I beg to move

That the draft Damages (Process for Setting Rate of Return) Regulations (Northern Ireland) 2024 be approved.

The Business Committee has agreed that there should be no time limit on the debate. I call the Minister to open the debate on the motion.

Thank you, Mr Speaker. At the outset, I advise the Assembly that I have declared a conflict of interest in relation to the personal injury discount rate on account of my husband's membership of a medical defence union. Medical defence unions have an interest in the level of discount rate, as it may affect the cost of indemnity and, consequently, the cost of membership. In view of that, I delegated to the then permanent secretary of the Department policy decisions about which of the parameters for setting the rate ought to be modified.

(Mr Deputy Speaker [Dr Aiken] in the Chair)

Before I turn to the detail of the draft regulations, which make amendments to the statutory parameters by which the personal injury discount rate is set, I want to explain the wider context for the changes proposed. It is a well-established principle of our law that a person who is injured as a result of the negligence of another is entitled to be compensated in full — no more and no less — for any future financial needs that arise from the injury. That is called the 100% compensation rule. Claimants who have suffered serious — often life-changing — injuries will, generally, be dependent on their damages award to meet their basic needs and the cost of their care. The purpose of applying the personal injury discount rate is to give effect to the 100% compensation principle. The rate is a percentage adjustment to a lump sum award of damages for future financial losses to reflect the return that can be earned from investing it.

In the previous mandate, I brought forward primary legislation — the Damages (Return on Investment) Act (Northern Ireland) 2022 — that changed the process by which the rate for Northern Ireland is set. That legislation amended the Damages Act 1996 to transfer responsibility for setting the rate from the Department of Justice to the Government Actuary, prescribe a new methodology for setting the rate and require a regular review of the rate every five years. Under the legislation, the rate must be set to reflect the expected return from investing a lump sum award of damages in a prescribed notional portfolio of investments for an assumed period of 43 years and be adjusted to take account of inflation, the cost of taxation and investment advice and management costs. The rate must also include a further margin to take account of investment risk.

The first review of the rate under the new legislative framework led to the rate being set at -1·5% in March 2022. The next review of the rate by the Government Actuary must commence on 1 July, which will align Northern Ireland with the cycle of regular reviews of the rate in Scotland. In anticipation of that, the Department conducted an exercise to determine whether any of the statutory parameters by which the rate is set ought to be modified, and whether there should continue to be a single discount rate or more than one rate. That exercise involved consultation with stakeholders and the commissioning of professional actuarial advice from the Government Actuary's Department (GAD).

Having considered the consultation responses and GAD's advice, the permanent secretary concluded that two of the parameters by which the rate was set needed to be updated to reflect current economic projections and ensure that the rate continued to give effect to the legal principle of 100% compensation. The first of those is the measure used to take account of inflation. Currently, the legislation prescribes the retail price index. However, the way in which RPI is calculated is going to change from 2030. Stakeholders and GAD were of the view that that meant that RPI was no longer the best measure to use. The Department notes that many stakeholders suggested that an adjusted measure would be appropriate; for example, the consumer price index plus a percentage adjustment. However, under the current statutory framework, a single unadjusted index must be chosen.

Given the choice between a price-based measure and an earnings-based measure, the Department took the view that the latter would be more appropriate because, having given regard to the consultation responses, it recognised that earnings and care costs were likely to make up a significant part of any damages award. Therefore, the draft regulations prescribe annual weekly earnings as the measure to be used for the purposes of tackling inflation. However, looking beyond the immediate needs of this year's review, the Department intends to review how the legislation makes provision for the impact of inflation to consider the scope for providing more flexibility, including the potential future use of an adjusted index. Any such amendment would require primary legislation in the next mandate.

The other modification that the draft regulations propose is an increase to the deduction for taxation and the cost of investment advice and management from 0·75% to 1·25%. The new adjustment of 1·25% is based on advice from GAD that changes to the investment yields and tax rates have increased the tax costs for claimants by 0·5% on average. It is worth noting that Scotland has recently made regulations that make the same changes in that jurisdiction to those to be made by the draft regulations in Northern Ireland. That means that, subject to the draft regulations being approved by the Assembly, the rates in Northern Ireland and Scotland will be set using exactly the same parameters.

I thank the Committee for Justice for its detailed consideration of the draft regulations, and I am pleased that the Committee has recommended that the House should affirm the regulations. However, the Committee also wrote to the Department noting some concerns, and I want to address those today. In particular, the Committee highlighted concerns expressed about the impact of the discount rate on insurance premiums and public bodies. As the rate affects the total sum of damages payable to those who have suffered personal injuries, it will affect the liabilities of public compensators and insurance companies. It is therefore likely to be one of many factors that affect the cost of insurance.

Importantly, we do not know what the outcome of the Government Actuary's upcoming review of the discount rate will be, so we do not yet know if the discount rate will go up or down or stay the same. However, the impact of changes in the rate for defendants, insurers and other compensators is not something that can or should be taken into account when the Department and the House consider the need for modifications to the parameters for setting the rate. The cost to insurers and the health and social care service flows from the liability of defendants to compensate claimants in full.

To be clear, the only factors that are relevant for the setting of the rate are those that relate to the expected return on investment. The changes to the statutory methodology proposed in the draft regulations reflect updated economic projections since the rate was last set and are the best means by which the legal principle of 100% compensation will continue to be protected. I therefore commend the draft Damages (Process for Setting Rate of Return) Regulations (Northern Ireland) 2024 to the Assembly.

As Chairperson of the Committee for Justice, I welcome the opportunity to speak on this motion. I declare that I have an immediate family member who works in the legal profession.

As the Minister outlined, the draft statutory rule will make changes to the statutory methodology by which the Government Actuary has to set the personal injury discount rate for Northern Ireland. The Committee took its time to scrutinise the proposal for the statutory rule. In addition to considering a number of papers from the Department of Justice, the Committee scheduled two oral evidence sessions and received a number of items of correspondence from stakeholders. In the interests of openness and transparency, as I informed all Members in a letter issued last Friday, the Committee agreed to publish on its website the documentation that it considered when scrutinising the statutory rule, alongside the Hansard transcripts of the relevant evidence sessions.

The Committee was first informed of the Department's intention to propose the rule at its meeting on 25 April 2024. The Committee was not content for it to proceed based solely on the information that we had received at that time. As a result, we agreed to schedule an oral evidence session with officials from the Department of Justice. That oral evidence session took place on 16 May 2024. The officials provided background information on the proposals for the rule and lots of detailed information on the methodology used for setting the rate, including the rationale for using that methodology. The Committee was advised that the change from using the retail price index was necessary because the way that the retail price index is calculated is due to change in 2030 and that, as a result, it was no longer an appropriate method to use.

Many respondents to the consultation stipulated their preference for a CPI+ model. We were advised that using a CPI+ model was not an option at this time because the current legislation does not allow for that. However, officials did state that there is a commitment to review the legislation before the next review of the discount rate in order to:

"see whether it is possible to provide more flexibility on what the legislation says about inflation."

Additionally, we were told that the rationale for the change to using annual weekly earnings as a measure used in allowing for the impact of inflation was based on advice from the Government Actuary's Department.

After the oral evidence session with the Department, the Committee agreed to write to the Department to emphasise that the Committee does support the principle of 100% compensation, which was never in question; to ask for clarification on the modification of the standard adjustment from 0·75% to 1·25%; and to ask for more information on impact assessments, as recommended by the predecessor Justice Committee. The Committee then scheduled another oral evidence session, this time with officials from the Government Actuary's Department, and that took place at the meeting on 30 May 2024.

The officials outlined the role of the Government Actuary's Department in the process, including advising the Department. We were told that its advice had five broad conclusions: that the current notional portfolio and period of investment of 43 years remain appropriate; that RPI is no longer suitable as an appropriate index for damage inflation; that the standard adjustment of 0·75% for tax investment cost is no longer appropriate; that the standard adjustment of 0·5% for the further margin remains appropriate; and, finally, that a single-rate mechanism, rather than one that varies by term or, indeed, another factor, remains appropriate. At that same meeting, the Committee agreed unanimously that it was content with the proposal for the statutory rule. I quote from the minutes:

"The Committee agreed to write to the Department to emphasise that it fully supports the principle of 100% compensation and to outline a number of concerns about the proposed Rule. The Committee highlighted that everybody wanted a CPI+ model but acknowledged that that could not be done at this time ... The Committee noted the move to the average weekly earnings measure instead of RPI. The Committee noted the modification of the standard adjustment for the impact of taxation and the cost of investment and management advice from 0·75% to 1·25%; that the Government Actuary's Department ... considers that that is appropriate; that GAD is content with the assumed investment period of 43 years; that the Department and GAD are unable to consider anything beyond the principle of 100% compensation; and that GAD said that the 0·5% margin was appropriate. The Committee noted that the increase is because tax paid has increased and wished to highlight that a number of concerns have been expressed about insurance premiums and the potential impact on policyholders and defendants. Concerns were also expressed about the potential implications for public bodies. It was also pointed out that Northern Ireland has the highest insurance costs compared with other parts of the United Kingdom and [the Republic of] Ireland."

At its meeting last Thursday, the Committee formally and unanimously agreed to recommend that the rule be approved by the Assembly. I therefore support the motion on behalf of the Committee for Justice.

I will now speak in my capacity as an individual MLA. The position of the Democratic Unionist Party is reflected in the position of the Committee. We were conscious of the views of the respondents, defendants, claimants and stakeholders, and we sought to reassure ourselves about the factors under consideration around the issue as much as possible, given its technical nature. We were pleased to receive answers to our queries around CPI+ but remain concerned about the potential impact on insurance premiums for citizens and public bodies. However, we acknowledge that the actuary is not permitted to take into account such factors when striking the rate.

The key to the entire subject area is to ensure that claimants, over the course of their lifetime or the term of their claim, receive as close to 100% as possible — no more and no less. To that end, we agreed to support the rule. That was after we had raised questions and recorded our concerns with the Department and received the comprehensive advice of the Department and the Government Actuary, who also informed us that, through that process, Northern Ireland would likely be much more closely aligned with Scotland on review timings and, indeed, the rate, as stipulated in the Hansard report of the evidence session. As a result of all that, we are content to support the rule.

As highlighted by the Minister and Committee Chair, the Committee gave the statutory rule careful consideration during a number of meetings. Those included oral evidence sessions looking at annual weekly earnings, the change to RPI and, of course, modifying the standard rate of adjustments. We reiterate the concerns that were highlighted and about which we wrote to DOJ relating to the impact on insurance premiums, as has been stated here. We know that, due to the geographical make-up of the North, insurance is higher here and that that impacts on premium holders. Sinn Féin fully supports the principle of 100% compensation.

The Chair laid out the context: we were limited in what we could do at this time, and a review is pending. Parties and the Committee await the outcome of that review to see what further changes or modifications will be made. We agreed to allow the statutory rule to progress and to publish all the documentation, which went out from the Chair last week, and all the oral evidence. That is now in the public domain for people to look at and see the scrutiny that we applied as a Committee.

I call the Minister to make her winding-up speech.

Do you want to speak, Stewart?

No. Go ahead.

Apologies, Mr Deputy Speaker. I was not sure whether my colleague had indicated that he wished to speak. It is fine.

I thank the Members who have spoken today for their engagement. I will address some of the points that were raised during the discussion, particularly those about the cost of insurance premiums in Northern Ireland, which, we all recognise, is an issue and was of concern to the Committee.

Many factors contribute to insurance premium costs, and the discount rate is just one of them. My Department is not in a position to assess the extent to which the discount rate affects the cost of insurance; that is a matter for insurers. Irrespective of that, however, the legally established principle of 100% compensation means that the impact on insurance costs cannot be taken into account in how the rate is set. As a matter of law, claimants are entitled to be fully compensated, and that is the only consideration that we can take into account in that regard. I am not in a position to comment authoritatively on the detail of insurance costs or to speculate on the extent to which the discount rate affects the cost of insurance locally, but it is common knowledge that a number of factors contribute to the premium costs. The discount rate is one such factor, but the following all make a contribution to the overall picture: the number and nature of thefts here; levels of fraud and uninsured driving; the number and nature of road traffic accidents; the make and model of cars; road safety; road infrastructure; the cost of repairs; the levels of damages awards; the number of new and novice drivers; and the insurance premium tax rate.

For historical reasons, general damages for pain and suffering, for example, also tend to be higher in Northern Ireland than they are in other jurisdictions. That is because the assessment of damages in Northern Ireland was in the hands of juries until about 1987. That may be a reason that insurance costs in Northern Ireland are slightly higher, but, again, that is not relevant specifically to the discount rate. The discount rate is applied only to special damages, which are measurable financial costs and losses. It is also worth noting that the guidance on general damages has been updated recently in England and Wales and separately in Northern Ireland and confirms continuing differences between the guidance on the level of general damages awards between jurisdictions. If we look at house insurance, for example, on which the discount rate has no impact, we see that it is also higher in Northern Ireland than it is in other regions. It is therefore not the discount rate in and of itself that is the only determining factor, although it may contribute in some places.

The regulations will ensure that the personal injury discount rate for Northern Ireland, when set by the Government Actuary later this year, will continue to give effect to the legal principle of 100% compensation and therefore be fair to claimants and defendants.

Question put and agreed to. Resolved:

That the draft Damages (Process for Setting Rate of Return) Regulations (Northern Ireland) 2024 be approved.