In the setting of the PIDR - completed in 2024 and due to be reviewed in 2029 – an allowance needs to be made to reflect the incidence of inflation on future pecuniary losses (typically the cost of care and loss of earnings). The greater the allowance for inflation, the lower resulting PIDR and the higher the level of damages awarded.

Although the method of allowing for inflation with the PIDR may appear highly technical, even modest adjustments of the order of half or three quarters of a percentage point could significantly affect the calculation of damages for future loss in serious and catastrophic injury claims.

Legislation in England & Wales leaves the allowance for inflation within the PIDR to the discretion of a panel of experts but, in contrast, statutes in Scotland and Northern Ireland prescribe the use of a published index.

In those two jurisdictions in 2024 this statutory requirement to use a published index resulted in AWE - average weekly earnings  - being adopted as the measure of inflation within the PIDR. Given that damages for future loss comprise elements related to earnings and to prices - such as care and aids/equipment respectively - it is arguable that the use of a pure earnings index such as AWE makes too large an allowance for future inflation and therefore tends to over-compensation. Similarly, allowing only for prices inflation (such as by using the consumer prices inflation (CPI) index) could tend to under-compensate given that significant elements of claimants’ future losses will be closely linked to earnings (of carers, for example) rather than prices. The point is clearly made in the new consultation from the Scottish government:

“an earnings-based index would potentially overestimate the average damages inflation experienced in practice and a prices-based index would potentially underestimate the average damages inflation”

In the 2024 review, a middle course was adopted in England & Wales by the use of a subjective adjustment to CPI as the measure of damages inflation within the applicable PIDR. This approach was not open to Scotland and Northern Ireland because of the statutory requirement to use a published index. They therefore adopted AWE in the 2024 rate reviews but undertook to reconsider how to allow for inflation before the next PIDR review, which will take place in 2029.

That reconsideration is now active in the form of new consultations issued this week by the Department of Justice in Northern Ireland and by the Justice Directorate of the Scottish Government, which are available at the following links:

The Personal Injury Discount Rate: taking account of inflation

Consultation on the inflation index for the calculation of the personal injury discount rate and the methodology for calculating the judicial rate of interest

The NI consultation deals only with inflation within the PIDR and is open until 28 January 2026. Two further topics are addressed by the consultation in Scotland (which closes on 23 January), these being the appropriate measure of inflation to be used in periodical payment orders (PPOs) and the judicial rate of interest (which is currently 8%).

Although the question about PPOs may appear ironic in so far as the statutory regime and procedural rules to enable the use of court-awarded PPOs in Scotland has yet to take effect - unlike in England & Wales and Northern Ireland - it is nonetheless an important issue and one to which compensators and insurers should respond.

Clyde & Co’s Catastrophic Injury and Large Loss  group will be responding to both consultations. Please get in touch with your regular contacts here if you would like to discuss these initiatives in further detail or would welcome our assistance in submitting your own responses.