Turn Around for Discount Rate in Northern Ireland and Scotland

The regulations approved in both jurisdictions prior to the review commencing meant that:

• The notional portfolio used previously remained unchanged.
• The allowance for the impact of inflation is calculated by reference to Average Weekly Earnings (AWE) (previously RPI).
• The standard adjustment for taxation and investment advice and management is set at 1.25% (previously 0.75%).
• The further margin stayed as it was previously at 0.5%.
• The investment period should be 43 years (a change from 30 years for Scotland).

For further commentary on the Regulations, see here.

Northern Ireland is no longer an outlier, with the lowest rate for the time being now held by England & Wales. We will not know the outcome of the review in England and Wales for some time, and potentially not until January 2025. The positive outcome for Northern Ireland and Scotland reflects a much healthier outlook for the economy, with the notional portfolio showing a likely gross return of CPI +3.5%.

What next?

The next review is due no later than 2029. There is work to be done in the intervening period to ensure that the allowance for the impact of inflation can be properly allowed for.

In both jurisdictions, it was stated that the wording of the legislation only allowed for reference to a single index and did not allow for the CPI +% used in England and Wales.

GAD's report made it clear that RPI is no longer an appropriate index for damages inflation. As a single index had to be chosen, the options set out by GAD were a prices index (CPI), which may underestimate inflation or an earnings index (AWE), which may overestimate it. Both jurisdictions chose to apply AWE.

Steps should now be taken to amend the legislative framework to allow the flexibility that is available in England and Wales of the CPI +% model, which allows a more accurate allowance.