scottish Liberal Democrats will support the motion at decision time.16:25
I very much welcome the fact that the bill has got to stage 3. It seems that we have not had many major disputes over amendments this afternoon.
A lot of the bill is about getting the right balance between pursuers and defenders. We do not want to overcompensate or undercompensate but, to be frank, it is impossible to get every case exactly 100 per cent compensated. In fact, it can be argued that every case is inevitably overcompensated or undercompensated. We then have the question whether it is acceptable to have 50 per cent of people overcompensated and 50 per cent of people undercompensated. The Government feels that that is unacceptable and that we should reduce the numbers who are undercompensated, and I tend to agree.
Two contentious issues have been the further margin adjustment and the adjustment to cover tax and financial advice. The Economy, Energy and Fair Work Committee had conflicting evidence on both. The further margin adjustment is to be 0.5 per cent. The Association of British Insurers and others argued fairly persistently for a reduction to 0.25 per cent, and we also heard arguments for an increase, as even 0.5 per cent will leave substantial numbers undercompensated if they live longer or if inflation is higher, for example. On balance, I feel that 0.5 per cent is reasonable and gets the balance about right.
The figure on which the Government has moved is that for tax and financial advice. Again, the committee found it difficult to pin down witnesses, but the general feeling was that 0.5 per cent might not be sufficient. We particularly felt that, at the start of the process, immediately after a lump sum had been awarded, most recipients would be seriously beyond their comfort zone and would need substantial amounts of advice.
I am therefore comfortable that the Government has moved to 0.75 per cent. As Ash Denham said, she has acted on the most up-to-date advice. Gordon Lindhurst said that there was a risk of more than 100 per cent compensation, but some people—just fewer of them—will inevitably get less than 100 per cent. Labour and Daniel Johnson said the opposite—they feel that we should have gone further. There is a lack of information on what pursuers do with a lump sum, and maybe that needs to be looked at and studied more.
Part of me wonders how many such figures should be in primary legislation, which is more difficult to change, and how many could have been in regulations. However, we are at stage 3 now, so it is a bit late in the day to change that.
Another issue has been exactly where periodical payment orders sit in the scheme of things. They seem an attractive option to many of us, as they considerably reduce the risk—for example, from inflation or a longer life expectancy—that a pursuer is subject to. However, we heard evidence that some victims are against PPOs, perhaps because they do not trust the defender to pay or because they do not want any on-going relationship with the defender. We are not trying to tie the hands of the courts, but many of us did not feel that it would do any harm to give the courts a strong indication—as amendment 1 has done—of Parliament’s thinking that they should take seriously the pursuer’s wishes.
Today, at stage 3, we have a bill that will greatly modernise the previous system. Even though the committee’s witnesses did not agree on their detailed evidence, I think that they agreed that the proposal is a step in the right direction and that we should be legislating on this matter. In particular, the idea that investors would put all the money into gilts—traditionally, that has been the safer thing to do—has increasingly seemed unlikely in practice.
It is good that the Government has engaged on the points about which the committee had concerns, and that we have been able to reach a fair degree of consensus today. The Economy, Energy and Fair Work Committee does not deal with a lot of legislation, but I think that we have given the bill very thorough and fair scrutiny, and I am sure that we would be open to handling more legislation in future.16:30
I welcome the opportunity to speak in this final stage of the bill. As members will be aware, I have been involved with the bill in each of its stages: I spoke at stage 1, I was involved in the committee at stage 2, and I am speaking in the stage 3 debate today.
The bill’s principles have remained constant. It is right that we make provision to compensate in full those who have suffered injuries, while recognising that overcompensation brings its own problems.
There has been a long wait for a fairer method of setting the discount rate for personal injury cases. Prior to the bill’s introduction, the existing method had simply not been reviewed for an extended period. As a consequence, the changes that we now see are significant.
When I spoke in the stage 1 debate, I highlighted the importance of the subject that we are dealing with, which bears some brief repetition. Although they seem technical, ultimately the rules that we are laying out will ensure that individuals—many of whom have been grievously wronged—are compensated. That compensation can mean that the vital support that someone needs to lead a full life is in place, or it can save them the extensive additional costs that their injuries may incur.
As the bill has progressed, there have been several positives. The stage 2 amendments have been broadly welcomed. They have created a better bill. The extension of the review cycle from three to five years is certainly an improvement. As members have mentioned, that mitigates a number of the concerns that had existed about gaming the system, which threatened to drag legal action out, creating problems not only for the defender, but for the courts. The requirement to consult ahead of reviews of the discount rate and the recognition of the need to consider changed approaches will improve the reviews and make them more worthwhile exercises.
At stage 3, we have had a number of technical amendments. I will not dwell too long on them. Amendment 9, which is the main Government amendment of substance, relates to the change to the adjustment for investment charges and taxation, raising it by 0.25 per cent to 0.75 per cent. The minister will be aware that, in our stage 1 report, the Economy, Energy and Fair Work Committee outlined that it was content with the approach previously presented in the bill relating to the two standard adjustments. The new change is not a minor one, and we do not have a full sense of the cost to businesses and the public sector of making it. In response to a written question to ministers that I submitted last year, it seemed as though they did not have a full picture of the cost of such damages claims to the public purse. In terms of its impact on local authorities, for example, we seem to have drawn a blank.
Much of the discussion on the bill was based on the previous 0.5 per cent adjustment and—as we might expect—that was the basis of the evidence that was taken by the committee. It is therefore disappointing that such an amendment was lodged at this time.
Jackie Baillie’s amendment 1 is the key change on periodical payments. I heard the discussion at stage 2 and appreciate that we have been presented with something quite different from earlier amendments. The amendment proposes that “special regard” be given to the pursuer’s wishes when a court is considering its approach to a PPO. Ultimately, that leaves the decision to the court to make, in light of individual circumstances. The committee heard evidence that pursuers may be concerned about being seen to be forced into future relationships with the defender through a PPO. Ultimately, it ought to remain a decision for the courts in light of individual circumstances, but amendment 1 provides additional scope for the pursuer to be at the heart of the decision-making process.
The bill is worth supporting. In many ways, it is overdue. I appreciate that ministers have taken some cognisance of the committee’s recommendations and the issues that have been raised in the chamber. That said, concerns remain—I think that they are legitimate—about how the changes will operate in practice, and questions remain, particularly on the substantive issue of the standard adjustment that I have spoken about.16:34
I am grateful for the opportunity to contribute to this stage 3 debate on the Damages (Investment Returns and Periodical Payments) (Scotland) Bill. I congratulate the bill team, the minister and the committee clerks. I thank them and the Association of Personal Injury Lawyers for assisting our consideration of the bill. I think that this is the second bill that the minister has taken through Parliament, which is an achievement of which she should feel proud.
Some might regard the bill as very dry and technical, but it will have a profound effect on those who need to seek compensation. That said, I hope that the provisions of the bill will not apply to many people, because we are talking about people who experience catastrophic and life-changing events. It is clearly desirable that few people experience such trauma and its consequences, but the bill does an important job in focusing on dealing with compensation—how it is calculated and how it is paid.
During the committee evidence-taking stage, it was clear that, although pursuers and defenders had very different views on whether there was likely to be overcompensation or undercompensation, there was agreement about the need for fairness and clarity. The Scottish Government is clear that the policy intention is to achieve 100 per cent compensation for people to whom a personal injury award is made, and I think that we all agree with that objective.
Those who are responsible for paying out compensation—the defenders—believe that the Government is being overgenerous and that its assumptions about investment are far too cautious. For example, defenders suggest that investors will invest in equities and not just in fixed assets, on which there is a lower return. Those who represent pursuers believe that any notional portfolio of investment should be on a no-risk basis and that there might be a danger of undercompensation.
Having listened to the evidence, I think that the Scottish Government’s approach is right. It is not that there is no risk; it is that there is a low risk, which strikes an appropriate balance between defenders’ and pursuers’ interests. At the end of the day, most people with a personal injury award will not have considered an investment portfolio previously. They are likely, as most of us would be, to err on the side of caution.
There might still need to be further work on the standard adjustment for financial advice and tax, but I recognise that we have pushed the Government further than it was originally comfortable going. As I said in the stage 3 proceedings on amendment 9, I welcome the minister’s move to a rate of 0.75 per cent. That is an increase of 0.25 per cent on the previous figure, but I will take it. The standard adjustment is under consideration by colleagues south of the border in the Ministry of Justice and the United Kingdom Government. I was therefore ever so slightly bemused by the Scottish Tories arguing against the position of the UK Tories, before they all decided to abstain after someone clearly phoned the front bench—but there we go.
There is no doubt that the change is a step in the right direction, but, after considering the evidence that the committee heard, we should acknowledge that it might not be enough. A range of reputable financial advisers who are experts in personal damages pointed to a much higher level of costs for tax and advice. I will not rehearse the arguments again, other than to say that even the Government actuary suggested a range of costs, from 0.5 per cent—yes, that is at the lower end—up to 2 per cent. Therefore, I ask that the minister ensures that the issue is kept under close review and that the figure is adjusted with experience, should that become necessary.
I will touch very briefly on periodical payment orders. I welcome the Government’s support for my amendment 1. Angela Constance and I pursued the matter in committee and during the stage 1 debate in the chamber. Quite simply, my amendment ensures that, at the end of a lengthy and often distressing court process, the views of the pursuer will be given due consideration by the judge, before they decide whether to make the award as a periodical payment or as a lump sum.
Overall, I hope that the bill will make a positive difference to the experience of people who have pursued a claim for personal injury. I will therefore be pleased to support the bill at decision time.16:39
Throughout the parliamentary process for the bill, it has been repeated, including by Jackie Baillie, that although the number of people who will be directly affected by it will—I hope—be small, the minister has brought before us a crucial bill. As I said during the stage 1 debate, the bill is crucial to those who have suffered the consequences of, for example, an accident at work, a birth that did not go to plan or a lack of care or negligence by an individual or organisation, leaving individuals to live with the tragedy of no longer being who they were meant to be or not being able to lead the life that they had worked for or dreamed of.
As Liam McArthur pointed out, while this is a discrete bill, it is also part of a wider package of reform.
I will focus principally on periodical payment orders. As we know, the committee heard a substantial amount of evidence about the risks that victims of personal injury bear in relation to compensation, particularly if it is received in a lump sum. We can be confident that the legislation that is now before the chamber is much improved—it was good to begin with but it is improved as a result of stages 2 and 3. However, no matter how good the bill is when it comes to calculating an award for damages, particularly for future loss, it is fair to say—as John Mason has often said—that that is not, and never will be, an exact science. The risk of undercompensation can be minimised, but it can never be removed entirely.
It is important to remember that damages are not surplus funds. They are meant to replace loss of earnings and provide for future care costs. Professor Wass gave very powerful evidence, advising the committee of inflation-busting care costs, the unpredictability of life expectancy and the costs of specialist services and accommodation. All of that points to the advantages of a periodical payment order. The bill will, for the first time, give the courts the power to impose periodical payments—crucially, where the continuity of payments is secure.
However, the committee also heard evidence from Patrick McGuire from Thompsons Solicitors and others, who expressed concern about a victim potentially being forced to accept a PPO and how disempowering that could be for someone who has already suffered a catastrophic injury and had to endure a lengthy court process. The minister herself acknowledged that some pursuers will want a clean break from those responsible for their injury. Jackie Baillie rightly pointed out that, in the future, we will see PPOs combined with a smaller lump sum.
The committee recommended that the Government lodge amendments to give more weight to the views of the injured person. During stage 1, the minister gave a very clear commitment to take matters forward. I am pleased that she has done that, in collaboration with other members, particularly Jackie Baillie. It is apt that the matter was addressed in the first and subsequent amendments considered during today’s stage 3 proceedings. The wording in amendment 1 that the court must have
“special regard to the pursuer’s needs”
is apt and somewhat poignant.
I welcome the fact that the minister found a way forward to ensure that the voice and preferences of those who have suffered injury are listened to and given appropriate weight, and that therefore we are not adding to the feeling of powerlessness that is felt too frequently in the lives of those with significant disabilities, illness or injury. As the minister highlighted, the bill’s objectives are to be clear, transparent and fair. In my view, the bill meets those objectives, and I congratulate the minister and her bill team.16:43
I will try hard not to repeat the arguments I have already laid out and will touch on some of the points that have been usefully made in the debate.
John Mason set out a good analysis at the beginning of his remarks, asking what we want to achieve. There are two approaches—trying to get it right every time, which is an impossibility, and minimising the situations in which there is undercompensation. Ultimately, that is the approach that the Government has taken, and it is undoubtedly the right approach. If we seek to average off, there will be individuals who, through no fault of their own, are disadvantaged. We must have a regime that seeks to avoid that. The fact that some of those representing defenders say that the Government has been overgenerous is—dare I say it?—possibly a good sign. We cannot have a system whereby the net result is right; it has to be a system whereby we get it right more often than not. That is why, throughout the scrutiny of the bill, I have asked not just what a reasonable person might do, but what a more vulnerable person might do under such circumstances.
The most relevant question that John Mason posed was about what pursuers do with the money that they receive. We do not know. That will have to be monitored and reviewed, because, as Jackie Baillie pointed out, we cannot expect those who are awarded damages to suddenly become investment experts and to always make the right investment decisions. The bill involves a series of balances, and that might be the most important one. We must continue to view such people as vulnerable people. They cannot be expected to become investment experts overnight, which is why it was no surprise that amendment 9 was a matter of some debate. It is important that the issue is kept under review.
I turn to the point about public bodies and what happens when there is undercompensation or overcompensation. In both situations, our public bodies are the ultimate guarantors. We should be concerned about situations in which there could be overcompensation, with the result that public bodies such as the NHS might have to fork out higher payments. However, with undercompensation, there is a risk that those same bodies will have to meet the needs of people who are undercompensated. There is a risk that the shortfall that could arise would have to be met by social services and health services, which would have to support people in that position because they did not have enough money from the damages that were awarded. It is far from a one-sided situation; there are two sides, which need to be balanced.
Liam McArthur rightly highlighted two key interactions. We must be mindful of the changes that are being made by the UK Government—that is true of front-bench members of the UK Government in relation to the amendments that they seek to support or otherwise. To a degree, the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill and the Damages (Investment Returns and Periodical Payments) (Scotland) Bill will work in consort. They both deal with how private individuals can seek redress through the courts for situations that are not their fault but which will have a significant impact on them.
We cannot have another regime like the one that we have had, whereby the world moves on and the legislation is unable to keep up. It is clear that, with the welcome five-year review provision, the Damages (Investment Returns and Periodical Payments) (Scotland) Bill has the necessary flexibility and the ability to keep up, but we must make sure that all aspects, including all the calculations of discounts, are reviewed, because the world moves on. Where those discounts are baked into the legislation, there will have to be careful consideration of how they are updated.
Ultimately, the bill will help those who have suffered a great deal, and we hope that it will be a great help to people who pursue compensation through the courts.16:48
I am very pleased to contribute to this afternoon’s stage 3 debate on the Damages (Investment Returns and Periodical Payments) (Scotland) Bill. I thank those who provided submissions to the Economy, Energy and Fair Work Committee, the witnesses who attended our meetings and the committee, the minister and her team for the constructive approach that has been taken.
As other members have said, although the bill is technical in nature, it is also very important. It provides for a new statutory regime to calculate the personal injury discount rate that applies to compensation awards in personal injury cases. The Scottish Conservatives welcome its passage. As Angela Constance said, although the discount rate will apply in only a relatively small number of cases, the impact on the individuals and families concerned will be life changing. The additional transparency and clarity that the bill will provide are to be welcomed.
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 they assess the amount of a lump-sum award, courts take into account the net rate of investment return that the injured person might expect to receive from a reasonably prudent investment of that lump sum. That is what is referred to as the discount rate. As virtually every member has said, that calculation is not always a science. However, despite having some reservations in relation to the investment charges adjustment, which was the basis of our discussion of amendment 9, the Scottish Conservatives will support the bill at decision time.
Before the bill’s introduction, there was general consensus among defender and pursuer groups on the need to update the system, to increase the availability of periodical payment orders, to give courts further powers to introduce PPOs and to have regular discount rate reviews. I am pleased that, after revisions at stages 1 and 2, the bill now deals with those issues.
We are pleased that the minister lodged amendments at stage 2 to change the review cycle for the notional portfolio to every five years instead of every three years. It is also important that, in changing to a five-year cycle, the Scottish Government recognised the nature of fast-moving investment markets and changes to investment practice within that period, introducing a formal duty to consult stakeholders as part of that review cycle. I am grateful to the minister for supporting my amendment to that effect, as it has the advantage of making the legislation clearer and more transparent, which is one of the bill’s objectives.
There are still some concerns that the notional portfolio that is set out in the bill is too cautious—that it is too highly invested in fixed assets, which offer a lower return than investments in equities. Likewise, some stakeholders still believe that the Scottish Government is being cautious in its approach to having a 0.75 per cent standard adjustment for investment charges and taxation. We have heard the arguments on that before, but it must be seen in the context of the further margin adjustment of 0.5 per cent, which acts as an additional buffer to avoid undercompensation. We understand the Government’s approach to legislating in favour of a risk of overcompensation rather than undercompensation, but, as I mentioned, we have to recognise that that comes at a cost.
Some members—including Liam McArthur—have explored the implications of what those costs might be to the NHS in Scotland and other bodies that self-insure. Costs could also be borne by small businesses when claims exceed their insurance limit of indemnity.
It will be important for the Scottish Government to assess the bill’s operation and to continuously assess the change to the standard adjustment and other mechanics of the bill to make sure that the bill and those changes do not have unintended consequences.
The Scottish Conservatives will vote for the bill at decision time. We welcome many aspects of it and we hope that it will work in the interests of all stakeholders.16:52
I thank those members who have contributed to the debate and I would like to take a moment to address some of the points that have been raised.
Gordon Lindhurst asked for more detail on what “special regard” would mean for the courts in practice. Of course, it will be for the courts to interpret and apply that provision in the circumstances of a particular case. It is not appropriate for us to go too far in speculating on how that provision will be applied in practice. I hope that I have reassured the member on that point.
Gordon Lindhurst and Liam McArthur raised the point about the difference between the discount rate in Scotland and the rate in England and Wales and what effect that might have on funding for the NHS. Until the respective reviews are completed, we will not know whether there will be different rates. In the financial memorandum, which was specifically mentioned by Liam McArthur, we set out the position as clearly as we can at the moment.
We should remember that the impact of the discount rate can be mitigated by the use of periodical payments. The provisions in the bill that relate to PPOs will be helpful to bodies such as the NHS, which will be deemed a secure funder.
Daniel Johnson and Jackie Baillie mentioned amendment 9. I reiterate that the amendment was the result of advice given to the Scottish Government after analysis by GAD of the most up-to-date evidence available. The rate will be subject to review ahead of each regular rate review and—to reassure Daniel Johnson—it can be adjusted by regulations if the evidence points to the need to do so. In that way, the legislation is, in a sense, future proofed, because it can be updated by regulation.
I note John Mason’s comments on amendment 9 and welcome his general comment on the modernising effect of the bill.
Finally, in her contribution, Angela Constance reminded us of the crucial fact that damages are not surplus funds. That was a point well made.
The bill may seem dry and technical, but often it is a detailed and considered approach that is precisely what is needed to address the complexities and challenges that arise when developing a broad solution for what are all individual and unique cases. Although fair and full compensation is at its heart, nevertheless the bill aims to strike a balance, remembering that overcompensation is to the detriment of the defender and their insurer. If the balance is tipped too far, ultimately it is the general public who pay, either through funding our public services, such as the NHS, or by paying more for their insurance premiums.
Equally, where their funds run out sooner than anticipated, the pursuer will usually have to fall back on the state for their care and possibly other needs. That point was raised by Daniel Johnson. I hope that it is clear that we have listened carefully to what has been said by stakeholders, the committee and other MSPs during stages 1 and 2. I have been pleased to support the committee’s amendments at stage 2; we have agreed some minor amendments to those today to ensure that they work as intended.
We know that there are many reasons why a pursuer may not want to have any part of their damages paid through an order for periodical payments. Those reasons might be very practical, for example if there is an element of contributory negligence involved, and therefore the damages award has been accordingly reduced. It may be that the investment of a lump sum is the most viable way of making up any shortfall, even if there are risks associated with that strategy. Members spoke eloquently about the powerlessness that a pursuer might feel should a PPO be imposed against their wishes. I have sympathy with that, so I was happy to meet Jackie Baillie on that point to discuss the issues and see whether we could reach an accommodation on what would be an appropriate amendment to the bill, bearing in mind that there were legal constraints around what could be done. I think that Jackie Baillie has got the right balance in her amendment in that regard.
Overall, the bill has picked a very careful path through the competing demands of pursuer and defender interests. It was defender interests, supported by the committee in its stage 1 report, who pressed for change in the frequency of review from three years to five years. I lodged some amendments of a minor nature that were agreed to today that respond to points raised by the Association of British Insurers after its scrutiny of the bill, and I was pleased to lodge amendments that were agreed to at stage 2 that ensure that where proceedings to vary an order for periodical payments are raised, the pursuer should continue to receive the protection of qualified one-way costs shifting, as that is in the spirit of the legislation as it relates to personal injury actions.
The amendment debated earlier that increased the standard adjustment for tax and investment management costs simply preserves the interdependencies and therefore the integrity of the methodology for reaching a new rate and ensures that it remains robust and fit for purpose.
On that note, it would be helpful to focus on one of those provisions in particular. I would like to talk about the hypothetical investor, because that is the constant in the bill. Any changes to the investment portfolio, whether they be of the asset type or the percentage allocation, can be made only where the end result is that the notional portfolio remains suitable for investment by the hypothetical investor. The characteristics of the hypothetical investor have been carefully formulated to capture the likely investment objectives of a pursuer.
Importantly, the bill has been future proofed so that the Scottish ministers have the tools and flexibility to ensure that all the components necessary to arrive at a rate, or rates, can be kept up to date. That will allow ministers to ensure that the legislative framework for setting the rate remains appropriate.
Finally, I repeat my thanks to all those who gave evidence to help to improve the bill during its parliamentary passage, and I commend the motion in my name.
That concludes proceedings on the Damages (Investment Returns and Periodical Payments) (Scotland) Bill at stage 3.