Following the review of the PIDR in England & Wales commencing on 15 July and potentially running for up to 180 days (ie until 11 January 2025), the Ministry of Justice has now released documents that serve as terms of reference for the two statutory consultees, the Expert Panel (chaired by the Government Actuary) and HM Treasury.

As would be expected, the papers provide no indication what the new rate or rates set at the end of the review period might be. They do, however, emphasise the importance of economic data and analysis in underpinning the advice that both consultees must provide to the Lord Chancellor within 90 days of being instructed to do so (ie by 13 October). In particular, the consultees are asked to consider the following topics.

Expert PanelHM Treasury
  • how claimants invest over differing periods and the investments that are available
  • the extent to which claimants can be considered to be similar to ordinary investors
  • what assets might exist within a low-risk diversified portfolio suitable for properly advised claimants
  • the most appropriate measure of inflation to use when setting the discount rate
  • allowances to be made for management costs, taxation and inflation in the setting of the rate
  • the possibility of setting dual or multiple rates and the implications on (a) to (d) above of such an approach, and
  • wider factors deemed relevant, for example, international comparisons and economic factors
  • the portfolios for consideration in the setting of the rate
  • the relevant economic and financial forecasts for the UK economy as a whole over the short, medium and long term
  • the rates of inflation that, in the opinion of the Treasury, are to be expected in the short, medium and long terms for (i) prices and earnings generally; and (ii) on the cost of care and treatment
  • whether, in the opinion of the Treasury, there is reason to change from a single rate to multiple rates, by reference to the duration of the award or heads of loss, and
  • any other matters that the Treasury considers relevant to the setting of the rate.   

The rate-setting process in England & Wales is entirely separate from the now-identical regimes that apply in Scotland and Northern Ireland. However, the Government Actuary has a key role in those jurisdictions as the statutory rate-setter required to follow the detailed methodology set out in the relevant legislation.

That methodology was refreshed earlier in the year based on new advice from the Government Actuary’s Department (GAD) that notably confirmed that “a single rate is still appropriate” and that in allowing for investment management costs and taxation “a reasonable range based on current evidence would be 0.75% to 1.75%”; the mid-point of which, 1.25%, was then written into the relevant regulations. This is 0.5% greater than the allowance that was made in setting rates in 2019. Perhaps significantly, GAD also commented that “there will never be a perfect assumption given the unknown nature of future claims and variation in individual [claimant] circumstances”.

The advice from GAD also addressed the allowance for inflation, concluding that using the Retail Prices Index “is no longer suitable”. The legislation requires that an unadjusted published measure should be used and Ministers in Scotland and Northern Ireland therefore selected Average Weekly Earnings for this purpose. Nevertheless, the advice from GAD noted that consultees in 2023 supported “a core range of CPI +0% to +1%”. In England & Wales in 2019 the allowance made for inflation as part of the PIDR was CPI +1%.

It is important to emphasise that nothing in the previous paragraphs relates directly to setting the PIDR in 2024 in England & Wales. 

The legislation here is entirely different and requires the Lord Chancellor to make a judgment as to the appropriate rate, having regard to the advice from the statutory consultees which must be prepared by mid-October in accordance with the newly-released terms of reference documents.