18 December 2018

S5M-15169 Damages (Investment Returns and Periodical Repayments) (Scotland) Bill: Stage 1

The Deputy Presiding Officer (Linda Fabiani): The next item of business is a debate on motion S5M-15169, in the name of Ash Denham, on the Damages (Investment Returns and Periodical Payments) (Scotland) Bill at stage 1.

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Stewart Stevenson (Banffshire and Buchan Coast) (SNP):

I have not been involved with the bill thus far, but I want to develop a number of its aspects; Jackie Baillie has touched on them already.

The committee’s convener, Gordon Lindhurst, mentioned the balance between pursuer and defender and the different views that can be taken. It is worth saying that the phrase “hypothetical investor” is a good one, because most people who will be in receipt of the kind of compensation that we are talking about are not knowingly investors in anything. They are often investors through their pensions without realising it. Many people have industrial life insurance, which was traditionally sold door to door and for which the money was collected every week, or they might have a life policy.

I had a life policy that I took out in 1975 and took the money out of 31 years later—that is almost exactly the period that we are talking about. I have just done the sums, and the discount rate was just under 6 per cent, but I have not taken account of the value of the insurance part of that, which would make the discount rate a little bit higher. That was before the crash, of course, and discount rates now look rather different. The bottom line is that the hypothetical investor about whom we are talking is a pretty cautious beast, and rightly so.

Jackie Baillie used the phrase “no faith” when she was talking about periodical payments, and that was a fair observation. The bill says:

“A court may not make an order for periodical payments unless it is satisfied that the continuity of payment under such an order would be reasonably secure.”

It then goes on to say that the payment must be assumed to be secure when it is a Government that is paying the money out. The one thing that is not in the bill, and which might usefully be added, is that when the court decides that it is satisfied about the continuity of payment, it should explain why it is satisfied, so that, if there is a different view, that view can be challenged. That is a technical point that protects the person who is in receipt of the compensation payment.

There has been some discussion about the costs of tax and investment advice. I am a bit dubious about the 0.5 per cent deduction. I have the feeling that the costs might be a bit higher than that in the real world, so I am not sure that 0.5 per cent is adequate to cover them. I do not speak with certainty, but it is a question that would usefully bear some—

John Mason
: Will the member give way?

Stewart Stevenson: I will give way to somebody who knows more than I do about that matter.

John Mason: The committee received evidence—I do not know whether the member would agree with it—that perhaps the investment cost would be higher at the beginning and lower later on.

Stewart Stevenson: I am absolutely sure that the member is correct, but that goes to the heart of how the compensation is provided: whether it is paid in a lump sum up front or in periodical payments. The actuarial risks associated with the two are fundamentally different. When Dean Lockhart said that a longer period of investment would increase the discount rate, I did not agree. I think that the discount rate is what it is, and that is the actuary’s view. The discount cost goes up as the period increases—rather obviously, because there are more years over which the discount will apply.

Jackie Baillie: I will helpfully supply Stewart Stevenson with the discount rate that he was looking for. The Association of Personal Injury Lawyers supplied us with it: it is between 1.5 and 2 per cent per annum.

Stewart Stevenson: That is broadly what I would have expected, so I am obliged to the member for that.

Investors come in all shapes and forms. Over the years, with my wife, I have been an equity investor. We have twice lost all our money on an investment, and in 2008, my bank investment dropped by 96 per cent. Being in the equities market carries a substantial risk. Ultimately, investors in equities are the last creditors to get paid and they may find themselves paying in if the shares are not paid up in value.

The bill strikes a measured balance between the various options. I looked at it for the first time in the past 36 hours. It strikes me as a sensible piece of legislation, which I shall be happy to support.


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