A new bill introduced to the Scottish Parliament will "create a clearer, fairer and more credible way of setting of the personal injury discount rate for damages", the Scottish Government claims.

The personal injury discount rate is used to help calculate lump sum compensation to cover future losses such as future salary losses or future care costs in personal injury cases. It is set under reference to returns that might be expected when lump sum payments are invested on behalf of the claimant, and has become controversial as investment returns have diminished in recent years. The lower the discount rate, the larger the capital sum that has to be awarded to provide proper compensation.

Under the Damages (Investment Returns and Periodical Payments) (Scotland) Bill, a new methodology would be put in place for calculating the discount rate, which would be set by the "official rate-assessor" – the UK Government Actuary or any person appointed in their place by Scottish ministers – but "the court may take a different rate of return into account if a party to the action shows that the different rate is more appropriate in the circumstances of the case".

The bill, which follows a joint consultation by the Scottish and UK Governments, requires the discount rate to be reviewed by the Government Actuary every three years.

It also gives courts in Scotland the powers to impose periodical payment orders for future financial loss, with or without the consent of parties, provided it is satisfied that continuity of payment would be reasonably secure. Payments would be deemed to be index linked, but could be varied or suspended on a change of circumstances. They would be protected against the insolvency of the claimant.

Minister for Legal Affairs Annabelle Ewing commented: "This legislation is part of our wider programme of civil law reform which aims to ensure the system keeps pace with modern Scotland and the needs of its people. While the number of people affected by the discount rate is relatively small, we know that those cases tend to involve catastrophic injury with little prospect of the individual’s full recovery. That is why it is so important the law determining how the discount rate is set is clear, fair, transparent and credible."

Click here to access the bill and related papers.