An increase of 0.75% looks small, but in the context of compensation awards, it can make a significant difference.

In September, the formula used to calculate lump sum damages for future losses such as care (the personal injury discount rate or PIDR) was adjusted from -0.75% in Scotland to +0.5% following a review by the Government Actuary.

What is the PIDR?

The PIDR is intended to reflect expected future investment returns when a claimant receives a lump sum payment (as opposed to a periodical payment) and takes account of factors like inflation, taxation and a notional investment portfolio (gilts, equities, bonds and so on).

The lower the PIDR is set, the higher the lump sum award, which carries the risk of over-compensating claimants and inevitably has implications for insurance premiums and professional indemnity costs.

What does the change mean?

To fully appreciate the impact that a change to the PIDR can have, we need to go back to 2017 when the then Lord Chancellor, Liz Truss, used her powers to dramatically reduce the rate from 2.5% (which had been in place since 2001) to -0.75% (with Scotland following suit).

This had a catastrophic inflationary effect on claims costs with retrospective effect: a claim that might have been reserved for £7m at 2.5% was now worth almost £20m. Although dental claims are typically much lower, the change will still have been felt by dental professionals who have to pay for their own indemnity.

This time, Scotland (along with Northern Ireland) has acted first in raising the PIDR. England and Wales have also announced their new rate. It's too soon to assess the practical impact, but the likely effect will be a reduction in the cost of compensation for organisations like the NHS, which means more money available to spend on patient care.

In 2024, the total cost of outstanding NHS compensation claims in England are estimated at £58.5 billion. In Scotland, clinical negligence claims under the CNORIS scheme ('clinical negligence and other risks indemnity scheme') exceeded £600 million in 2023 – more than double the £250 million reported in 2014.

Why are compensation costs rising?

Of course, the PIDR is not the sole reason that claims costs have risen at an unsustainable rate across the UK in recent years. However, the argument that it reflects declining standards isn't supported by the GDC's fitness to practise statistics, where reported concerns reported have remained stable (1,415 in 2019 compared with 1,297 in 2023).

It also remains the case that many clinical negligence claims are not upheld. (During 2023, the DDU closed 59% of dental claims involving members without a payment of damages.)

In fact, there are a complex mix of causes that make the UK an outlier in clinical negligence costs compared to countries like Australia and even the USA. While these are outside the control of dental professionals and other clinicians, politicians can certainly make a difference by reforming the outdated civil litigation system.

What can be done?

One change that could have an immediate positive impact, while ensuring that negligently harmed patients are fairly compensated, is repeal S2(4) of the Law Reform (Personal Injuries) Act 1948.

This law (which also applies in Scotland) requires the courts to disregard the existence of NHS care when determining compensation awards. This means the NHS and other defendants must foot the bill for private healthcare, even if the NHS ultimately ends up providing the care in question.

Despite the rising cost of compensation, the Scottish Law Commission has recently published a series of recommendations that includes retaining S2(4).

The law surrounding clinical negligence in the UK has failed to keep with the times and is now woefully out of date. While Scotland has led the way by adjusting the PIDR, there is still work to do to achieve a fairer system of compensation.

Scotland's PIDR shift: what it means for compensation costs

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