Consultation on the inflation index for the calculation of the personal injury discount rate and the methodology for calculating the judicial rate of interest

Ministerial Foreword

The Personal Injury Discount Rate (PIDR) is an adjustment of an award of damages to reflect the fact that the injured person is able to invest the money before the loss or expense for which it awarded has actually occurred. That investment will generate a return and the PIDR aims to take that into account so as to avoid over- or under-compensation. The current rate in Scotland is +0.5% and was set in September 2024. The method for calculating the PIDR is set out for Scotland in Schedule B1 and for Northern Ireland in Schedule C1 of the Damages Act 1996 and is designed to create a fair and accurate way to set the discount rate, taking account of a range of factors.

When the Scottish Government considered the PIDR in 2024 the view was taken that there was not the flexibility to prescribe an adjusted inflation index in regulations. The effect was that, while the inflationary pressures faced by an injured person will mostly lie somewhere between a prices-based or earnings-based index, the regulations can only prescribe an unadjusted index. Depending on the index chosen, this will wither under- or over-compensate the injured person. The purpose of this consultation is to seeks views on this matter so that going forward the legislation has the needed flexibility to ensure that an injured person is fully compensated, no more or no less.

The consultation also seeks views on the judicial rate of interest which is, at 8% on post-decree awards, viewed by a number of stakeholders as not being at an appropriate level, particularly at a time when interest rates are significantly lower.

Siobhian Brown MSP

Minister for Victims and Community Safety