Schedule – Investments: setting rate of return
13.Paragraphs 1 to 3 of Schedule B1 require the rate-assessor to review the rate of return and make provision concerning the timing of reviews.
14.The first review is to be a review of the rate of return set by the Scottish Ministers under the existing section 1 of the 1996 Act in force when the provisions of the schedule are brought into force (paragraph 1). This was last set by the Damages (Personal Injury) (Scotland) Order 2017 (S.S.I. 2017/96) at minus 0.75%. If no such rate is in force (for example if that Order were to be revoked without being replaced before the schedule of the Act comes into force) then the first review is to be a review of there being no prescribed rate. The first review is to start on the date on which the schedule is brought into force.
15.Paragraph 2 deals with the timing of subsequent reviews. It requires the rate-assessor to start a review on the day after the end of the five year period beginning with the day on which the previous review required to be started (establishing a five-year cycle of regular reviews). The Scottish Ministers may (under paragraph 2(2)(b)) require the rate-assessor to conduct a review starting earlier than the next regular review would do, but, if that occurs, the extra review does not disturb the five-year cycle of regular reviews.
16.Paragraph 3 requires reviews (whether the first review or any subsequent regular or extra review) to be concluded within a 90 day period beginning on the day on which it must be started.
17.Paragraph 4 sets out an overview of the rate-setting process. Paragraph 5 provides that a review will determine whether the rate is to remain the same or be changed. Paragraph 6 provides that the rate assessor must have regard to views of any person the rate-assessor chooses to consult or whose advice has been sought. This provision enables the rate-assessor to seek and discuss views as well as to obtain information necessary to carry out the rate-assessor’s functions. (This includes views received before the schedule comes into force – see paragraph 29).
18.Paragraph 7 sets out the basis upon which the rate-assessor is to determine the new rate of return. Subject to standard adjustments and rounding of figures set out below, it provides that the rate of return should reflect the return that could reasonably be expected from investing in the notional portfolio provided for in paragraph 12 over a 30-year period. (Paragraph 8 gives the Scottish Ministers power (by regulations subject to the affirmative procedure) to change the period of 30 years to another period).
19.Paragraph 9 provides for an adjustment to the rate of return to take account of inflation by reference to the retail prices index or to an alternative source of information as prescribed by Scottish Ministers in regulations subject to the affirmative procedure.
20.Paragraph 10 provides for standard adjustments to the rate of return arrived at on the above basis. The rate-assessor is to deduct 0.75 of a percentage point to take account of the impact of taxation and the cost of investment advice and management. The rate-assessor is also to deduct 0.5 of a percentage point as a further margin, which recognises that there is risk inherent in even the most carefully advised and invested portfolio. Paragraph 11 provides that the adjustment figures may be changed by the Scottish Ministers by regulations subject to the affirmative procedure. The resulting figures may be zero or a positive number. They cannot be a negative number (so the adjustments can never raise the rate of return). They need not be whole numbers but can include a decimal fraction. Unlike the rate ultimately set by the rate-assessor (see paragraph 19), these numbers are not limited to being expressed in steps of a quarter percentage point.
21.Paragraph 12 sets out the notional portfolio with the types of investments and percentage holdings on which the rate-assessor is to determine the rate of return. Paragraph 13 provides that if a type of investment included in the portfolio is not defined by regulations under paragraph 14, it is to be interpreted by the rate-assessor in the way it is commonly understood in investment contexts. Paragraph 14 provides that the Scottish Ministers may make regulations to define any of the types of investment. (Those regulations are subject to the affirmative procedure.) Paragraph 15 provides that the Scottish Ministers may make regulations to make changes to both the list of investments and the percentage holdings.
22.Paragraph 16 provides that before the start of every review other than the initial review the Scottish Ministers must consider whether regulations under paragraphs 14 and 15 are required in order to ensure that the notional portfolio remains suitable for the hypothetical investor whose characteristics are set out in paragraph 17, and who is investing lump sum damages for future pecuniary loss (paragraph 18). In carrying out this exercise Scottish Ministers must consult with persons they consider appropriate. The Scottish Ministers are not required to consider the matter (i.e. conduct their own review of the suitability of the notional portfolio) ahead of an extra review mentioned in paragraph 2(3).
23.Paragraph 19 provides that the rate of return is to be set as a percentage figure. It can be either zero or a negative or positive number and (under paragraph 20) is to be rounded up or down to the nearest quarter percentage point.
24.Paragraph 21 provides that there will be a single rate which will apply to all cases unless regulations provide otherwise. Where the Scottish Ministers set out in regulations (subject to the affirmative procedure) that there should be more than one rate, a review is to be carried out separately for each rate of return. Under paragraph 22, the regulations must set out the circumstances in which each rate is to apply and require the rate-assessor to report separately on each rate of return.
25.Under paragraph 23, the rate-assessor must send a report to the Scottish Ministers when the review has concluded and no later than the last day of the 90-day period for carrying out the review. The report must be dated and contain the rate determination and a summary of how the rate is calculated. Under paragraph 24, the Scottish Ministers must lay the report before the Scottish Parliament as soon as practicable after it has been received, and on the same day the rate assessor must publish the report. The rate will come into effect on the day after the report is laid (paragraph 25).
26.Paragraph 26 provides for the reimbursement of the rate-assessor’s costs unless the rate-assessor is part of the Scottish Administration (for example, if the Scottish Ministers exercise their powers under section B1(4)(b) to appoint such a person in place of the Government Actuary).
27.Paragraphs 27 to 30 make provision for transitional arrangements. Paragraph 31(1) allows regulations under the new Schedule B1 to make different provision for different purposes. For example, in the event that the Scottish Ministers make regulations under paragraph 21 requiring more than one rate to be set, paragraph 8 (as read with paragraph 31(1)) could be used to prescribe different periods to be used in connection with the setting of the different rates. Paragraph 31(2) provides that regulations made under the schedule are subject to the affirmative procedure. Paragraphs 32 and 33 provide for interpretation of the schedule.
