 Youn Da B Meteor, and welcome into the 28th meeting of 2018 of the Economy, Energy and Fair Work committee. May I ask everyone present to turn electrical devices to silent? Turning to the agenda, item 1 is a decision by the committee to take items 4, 5, 6 and 7 in private. Are we agreed on that? Yes. Now today we continue our consideration of the possibility of a publicly-owned energy company and we have witnesses today, first of all Peter Spears, public affairs manager of Scottish renewables, then Hollister Steel, who is the chair of our power energy supply, next Geil Scholz, who is the chief executive officer of Robinhood Energy and finally Nicholas Ilyw cheaper than's chief executive of community energy Scotland so welcome to all four of you and thank you for coming in today. We'll start off with questions from committee member Andy Wightman. Thank you convener and welcome along today. The hope concept of a publicly owned energy company at one level seems to have been plucked out of thin air and no one really knows what the point of it is and why we would do it. Is there anything intrinsic in having an energy companyBY Familyolen is owned by the public that would provide benefits for Scotland and its energy supply generation. If you want to indicate by raising your hand that you would like to come in, and the sound system is operated by the sound S, no need to press any buttons. So, who would like to start on that one? Rydw i'n dweud wedi'i gydag ysgolodau cymorth Cymru, ond mae'n fawr i'n ddim yn gwirio gael y cyd-fawr yn ymgyrchau cyllid yw'r unrhyw gweithio'r cyllid yw'r cyllid. Rydw i'n gwirio gynhyrch er mwynhau, iddyn nhw'n eich gweithio'r cyllid yw'r cyllid yn ymgyrch. Roeddwn i'r mynd i'r bywys cyfodol ar hynny ar hyn rhwng dymogwadol, a bod rydw i'r mynd llwy, y gwrthodllol ffawr yn un i bryddyn ni. dyfodol iddo fel hyn y dyf yn gwneud yr edrych o'r set er fawr o benderfyn yma, roedd o'r gondi yn cyfans, meddwl o blaenau gwirietud, o'r llwy ffurwyr gyffredigau cwntabil. Felly, mae'n rhan o'r gwaith o'r cymdeithasol ymlaen o'r sylwg ddechrau. Peter Spears, ond rwy'n cael ei ddweud. Felly, rydw i'n mynd i'r cymdeithasol, rydw i'n mynd i'n gweithio'r cymdeithasol, ac yn rhan o'r cymdeithasol, yn cael ei ddweud, yn gweithio'r cymdeithasol, yn gweithio'r cymdeithasol, ac yn gweithio'r cymdeithio, rydw i'n mynd i'nossi~~ fel nifer mwylau, fel mewn siaradau meddierol, ac yn gyfr �ffrinienciaol, rydw i leisio'n cael ei dignut whyud rwy o pobl nagطfawr yn ddefnyddio eu brinesl ddechrau. Rydw i'n gweld Plain Theresa innovative ac moo mewn gwaith ar gael gwyddi.rhau y mynd erbyn y maesiedd mwyaf sy'n ddylch yn defnyddio'r company? Gil Shwmal. Hi, Robin Hood Energy ac mynd y gallwn lleolau cyfleoedd arherwydd beth sy'n gyfalch gynnwys ar treifyr, mae'n cerddio lleol ym hyfforddiadau cyfleoedd yn gyrfa. Rydyn ni'n cael ei gwysig o'r credu meddwl a'n edrych i ddweud yr egôis beth oeddanol. Yr hyffordd y mynd erbyn Felly, we have been able to join up on lots of other strategies, so climate change strategy, fuel poverty strategy in particular, and with 183,000 households in extreme fuel poverty in Scotland, it is a real way into connecting with communities and other agencies that are publicly owned or governed citizens advice, for instance. But there's lots of agencies that you can connect up with. We've now grown to some, we've got over 200,000-metre supply points. I believe that, certainly in terms of the sticky customers and the customers who have never switched, probably who are on the most expensive tariffs, this is a really good way into that customer group and trying to operate at community level. And Alasdair Steele. From our first point of view, we were set up by Scottish housing providers, so our model is a community benefit society where owned and controlled by our member organisations. Looking at it from the supply side and the company entering the supply market, we've probably seen that as it has to be really clear on what it's trying to achieve. If the market is not working and you're looking to intervene in the market, it's coming in as a company entering into that, the right thing to do, or the other ways you could intervene to address the problems that you've identified. From our point of view, it's an energy supply company. It's a really dynamic marketplace, it's a very comparative marketplace just now. There's a lot of risks involved in entering that marketplace as a company. So I would maybe question whether it's the right thing for government to be doing just now in terms of a new publicly owned energy company. I think in terms of the broader system where you're looking at generation, you're looking at the networks and distribution and you're looking at the supply side. It's how that supply chain works and we've been disadvantaged in that supply chain. There's certainly parts of the country that are north of Scotland. It's one of the areas where the transmission and distribution charities for electricity are higher than in the south of Scotland. So people in an area that are off the gas supply are paying more for their electricity than in other areas and that's a major contributor to fuel poverty. So there's issues like that within the wider system that I think a public, whether it's an agency or whether it's a company, I think, is a new point. I think it's maybe more an agency who could begin to address those things rather than actually setting up a company to enter into the market directly. That's very useful. I mean, it seems we're starting with what we've been given, which is the proposition that there shall be a publicly owned energy company. We're not starting with how do we tackle fuel poverty, support community energy, et cetera. So I just wondered, Nicola Sturgeon, I agree that the energy industry is very undemocratic. One way to democratise the energy sector would be to have many, many more municipal energy companies and social enterprises. So if you comment on that, Peter, you represent, I think, some publicly owned energy companies. I mean, Vattenfall is a member of a publicly owned energy company. And essentially what you're saying is you don't see the Scottish Public Lown Energy Company as a Scottish Vattenfall. You see it as a Danish Energy Agency. If you just clarify that. And also, is Robinhood a social enterprise or is it a company with no share capital? I just wonder if you can talk about some of the governance issues around Robinhood. Thank you. All right, so Peter Spears and then Gail Shrulls. Yes, so we see it as something that could act as both. If the Scottish Government wants to proceed with it as acting as a supplier and behaving much like Vattenfall, then that's something that could do. But for us, the greatest opportunity is for it acting in a more agency-like manner. So for us, it could be both. But what we're trying to push is an agenda that sees it, if it does behave as a supplier, that it can also act in a broader sense within government. And Gail Shrulls. Okay, so Nottingham City Council own Robinhood Energy, so they're the only shareholder. And it's 100 per cent owned by the City Council. We also have a number of white labels. So we have currently nine white label organisations that we've set up in their own right. So Liverpool Lecky and Ram Energy and Yosa Six, for example. And Ebyco. And Ebyco, they also have a charitable trust set up as part of those arrangements. So predominantly it's 100 per cent owned by Nottingham City Council. So it's a municipal energy company, conventionally? Yeah. Shall I move? Yeah. Nicholas Goffins. Sorry, yeah. The question from Andy was about the democratic nature of municipal energy companies and the potential for many more social enterprises and so on. I think we're coming to this from a position it's almost like we need to move to a position where the consumer is a very informed consumer and ideally an engaged consumer. So mechanisms which engage the consumer much more in the sources and the use of the power that they're receiving to us are very important. So the question then is what's the best way of doing that? And in our view, the more local and the more ownership stake those consumers or we prefer the term citizens have, then the better the whole system will be. So we see there's tremendous scope to increase that engagement, whether it's through a hierarchy of organisations a bit like Gail has described. Or through larger scale municipal setups we're entirely open on what that might be. As long as there's much greater opportunities for engagement of citizens in the way the system is run, which for us is critical. The only thing I'd say is that it's clear that economies of scale are central to the financially viable operation of any energy supply company, which has to be a massive factor in the way an actual supply company would operate. Well, Kate, thank you. We're slightly constrained for time this morning, so perhaps I would like to move on now to Colin Beattie. A very simple question that you've sort of been bouncing around. Should this proposed company be involved directly in the supply of energy or should it be taking a much more strategic role? Peter Spears? So from our perspective, the opportunity that lies with this whole endeavour is less to do with direct supply where the margins are quite small and where it's a relatively crowded market, and with assisting in ensuring that the Scottish Government can achieve, and the UK Government can achieve, the quite ambitious renewables and climate change targets that they have. So one proposal that we have is for the company to aggregate public sector demand and ensure that it is purchased directly from renewable sources. So that could either be government-owned generation or it could be through PPAs directly with existing companies. The existing companies have a pretty good track record of achieving scale and reliability, so obviously we've got 69 per cent of Scotland's electricity being generated through renewable sources already. So if the Government could aggregate that demand, entering into PPAs, particularly with something like onshore wind, which is currently locked out of the contract for difference mechanism by the UK Government, it could certainly provide at least a bridge to a future CFDE decision or a high level of bespoke additional capacity over and above what would be provided by CFDs. So I think that the opportunity is there for the company to directly involve itself or to directly support generation at large scale but also at a small scale as well. So with the changes to the feed-in tariff that have been proposed by the UK Government, there is an opportunity to provide support for community-level generation that could replicate in some way the success of the feed-in tariff in Scotland. It seems to me that you're proposing something that's fairly limited in scope for this proposed company. I mean, we're talking about, well, you're talking about really consolidation of public sector purchasing capability so that simply by bringing it all together you can negotiate a better price. Is that really the role that this company should have? I think that it's a role that the company definitely could have. If it was directly involved in supply, then you add the supply demand that it requires to the public sector demand and I think that you could end up with a fairly substantial amount of demand for both electricity and heat. I mean, that might give slightly cheaper power to the public sector. It's not going to alleviate fuel poverty or anything like that but it's not going to have a significant impact on that, which is part of the purpose of this company. Well, onshore wind is the cheapest form of new electricity generation, offshore wind and solar PV are also very low cost. There's obviously a direct relationship between the cost of generation and the end bill, so it certainly would have a downward effect on bills for consumers, both the Government and for individual consumers. Alas for steel on then, Gels Rose. To answer your question, I think we said in our submission that we didn't think the public wind energy supply company should be involved directly in supply. I think when you look at the market just now and what it could add to the market, there's a very active switching market out there for consumers that are engaged, they pay by direct debit, manage their energy online. So if it's been set up specifically to deal with people that are disadvantaged within the energy market, particularly those in fuel poverty, we know from our experience because our power was set up specifically with that aim in mind. And we entered the market with, you know, pre-payment, see-point tariff, no matter whether you're in pre-payment, direct debit, pay-in and bill, we embraced the wormhomes discount from day one and we took on these things. But it's actually very difficult to get people that are not engaged in the energy sector to switch. So I think the idea that a new company could come in to the market and begin to make that big impact in fuel poverty, I don't see the evidence from that in the work that's been done to date because it's actually accessing that body of consumers that are disengaged is very, very difficult. I think in terms of what's happening in the energy market, the energy market is going to go through huge change in the next few years and it's going to move away from suppliers charging people on kilowatt hours to much more holistic energy services model where within a home people are perhaps generating because they've got solar on roof, there's storage within the home as well. So the way that the energy market works and the way that companies deal with consumers is going to be different in 10 years time than it is today. And the real challenge in that, I think, is that the people that are disadvantaged in the current market will be even more disadvantaged in that market. So how can you make sure that nobody's left behind in that energy transition? So I think that if there's going to be an agency or a company set up, it's much more looking at what's the change that's going to happen in the energy sector and how can you ensure that Scotland benefits from that change and nobody's left behind and part of that will be what's the role of local authorities in that as well because I think they've got a real role to play in that. But to answer your question, I don't think they should be involved in directly in the supply chain. And Gail Shawls, I think, want to come in, comment on this, and then we'll move to questions from Gordon MacDonald. Gail Shawls. So I agree, I think, that not in terms of directly being involved in supply, but I do think you're right in terms of all of that needs to be joined up because if we don't join it up, then we're missing a real trick in terms of, you know, the amount of new homes that have to be built, electric charging points, battery storage, link and all of that up to renewable tariffs in the future. So the market is definitely going to change and so it does need some kind of thought and some vision to sort of bring that all together. And that's why I strongly believe that that is the role of a publicly owned body. If you think about local authorities, they're generally the work in its city, the work in its region level, they are bringing together all of the climate change objectives, the goals around fuel poverty, the roll-out of renewables, they're also the planning authority, they're generally linked to new housing developments, so the role can be significant if you get the model right. And I think that, you know, you could do both really by entering into something, you know, like a white label arrangement initially, but still having, you know, those really close ties to local authorities being connected into that model. Thanks very much, convener. In relation to supporting the growth of community and local energy generation, is there scope for a publicly owned energy company to support small community-owned generators through power purchase agreements? Nicholas Govans. Thank you. The big issue just now is that the wave of community-owned generation projects is sort of passed by. And the financials are just not there to make it viable, largely. And that's reflecting the point that many of the community energy projects engage in a great deal of voluntary effort as well. And so there has to be something very worthwhile to justify the huge amount of effort that goes into making these projects happen. So could an energy supply company or even a publicly owned energy supply company make a difference in the way that they're offering of PPAs to facilitate new generation make that happen? We have sort of thought through several possible models. The key thing is to have, you know, both a combination of capital upfront and a revenue stream that will enable a project to be financed. To be absolutely honest, we can't see how the public element of an energy supply company could actually make much difference for various legal reasons. I mean, they're not going to be able to offer much better PPAs than probably the market is currently the case. But what they potentially could offer, but then any other energy supply company could possibly offer this to, would be a different way in which the finances are structured. So there could be scope for, for example, investing in community energy projects upfront and then having a discounted supply. In other words, the community projects that would be discounting its supply to that supplier, through perhaps a PPA, over a period of years. So that would give both the supplier a long-term security of supply, which is obviously a critical thing in the wholesale market variation that we currently have, but it also would give the community, the community generator sort of a potentially viable financial framework to make it all worthwhile. But I go back to the point that could potentially happen now with suppliers who are interested in that model, and I'm not sure how much difference at the publicly owned body would make other than the fact that policy... You mentioned that the financials had changed. What has changed is the UK Government's announcement that the feeding tariffs are changing or what? Well, the feeding tariff has been going down significantly, and obviously onshore wind for any significant projects is no longer there anyway, but the removal of the export tariff now highly likely from the end of March next year. Basically, it pretty much signals the end of support to small-scale, relatively small-scale projects from there onwards. There's been a great deal of talk about subsidy-free renewables, which may be feasible at a very large scale, but for small projects which don't have that advantage of economies of scale, it's not going to work. The only way that we can see through that is for there to be much more collective scale development, which could be linked to municipal developments or it could be a large-scale collective engagement of lots of different community groups across Scotland wishing to take forward projects, but there has to be condoms of scale somehow in that to make the financials anywhere viable. Diolch yn fawr i'r clywbeth. I think that the points that Nicholas made are accurate, but I think that the difference that a publicly-owned energy company could make, as Nicholas mentioned, is the political will to do it. The Scottish Government's energy strategy notes the benefits of community and decentralised generation for it being closer to where the energy is required and making the system more flexible. The whole direction of travel of the Scottish energy system is towards that increasingly decentralised model. So I think that the financials may be difficult from the perspective of the private sector but from the perspective of the Scottish Government with those advantages recognised and seen as increasingly important to the Scottish Government, the political will could exist to provide the support that is required for community-level generation. In terms of any new community generation, there obviously has to be grid connections. There has been a suggestion that any new company should focus on those areas where there are grid constraints. What difference could a company make with those grid constraints? Nicholas Goebbins. The key to overcoming the issue of grid constraints, which basically means that no new project can connect on to the system, is through maximising the use of various innovation measures that are now starting to appear, which we ourselves have been closely involved with. So where there is high-level constraint it actually creates real opportunities for using power in different ways. So for example substituting, rather than simply connecting new power to the grid, using it to substitute for heating oil or for transport, current fossil fuel use and transport. So the key thing there is having the will to explore, to pilot and to test the ways in which power can be linked directly on the existing infrastructure to local usage. So rather, so say you had a new generation plant came on, it would have to have certainty in knowing that any power that it pumps out is going to be used and is going to be saleable. Currently in constrained areas it can't do that because at best it might get what's called a non-firm connection. At worst it won't get any connection. So it needs to have a whole body of demand locally that it, which would be new demand, than it's currently been that can be switched on to take that power whenever it's generating. That's now proved to be technically feasible to do. It's actually a question of will in investment in those local energy systems to make that happen and to create the financially viable models that will then elicit new generation schemes specifically targeted at new local demands. At the moment that's only happening in a very small way, but there's tremendous scope to increase that, particularly in the constrained areas, which then would unlock what remains very significant potential for renewable energy generation in those areas. Thank you, and Alasher Steele wants to come in on that and then we'll come to Jackie Baillie. Just on the PPA market, our powers got a number of PPAs with community generators just now, and that's a very active market. They tend to go out to the market annually or however long the agreement's for enormous reteng of that at the time. So there is a market that's working at the moment, so there has to be maybe some care in intervening in that market. The Scottish Government was coming in with a different offer in PPAs. How would that impact on the market that's there just now and the danger is that it could actually push up costs? Okay, thank you, convener. Gail touched on the plethora of different initiatives designed to tackle some problem or other within the energy market and we could reel off a list I understand as at least 36 different schemes. So I'm curious to know what the rest of the panel think about whether a publicly-owned energy company actually will simplify that or will it potentially add more complexity to the process? I'll start with Peter. Thank you, Jack. It's very kind of you. The proposals are still at such an embryonic stage that it entirely depends on what the Government wants, how active the company actually looks. If it has the opportunity, I think, to take in these schemes and improve on them, consolidate them. An obvious example is heat policy. At the moment, there's the LHE scheme that's being proposed now. We are a bit concerned that there's been a bit of watering down of proposals from the Scottish Government on the renewable heat and the biggest issue is a lack of long-term pipeline of activity for companies and for the industry to actually engage in. So the opportunity exists there for the publicly-owned energy company to assist local authorities in their LHE's work and to build on it. So that could certainly consolidate and improve upon an intervention that currently exists. If it sits just as it was at 36, she said, it was just a 37th intervention, and obviously it probably wouldn't necessarily simplify things, but if it could take that system-wide approach and seek to consolidate and improve on what's there, then the opportunities there, it just depends on what the precise proposal is. I think that it would have to be able to simplify it or there wouldn't be any point in doing it. So actually, if it was going into the market and just adding another layer or complexity to it, then I think it would be failing what it's trying to do. I think coming into the market is going to be difficult to simplify just the way the market is structured just now because you get quite a complex supply chain and within that supply chain there's a whole number of profit centres within it. You've got a UK-wide regulatory regime and, as we've heard, there's a grid and distribution and transmission cost within that as well is something that really needs to be tackled. I think that they were developed for another era when there was a centralised power generation. They don't really reflect how the energy is generated anymore. So there's big things like that that need to be challenged, but they're more at a UK level rather than a Scottish level. So it's the ability of a Scottish public energy company to really make that intervention and make the changes that's needed. OK. I don't know if there's a view from... I've already got Gail's view, I think, in response to an earlier question. I don't know if Nicholas Gelbin's has a view. Yes, I think I really struggle to see how a publicly-owned supply company would add value. It's almost like... The way the market operates at the moment, it would be a sort of almost like a contradiction in terms that you could have a public supply company, a publicly-owned supply company anyway. So it is a question of what all the other things that potentially could be done that could be very useful. And there are other things out there. At the moment they sort of dealt with in lots of different bits of the Scottish government and the ancillary bodies and agencies and so on. And whilst it generally works, perhaps it could work a lot better if all those other bits and pieces were brought together and coordinated. So there is merit there, I think. OK. Can I then follow up with if whatever form this publicly-owned energy company takes, do you think it should be independent of government? Is there a way of doing that? Or do you... And it acts as a policy adviser? Or does, by merit of it being publicly-owned, mean that it has to sit within government? Personally, if it was doing all the other stuff other than supply, I think there would be a real advantage in being publicly-owned, government-owned tool. It has the weight and the policy influence and so on of a government body or agency. I don't think that would apply. If it was a supply company, it would have to be independent. OK. Alistair, I see you nodding. Yes, I think Gail's example shows that you can have publicly-owned energy companies, but I think that sits more at a local authority level, where there's maybe a reference to a local energy market, but those companies have to operate with that area to become financially viable. So that's one of the contradictions in that model, but it's a real issue for the sector. I think in many ways that what Nicolle said is absolutely right. I think that for a national energy agency, you could see that and you could see in terms of how the economy is going to develop about all these things, about smart meters, storage systems. There's a lot of Scottish companies at the leading edge in developing some of those. How can you invest in those companies so that when the transition comes through, it's really creating local jobs in Scotland? Can we become a real driver in that? I think that there will be opportunities there in linking what an energy agency could do to the employment side as well, but on the supply side, I think that it's more local. OK. Thank you, convener. John Mason. Thank you very much, convener. Gordon MacDonald could have touched on the whole area of community generation and maybe the new company could amalgamate or be a guaranteed purchaser or something like that. But what about the new company actually doing any generation itself? Is that feasible? I mean, I'm not clear if Ir Power or Robin Hood do any generation or if you purely buy, and if not, why not? Is that a possibility? We buy rather than generate. It was in our initial vision that we would be generating our own electricity. Really, I suppose the complexities of running a supply business and the capital that's needed to enter the generation site is precluded as doing that. So maybe in the longer term we'd like to have much more control over the supply chain, but certainly where we are in our development has been too difficult, I think, a task for us to achieve that in the two years that we've been operating. I think that if a public-owned energy company was entering the generation market, then it would be again faced with some of the challenges that other generators are providing and getting a financial model that works, given that there's no feeling tariffs and there's a capital investment and there's a revenue coming in from that investment and these two have to balance. And it's how you would fund that and whether there would be state aid issues if other companies could be doing it. So I think it's something that could be looking at ways to support the generation industry rather than entering it directly. Because in your submission, I think you said we should maybe nationalise some existing assets, so what were you thinking of buying some hydro schemes? I was thinking more of the infrastructure. Greg, I would think is one of the areas where I were thinking more of that because talking about the grid constraints, some of the interconnect investment and interconnectors from the islands, some of the grid constraints in the mainland, those are areas where if that infrastructure was working better and had more capacity in it, then it would release a lot of potential in other areas, including renewables. Miss Goals, do you want to come in? I suppose it's just where it's financially viable to do so. At this point, we've only just turned profit this year and it was only a small amount, so we've invested in a warm home discount. But as soon as we get to any kind of scale of profit, then we'd be looking to invest in having our own generation, certainly things like private wire, investing in community energy projects. So they're the types of things that we would naturally go to. And what about district heating, for example? Is that something that you would look at? Because certainly I don't know nothing about Glasgow, it's very patchy, there's little bits. But is that an area that you would see in a city that you could move into? Where it works, yes. Nottingham has a fairly large-scale district heating scheme and it's run quite successfully, but it's publicly owned, which is interesting in itself. Because the ones that don't tend to sort of work so well are probably those that are commercially owned where they have financial constraints around further investment in pipe networks and private wire. And the lonely extend out to where it's financially viable and you've got a sale at the end of the heat network and you need that sale almost straight away. Whereas I think our approach, certainly in Nottingham, has been to make sure that the city is well connected. So when we're putting in a tram network to make sure that we have pipe work underneath the trams so that you can connect certain parts of the city in the future. And I think that's where the model has worked. So in answer to your question, yes, I think in the future, as long as it's financially viable to do so, then we would invest. Okay, thanks so much. I don't know if the other two want to comment. I mean, is there enough generation already so there's no space for the company to go in and do some new generation? On the large scale work that's already in the planning process on onshore wind could effectively double the capacity of existing onshore wind. It comes to small scale generation, I think the industry exists there. It just needs support and clarity. But on the district heat point, I think that's one area where the Government really could certainly be a first mover. So for quite a lot of district heat schemes, particularly one that's the first in its area, the borrowing costs are prohibitive for the private sector to be involved. So as an instigator of a district heat network, doing the hard work of getting consumers to actually want to participate in a district heat system and then to have the reasonably low borrowing costs associated with Government, that could make projects that are currently either unviable or on the precipice of being unviable viable. And it could certainly be the beginning in an area like Glasgow where there's this very piecemeal that could establish a pretty significant foothold for the industry in there. The public sector could either continue to expand that out or it could just be the first mover and allow industry to build on from that point. So I think on heat that there is an opportunity there. That's helpful. Thank you. It was just a quick comment. I'm sure both Alastair and Gail would, not want to speak for them in any way, but would be delighted if there was a way in which there was an incentive which enabled them to invest in the acquisition of generation assets or at least long-term PPA arrangements with local or Scottish generation assets because it's that stabilisation of the supply to an energy supplier which is so vital in avoiding the fluctuations in the wholesale market. So that is a key requirement if we're going to see a sort of more democratic energy company survive. That's great. Thanks so much. Thank you, convener. I've got one general question for the panel and one specific question for Miss Schools. I'm very conscious that a publicly owned energy company won't operate here in Scotland in isolation given that energy regulation in the market operates at a UK level and beyond. Therefore, I'm interested in the panel's view on the impact of any UK Government decisions, either on things like support for renewables, access to the grid, what impact that has on the energy market here in Scotland, but also on a publicly owned energy company. Some example. From our point of view, as I said earlier, we started off with informed Scottish housing providers, but we've now moved into the GB market. We needed that width to be able to become financially viable. I think that in terms of the way that the energy market works, the regulator has recently intervened in terms of price caps and standard variable tariff and before that price caps and prepayment meters. That has a significant impact on the market and behaviour of suppliers. That was a policy-allied initiative from the UK Government. The things that the regulators bring in, the smart meter timetable impacts on consumers here, and that's again a UK regulatory thing. We spoke about the feed-in tariffs as well being removed, and again, that's a UK-wide issue. I think it's unavoidable that a Scottish public owned energy company will be influenced by what's happening at a UK level, because that's where the energy sector is regulated and a lot of the policies drivers come from. Ms Shawls? I think that the problem is that the energy industry is quite broken in places. Before we even start with anything, we need to do a whole load of fixing of making sure that the energy industry is set up for the next generation, because the problem is that all the industry code at the moment has been designed around six big energy companies, and the market is very, very different. I think that there's an awful lot of work to do, but I do think that the role of being publicly owned is that we do get to do an awful lot of lobbying, both the regulator and the government level, to make sure that some of that is now addressed, because Ofgem's not hearing any lobbying coming from the Big Six and they're not hearing it from some of the other suppliers in the market. It's only really the very small energy suppliers entering into that market that are really struggling with industry code that is really blocking progress. But there's lots changing, and since we've entered into the market, we've managed to change or influence the price cap on prepayment tariffs. That was something that we did, and that was a change for the great good. Okay, thank you. Let's start. Let's start givens. It's just a bit of an unusual point, but I had a letter back yesterday from Claire Perry, the Minister in Energy Minister in the UK Government. It was in response to a letter that we jointly sent to the Prime Minister on the state of the UK Government's policy to small-scale and community energy development. In her letter, which was a very nice letter and a response and so on, but everything that she documented in it, which related to the whole community energy sector, actually only related to England. So there is an issue about how little visibility Scotland has in the UK Government's energy policy mechanism, but, on the other hand, Scotland is entirely subject to the UK energy market and the off-geminal regulator and so on. So there's a sort of a disconnect which needs to be filled in a far better way than is currently the case. So just sort of an illustrative point, really, that there is a need for a much more significant role or measure that would have that impact at the UK, for as long as we have a UK energy market. Mr Spears, do you want to add anything before I move on to my next question? Yes, I think that the points that I raised are pretty spot on, but the point that I would raise is that there's always going to be a limitation to just derive from the powers here in Scotland. So I think that the UK Government at times views Scotland on renewables specifically as most of the world does, is doing a very good job, and I think that their view is that they can take a slightly more hands-off approach. We are trying to change that, but I think that there are just inherent limitations to the work that the company can do. Okay. My final question, convener, is specific to Miss Schools. The Scottish Government, as you'll be aware, has announced in terms of the Public Low and Energy Company that they will take a local authority approach either individually or collectively. It will be phased. There will be a quite label arrangement, and I just wanted to be clear on your earlier remarks, whether you endorse that approach, and given your great experience in knotting them, what advice would you have for the Scottish Government as they proceed working in partnership with local authorities? I do endorse that approach, because, as Allister mentioned, the risk of now entering into this marketplace, I mean, when we entered the market some three years ago, it was a very different place. There were some 42 small energy companies that are now over 70. Commodity prices this year have risen some 60%. The one thing that we've learned is the expertise and it's the knowledge required to sort of set these publicly owned companies up, and that's not to be kind of underestimated in terms of how much industry knowledge is required. There's also the risk, there's financial risk of entering into the market. Some of the smaller energy suppliers have evented and quickly departed that market because of the price of commodity. I think that it's a good starting point and it's a transition. Scotland could take that approach to enter the market much quicker than 2021, which is envisaged at the moment. I think that if you waited until 2021, you'd probably be missing some of the smart meter rollout programmes. The market is going to change in the next two years, so I'd probably say that entering into a white label arrangement takes you to the market much quicker, less risk, and you could still take a longer term view in terms of what that transition looks like and what that develops into at a later date, but certainly starting off with a white label that you could then engage with other parts of Scotland and other partners could work really well for Scotland. Okay, thank you. Thank you. And finally, Jamie Halcro Johnston. Thank you very much. I'm sorry, I've just got a few very brief questions. Firstly, we've talked a lot about the reducing prices, but also about supporting community energy and other small-scale energy. Is there not a conflict in those two objectives? Without subsidising considerably and putting a lot of time and focus into community energy, which I support, but how do we do that while also trying to reduce costs at the same time? Excuse me, there are clear advantages that have cost implications from community-owned energy. Some of those implications increase the price, some of them decrease the price, so having the generation closer to consumers decreases the price of transmitting it to them. I think that it's a reasonably complex picture in there, but the overall advantages of community-owned energy, as I know you're aware, are pretty significant. I think that the conflicts may be a bit more complicated than the binary there. The wholesale energy costs are about 40 per cent of the costs of running a business, so if that cost goes up, then it has a direct impact on the prices, because it's such a significant part of what you do. If there is a relationship with community energy, you have to use that in a way to try to bring down some of your other costs in order to avoid price increases. What Peter said about the transmission side and the distribution side is where you would then want to link that generation to local consumption, and if you can manage that, then that's the thing that can make it viable. That would then rely, surely, on having a lot more generation closer to the sites of use, the main usage around the cities. Is that feasible? Yeah, I think if there was a public-owned energy company that was trying to join everything up, it may very well, but I think it started looking at the holistic thing, so making sure that local authorities are investing in renewables in cities, but also in remote areas, too, where there's a lot of generation, and that generation's bypassing, the consumers in those areas. So I think it would be a different approach in urban areas than you would want to take in rural areas, but I think it is achievable, and the challenge is making it happen. You typically have about 10 people kill what our differential between the wholesale value to a community generator of selling their power to the grid, and then the retail cost that someone living, maybe just nearby, would be paying for that energy, because it's going off to the grid and coming back again. So the hidden issue in all of that is the use of system charges, both on the distribution network and the transmission use of system charges, where there's a chunk of the cost. So there's a big debate on those charges and what the fair charging rate should be. We believe there is scope within that, debate, to control some of the cost elements and therefore incentivise that local generation and local use equation. We're not there yet, but there's a very significant point in working out the financials that you're alluding to. With that generation, with the increasing generation require Scottish Government support, would it require upfront costs to get that in place? I think there are a number of ways that would benefit from that sort of support, both in terms of, obviously, market compliance investment measures, but also in support for the innovation and the changes in the way the network is operated locally to enable that to happen, which I think is going to happen. It just could use a bit of a push. Right. Perhaps the last word to you, Gail. So where there has been financial incentive, such as the feeding tariff, it really has accelerated the whole programme of solar, and so where you see it works really well is kind of where there is an incentive put in place to get scale back into communities, but I think as a priority area, you know, off-grid locations is a really good example where that could work really well in terms of cost, because generally it's those consumers who are paying the most for heat, you know, in terms of oil or diesel or whatever mechanism they're having to buy, but that's at a huge cost. And if you look at where fuel poverty is, it's generally going to be in some of those off-grid supply areas. So I think there's, you know, there's some obvious places where that would work really well, you know, in terms of initial investment. Right. Thank you very much to our panel of witnesses for coming in today. I'll now suspend the meeting before we move on to our next evidence session. Thank you. Welcome back to the meeting. We now move on to our consideration of the damages investment returns and periodical payments Scotland bill. I'd like to welcome our witnesses today. First of all, Simon Dirolo, QC of the Faculty of Advocates, Gordon Diel, vice-president of the Association of Personal Injury Lawyers, Professor Victoria Was, Professor of HRM Cardiff Business School and Patrick Maguire, solicitor advocate of Thompson's solicitors. So welcome to all four of you this morning and thank you for coming in today. First of all, I should start off by referring to my register of interest as a member of the Faculty of Advocates. I wanted to just deal with one question before we come to other committee members, and that's to do with the question of the issue of fixing of the personal injury discount rate. Now, I think that looking at the submissions from the Faculty of Advocates and the Thompson's solicitors in particular, at least on the surface, there may seem to be slightly different approaches to this. So a question first of all to Mr Dirolo before Mr Maguire may wish to come back and comment on that or indeed our other two panel members. I think the issue is raised with regard to the question of the UK Government actuary being involved in the setting of this rate, and I think the suggestion from Thompson's was that it might be better to have an expert or expert panel. The faculty's response on this point was that I think general agreement that it was right to remove the issue from the political sphere, but just looking at what was said, we understand the government actuary will be able to deliver what is sought. So I'm just wondering whether there is a disagreement on that point or I think the faculty also commented in a lot of other areas that expert advice or evidence would need to be referred to. So I don't know if Mr Dirolo you would like to comment on that first or hear what Mr Maguire has to say on it before doing so. In relation to that particular matter, I think the position for the faculty is that we in so far as we understand how these things work thought that the government actuary would be able to perform the role adequately. It may be that there's room for a different view about that. I don't have a particularly strong view on that aspect of the matter. So from what I understand the role of the government actuary and how the government actuary operates, it seemed to us that the government actuary would be able to perform the role as proposed and independently of government as it were because the government actuary is meant to deliver advice independently. Thank you. Mr Maguire, do you want to comment on that? Thank you, chair. My comments in this section of course are secondary and almost anestho case to the primary point, which is that of course I don't believe that the approach to the investment is correct at all. I think the notion of the cautious investor is wrong so in many ways my comments about the government actuary is secondary to that. And if my primary position is accepted then there's no need to go down that road. However, I think I've got two points to make. The first is that independent of the government or not, it strikes me that the role of the government actuary is at least quasi-political. And I think when we look at the two parliaments and their approaches to very key issues such as this, but all matters of civil justice over the last decade, there's been a very clear divergence between the two. And it strikes me that it would therefore be inappropriate and a retrograde step for the Parliament here to be relying on the government actuary at Westminster. There's a secondary point, which is the process around how the government actuary arrives at a figure on how that can be reviewed, is currently drafted, and the approach that's to be followed in England and Wales is that it will be set and cannot be reviewed by an expert panel for a period of five years. That could very well be far too late, so I think that in all these respects we really should be doing their own thing north of the border. Do other members of the panel wish to comment on that, or Mr Dirolo again if you wish to come in? Professor Bass. Yes, thank you. I just perhaps ought to say a few words before I start. You might be wondering what a professor of HRM has done, why they've got an interest in this. Actually, my background is economics. I'm trained as an economist, and actually largely what I teach in universities is economics. And I've had an interest in damages for going back an awful long time. I think the politics comes in here in the mix of the portfolio, not in the whatever the government actuary's department's going to do. The rate that the government actuary's department will come up with will, the biggest determining factor will be the mix of the portfolio that the ministers have decided upon. So that's where the politics comes in, in the portfolio mix. On behalf of people, we took the view that actually there was an advantage in the government actuary being involved in making the decision because there was a certain independence there and we felt it may be free from political influence. But the point, Professor, was absolutely right. Prior to the government actuary coming to the decision, there is power for the Scottish ministers to issue regulations setting out, first of all, how the portfolio is comprised and secondly, to set the standard adjustment rates mentioned in the proposed legislation. So there is the potential, at least, of some significant political influence and that's something that the committee ought to be aware of and be consider whether that is appropriate. All right. It doesn't matter whether it's the government actuary or we go along with Patrick, I think that's not the important point here. It's what is being said. All right. Well, that's helpful clarification. Jackie Baillie. I know all the people who will explore the detail of that with you so forgive me if I go back and take this logically and let me pursue a couple of aspects of the discount rate with you. First, what pursuers do with any award I think is interesting because my understanding is well versus well established that what a pursuer does with an award is irrelevant. So do you have a view on how pursuers would likely invest their awards and is that remotely relevant to setting the discount rate? Happy to start with whoever wants to go first, Professor. Okay. It's not relevant and I can explain why. I don't know because I don't have any contact with pursuers after their damages have been awarded but what I hear is that they don't invest, largely they don't invest in index link government stocks. They invest in risk bearing assets but the reason that they invest in risk bearing assets is the most important thing. They are under compensated by their award and they have no choice but to invest in risk bearing assets in order to make up the shortfall in their award and I think you'll find at 2A of my written submission I go through four sources of under compensation and the first one is that the the personal injury discount rate since 2003 was always above the actual risk-free rate on ILGS. So that was the first shortfall that all claimants had to make up. They also have a risk of longevity and they don't know when they're going to die so they always feel that they need to keep some back so that they don't run out of their lump sum before their predicted date of death. So that's another reason why they will invest outside ILGS. A lot of what the lump sum will be covering are earnings-based losses so it might be loss of earnings but principally it will be care and care costs go up according to earnings inflation rather than price inflation and the lump sum protects at the ILGS only protects against price inflation and earnings inflation up until the last few years in the last 10 years has always been more than price inflation. So that's another shortfall that they've always been trying to make up. And the fourth shortfall is on the accommodation. They don't have enough because of the way the accommodation is compensated to pay for adapted accommodation the accommodation that they need so they need extra there. So because they're under compensated and from all these different sources if they invested in ILGS there would be a certain shortfall and I think that's what drives them to actually take a bet to have a chance of reducing that shortfall. Yes, they also take a chance that the shortfall might be greater but what is driving the behaviour that we're observing and that the research in this has observed is the fact that they're under compensated to start with. Can I just add to that that one thing you should always keep in mind when you're considering this issue that if you settle a case then you will be buying off a risk of losing or getting less than if you have to litigate. So when you settle you very often will take a discount for the certainty of getting your award of compensation at a particular level. So there's going to be a discount anyway in terms of any settlement figure in order to avoid going into court. So there's an inherent amount. There's a component of any award which is short of what potentially at least the court would award. That is something which a risk averse pursuer who is a stranger to litigation only litigates once will always buy off that risk or will be advised to buy off that risk by cautious advisers to avoid potentially losing the case or a finding of contributing negligence or getting a lower award than is being proposed because of arguments about the amount of damages. So there is inherently in the system a shortfall in any event. You can add that to what Victoria is mentioning. Can I just divert for a minute and ask are you saying therefore the system is risk averse? Well encourages people to be risk averse and undercompensate? Well, any person who litigates is going to, it's a case of, you take your chance if you go into court and court proceedings are uncertain. You don't know how they're going to turn out. You don't have, there's always an element of risk in any court process. The vast majority of pursuers who we act for are risk averse. The reason for that is because the fundamental principle we're dealing with here is that of restitution. That is putting the person who's been injured back in the position that they would have been had the accident not happened. So that's to reflect their pain and suffering, their loss of earnings, care costs and in more serious cases other heads of claim. Now for somebody who has suffered that kind of accident they don't want to be taking any risks having to invest money in the markets. They want to be a certainty, can be that the money will be there to pay for their needs through for the rest, often for the rest of their life. And that's why I think when you look at past investment behaviour is on the basis of a discount rate of two and a half per cent which was hopefully inadequate, hadn't changed for 15 or 16 years and essentially you had systemic undercompensation over a large part of that time. My perspective every survivor of a catastrophic injury is different in the approach that they take to the lump sum compensation that they receive just as every single member of society is different how you could categorise I mean I'd agree with Gordon this is generally very risk-adverse and that's for very obvious reasons but you know I come back to my fundamental point here and that is I don't think we should be asking how historically survivors of catastrophic injury have invested their money we should be looking at the most fundamental issue of law of all and that is how do we ensure that they receive restitution? That is as best as the law permits to put them back in the position they would through financial compensation and the only way that can be done is when we look at an investment rate that guarantees that rate through no risk investment whatsoever I think we're just looking at it at the wrong way otherwise I'm going to ask you another question that you'll probably be able to squeeze in an answer to contrary to the impression I'm getting from the panel the defenders representatives would argue that the bill's provisions create overcompensation and depart from the principle of 100 per cent compensation Do you think that that's going to be the case and secondly could you maybe kind of from your perspective look at how the awards are calculated and what impact this could have on the likelihood of overcompensation for the pursuer? Can I just ask you why you think or why it is being said that what's the basis for saying that people are being overcompensated that's the key question of what's the justification I mean I'm not coming at this from either a pursuer or a defender's point of view what I'd like to know is what the evidence for overcompensation is and I think somebody like Victoria is actually in a good position to tell us actually whether there is any justification for that perspective or not Indeed and we intend when the defenders representatives are before us to question them on their assertion to Professor I think we're all agreed that claimants are risk averse I mean it's never been it's not contended otherwise in the bill Lord Keane when he was giving evidence in Westminster select committee I was there he agreed that claimants are risk averse if they are risk averse they should face the risk free investments because they're having to invest their lump sum and take an investment risk or for injury related reasons if they hadn't been injured they wouldn't be in the position where they're having to invest a lump sum in order to generate a cash flow over the rest of their lives so this is a risk that they wouldn't it's entirely injury related and if they're risk averse that means that facing risk imposes a cost on them for if you're going to deliver 100% compensation you shouldn't make them make them bear a risk when they're risk averse that they wouldn't otherwise have had to face and in terms of the overcompensation I can't find any overcompensation pre-bill or post-bill I've looked for it and so my advice to this committee is and unless you're sure that there's some overcompensation there you should be very careful about signing up to this bill that's very helpful I simply don't recognise the concept of overcompensation and I would echo entirely Victoria's comments where is the evidence from the economic of the financial experts not Government ministers and Westminster where is the evidence from those experts that establish these the point there is none as far as I can see God as soon as you move away from guilts and calculate the discount rate then you're highly likely to have undercompensation and there's certainly no question of overcompensation thank you convener I suppose if I might just ask a question before we go on to John Mason one of the I mean if we talk about overcompensation under compensation to a certain extent a court determining an award looking at the length of time the award is meant to cover to compensate someone fully is in itself doing a best estimate or a guesimate of how long the person will live and so forth so it is true that to a certain extent there is uncertainty about these things in any event unless one were to go back and review the award over the course of time is that it's very uncertain going away from guilts is as to that uncertainty because you're relying on the markets and to be frank I'd be surprised if anybody has any firm idea of what the markets are likely to be doing in the foreseeable future but I was thinking also the question of how long a person will live, for example, is also something that's uncertain if you're looking at that for the point of view it is very uncertain I mean that the worst type of situation is a parent with a catastrophically injured child who then has to consider how long that child will live and their concern would be that the when the parent is no longer able to look after that child they're no longer able to do so who will do that they will want to get as much money as possible obviously to be able to look after that child for as long as possible but there is inherently an uncertainty in this whole process and I think the point that's being made is that if you depart from guilts and you require a risk to be taken then you're just introducing yet another uncertainty Right, thank you John Mason Thank you convener I mean I suppose building on what we've already had I mean certainly from my perspective I mean a pension fund for example does not put all its money in guilts because it wants a better return puts it in property puts it in the stock market and generally they do better than guilts do so I mean I have to say my assumption is that although there's risk involved you will get a better return but I mean specifically one of the things that the bill proposes is this further margin of half a percent and that is a specific one where that is argued I'm not saying I'm arguing this but it is argued that that is overcompensation because we're aiming for this hundred percent restitution or whatever then we're throwing in an arbitrary half a percent is that half a percent necessary is it damaged the process as some are arguing I'll ask the question about the pension scheme because you raised pension schemes and yes sure if you've got an immature pension scheme that pension scheme will be at least half invested in equities I would imagine but if you're a closed pension scheme you would be invested almost entirely in ILGS or something very close to it and that would be a requirement that a closed pension scheme would be invested in in that sort of portfolio and the claimant is just in exactly the same position as a closed pension scheme they've got a lump sum they've got nothing further coming in they've just got a stream of liabilities going out that they have to plan for so a claimant is like a closed pension scheme and a closed pension scheme would be required to invest in a very very low risk portfolio probably ILGS okay that's helpful yes follow that as well and say that you know you may very well be right you may very well be the case that there might be a better return having a mixed portfolio investing to some extent in equities the fundamental question is this though why should we be asking victims of the most serious accidents to do that that's the most fundamental question we have to address why should we force them to do it not that if they choose to they may end up with slightly more money at the end of the day why do we force them to do that because as best I can tell the only purpose in this bill the only purpose in forcing them to do that is to benefit shareholders of insurance companies is that really what we want to be doing well and presumably the NHS we're benefiting the NHS if we don't overcompensate again the word overcompensations being used the same principle applies why should we be forcing victims of the most serious injuries to take that risk that's the question that I've not heard an answer to in any of the consultation why do you say forcing if because you say we shouldn't look at what people actually do but surely if people are actually doing this already then we're not forcing them are the bill the bill absolutely sorry one at a time please the bill absolutely if this comes to pass this bill will absolutely force every single victim of serious accidents of serious disease to invest in equities that's exactly what this bill does we will forcing them to take a risk why should we be forcing victims to take any risk at all when the law says they should be entitled to restitution okay I think Jordan, the standard adjustment rate Mr Mason there are actually two rates proposed in the bill one to reflect investment charges in tax and the second one to reflect other contingencies if you like and the suggestion of the bill is 0.5% I think that's an area that the committee need to look at in more detail the information we've received is that in fact the investment charges in the tax cost could be anything between 0.5% up to maybe 1.5% or indeed 2% and to be honest we're probably not the people that give evidence on that aspect you need to speak to financial experts people who have experience of investing these sums and people who do this and I think the suggestions have perhaps already been made to the committee as to who might do that certainly I've seen one or two submissions from people who have that expertise and certainly from April's point of view I would urge you strongly to take evidence from these people I mean just on that specific point would you feeling be that then we shouldn't have one rate for everybody but it should be more flexible or more variable so 0.5% might be for some people and 1.5% for someone else? No, I think the bill sets out this is to be a rate to be taken off whatever the portfolios come up with and of course this is against a backdrop of the Scottish Minister having the power to issue regulations to set what that rate is and so I think that you need to look at this as a whole and say well actually how the decisions being made I think there needs to be transparency and accountability in terms of the Scottish Minister coming to their decision relation to how the portfolios should be set up and what the rates should be set and then the Government actually then he or she has to come to their decision and again you may want to look at the mechanism of that Okay Mr Rawl sorry you want to say that? No, it was just in I think just to repeat what Victoria had said or to emphasise the importance of it's important to understand that it doesn't you can't say that because people are investing in more risky investments in order to make their money last that they're being over they're being overcompensated because the rate is fixed by just by by guilds that's if you if you understand what Victoria is saying then it that argument falls falls away it's what people do with their money they have to invest in more risky investments in order to make their money last if you've got a requirement to pay a hundred thousand pounds a year for full time care and you don't know how long you're going to live and you have to anticipate wage rises in excess of the retail price index and you may require an additional carer as you get older and you don't know how long you're going to live these are all factors and uncertainties that may require you to go beyond investing in index link index link government securities so you just that's and that's what's driven the behaviour of people if that's what they've done so far if you could say to them that we can certainly give you this amount of money and that will last you for your entire needs then any financial advisor you would think you're in the closed pension scheme type scenario and you would expect to be told that you should invest in gilts in that situation so it's not a good argument to say that people are being overcompensated currently it's not correct well if I can just come back on that I mean I do understand the argument I'm not entirely stupid and I think the point is that yes we can have a theoretical argument but I don't think we can ignore what people have actually spent their money on and how they've invested it for whatever reason and if everybody say theoretically had made a large profit and had a large lump sum left at the end then that would suggest that there was overcompensation now I'm not arguing that but I'm just saying it's possible I just have one other point if I could ask specifically inflation's another factor in this and the it's suggested that the retail prices index is used now somebody I think it was Professor Vass perhaps it was mentioning wages inflation being much higher so are we should there be a different use of inflation or different method of using inflation I think it comes into the fact that this is a source of undercompensation for the claimant if you're investing in if we're using ILGS as the benchmark we don't have a choice about which inflation rate we're going to use because ILGS only are issued with index to the RPI there are no Gilts that are index to the CPI or to earnings inflation so it's one of the hits that the claimant has to bear is the fact that his or her lump sum is protect only against RPI inflation and not earnings inflation got me sense thank you just clarify that I think you need to distinguish between the awarded damages and what might be regarded as an investment portfolio this is not an investment pot it's not a reward it's a sum of damages which is to look after somebody's needs for the rest of their life and the point of the discount rate is used as a mechanism to calculate what that awarded damages ought to be and I think that we need to be careful about how you assess behaviour thereafter and I think it's set out in the Scottish Government policy memorandum that they did not think it relevant that a past investment behaviour would be looked at and indeed the same applies into the future what a person does with their damages can vary from case to case and for the reasons expressed by Professor Ross often there are shortfalls immediately that you would receive an awarded damages for example in serious cases somebody may have to buy a new house adapt it by equipment and they may not have recovered the full extent of the money needed to pay for that for a number of reasons some have expressed by Mr Darol earlier on and so the discount rate is there you have the awarded damages calculated at a certain point but thereafter how that is utilised as I said varies thank you thank you just very briefly to conclude this point because we refer I think correctly to the very powerful contribution that Professor Ross has made but there are two other what I would describe as independent contributors to this process there's a personal financial planning limited there's the institute of the faculty of actuaries all three of those organisations are entirely clear that they do not recognise the concept of overcompensation and that they say that this bill should be drafted in a way that victims are entitled to no risk investment to achieve restitution I don't think we should overlook that either right thank you and now questions from Andy Wightman I thank you convener we've talked quite a bit about the question of overcompensation I should wonder from a sort of legal principle point of view whether in fact once a case is settled in court that there should be any consideration given to how that person may behave in the rest of their life and that's their private matter so as a matter of legal principle is it right that we by implication in fact directly proposed in the bill take account of their behaviour in the future or is there no legal principle concerned here I think the only legal principle is that you put someone in the same position as they would have been but for the accident or the event and so far as money can but the court has no interest in what happens once the damages are awarded so that would suggest that powerful legal principle which is embodied in the bill would suggest therefore that putting them in that position should not rely on them having to take risks on the performance of energy companies or Vodafone or anybody else which are risks that are completely out with their control that's right okay on a more fundamental question because we look at the principles of this bill I mean given that and you mentioned Mr Dural the question of a child in particular given the uncertainties about the future of someone who's suffered a catastrophic injury or or or disease and faces huge uncertainties over the rest of their life over the rest of their life is it actually appropriate to award a lump sum in any case um that's our um thank you um I think sorry my fault I should have said at the outset that the sound desk would deal with the microphones there's no need to press any buttons at all thank you so my apologies that's all right Mr Dural that's fine so the the the question is lump sums the there is a place for lump sum damages and we're we're in Scotland until now that's been the only method that a court can provide for unless with the consent of both parties and one of the good things about this proposal in the bill is to allow the court to have a menu of options to allow periodical payment orders there are disadvantages with periodical payment orders over lump sums and I don't think you can say that lump sums are one is necessarily better than the other it just depends on the individual case where there's a big dispute about life expectancy a periodical payment order is you would think a more appropriate way of of of dealing with matters but for both parties points of view a lump sum is preferable in some in some situations insurers like to have they'll tell you that they like to close their books they like to finish the case off they don't want to have a future liability they want to buy off the risk if you like for themselves and they would be prepared to do that so a lump sum suits the defender often and equally if you go with by way of a periodical payment you for a pursuer there are uncertainties potentially there so a lump sum can assist so I don't think it's a case of saying one superior to the other it's important to have the ability to do one or the other depending on the circumstances of the case and the desires of the parties just to pick up on that and to address the point to specifically made Mr Byatman following the passing of the civil litigation expenses and group proceedings act earlier this year in the more serious cases and particularly where future losses are over a million pounds then there's an obligation for the pursuer site to obtain a report from an independent actuary to confirm whether or not a periodical payment order is the appropriate way to deal with that element of the damages claim and that would be made available to the court in suitable cases and then a decision would be made so there is a safeguard already in the extremely serious cases so in general terms you would all welcome the greater flexibility at least in this bill in terms of addressing settling the future needs of people who've suffered damage Just on a very particular point I think it was Patrick Maguire or maybe it wasn't talked about different approaches north and south of the border does that matter if for example we have a different discount rate and if it does matter what might be the implications of that for well what might be the implications I mean could pursuers start to shop around for where they look to go I think it matters terribly much in terms of having a different discount rate we already have different levels of awards of damages in certain aspects of our procedure and I don't think it's a major reason for not approaching the matter for ourselves in a way which is that we're comfortable with so I don't think that having a different discount rate is a major problem that would be my view of the matter I don't know what others think I would agree with that entirely I think more and more that we are seeing a divergence between the two jurisdictions and various levels of compensation paid that's because the two parliaments take different views on some fundamental issues that that can only be a good thing traditionally even before we saw the divergence with some of the most recent acts there's always been differences for example in Scotland in relation to awards for fatal damages what whether it's a matter of principle victims in Scotland being compensated at a different and there we say higher level in England is that a problem I don't see any particular problem of principle or policy there will it create the thing that sometimes is talked about forum shopping that is becoming and has become far more difficult in recent years with some judgementsy courts so I think that issue is pretty much now an on issue and it's there for the question of policy and principle is it a problem for this parliament that our victims are compensated higher if that's appropriate I hope the answer to that is no and on the periodic payments as I understand it the courts would only be able to require these where the defender was where the organisation paying the compensation was reasonably secure does that risk some cases where it would be appropriate to make an award of periodic payments not getting that award purely because the defender is in a different position where in fact that would actually be the best solution for the pursuer and if that's the case should we not be looking at alternative mechanisms of making sure that there is security for that payment for everyone for whom that is suitable one of the main areas of concern is in relation to cases involving employers liability insurance and also public liability insurance generally speaking these policies have an indemnity limit of over 10 million pounds now that's sufficient for most lump sum cases but particularly with a young pursuer if the case was to be dealt with by a PPO then that may create difficulties into the future and so I think that's something which would need to be looked at carefully but it would require a reassessment of particular obligations on employers and indeed other public bodies in relation to their levels of insurance cover I mean important kind of hinting at there is some kind of underlying state-back guarantee scheme that would prevent people losing out on a periodic payment award where that was appropriate for them merely because by some historic flukor accident the defender wasn't in a position to be able to be reasonably secure you already have that in motor cases because and yes I mean it should be looked at to extend that into the employment of the employers liability area so what's already in motor cases the essential state-back guarantee okay thanks it's almost slightly different issue but I think more broadly you're talking about the limits on PPO's PPO's look like a really good idea and you've raised the issue that security lack of security is a constraint another constraint is that most cases don't go to court defenders private defenders don't like periodic payments because it's very expensive for them so all the cases that don't go to court and because the defender is usually in the driving position in litigation those cases will end up being as lump sums and that's what happens that's what we've noticed in England and Wales when you've got a public defender the periodical payments go through because that's what everybody is in everybody's interests it's not in the interests of a general insurer to award damages under a PPO there's information from one of the submissions to the committee we think which is essentially PPO's private insurer situations are about one-quarter of the rate of PPO's used in NHS cases in England and Wales Okay, thank you Move to Colin Beattie now Thank you, convener Just to continue to look at PPO's generally speaking is the panel how does the panel view the provisions in the bill dealing with PPO's? As far as the fact is concerned we have no real problem with the proposals in relation to PPO's they look reasonably sensible and they strike the balance that's necessary in order to allow for people to come back under very limited circumstances but they also deal with the issue of security and the rest so the provisions look from my perspective to be quite sensible Do the rest of the panel agree? Just those constraints that were raised before about when you've got a lack of security and when you're not going to court private defenders not wanting a PPO and in the end they usually get their preference There seems to be some evidence given that several defender representers have actually argued that pursuers prefer a lump sum award rather than a PPO Is that your experience? A pursuers that would be advised by an IFA who had large care costs going forward I think it's very unlikely that they would be advised to go for a lump sum but yes there will be some and there will be some certain circumstances where a lump sum is better but for large future costs PPO will be better and the advice will be that it's better because the risks and the shortfalls that I talked about at the beginning you take out the risk of life expectancy longevity with a periodical payment order and you also take out inflation risk earnings inflation because very often care costs are linked to an earnings index not a prices index The reality is that many private insurers also like lump sum payments because it provides certainty it provides finality and particularly in the higher value cases not only do you have an insurer involved but you have a reinsurer involved and they like finality as well So what would be the circumstances in people's minds where pursuers prefer a lump sum? What would be the circumstances that would lead to that conclusion? Well it might be uncertainty about the credit worthiness of the defender so if it's not a public body if there's a limitation you would have to investigate how financially sound even the insurer is if you're dealing with significant sums of money you need to know who the insurer is what sort of company you're dealing with it may be that some of them are registered in Gibraltar or they're registered somewhere else not in the UK and there might be concerns about whether or not they're covered by the guarantee scheme under the financial services provision so that's one example I'm just giving that you might have a concern overall you might say well I'd rather have a lump sum the other thing about a lump sum is that there's no danger of anybody coming back ever you don't the litigation's finished you don't have to deal with with the other with there's no possible prospect of any argument in the future about whether you're still entitled to any sum of money that's a potential concern that people might drive them towards a lump sum rather than a than a periodical payment order I don't think you can generalise about this very much I think it's a very individual choice what is important is that the court has the power which it doesn't have at the moment in Scotland if one party says I would like a periodical payment order to be imposed the court can't do that because the other party doesn't agree and the only thing a Scottish court can do at the moment is to award a lump sum in those circumstances now these provisions change that and that's a welcome change in the case of PPO there's an implication that the pursuer pursuer presumably would come back to court at some point to seek some sort of revision of the terms that the payments made or there would be some sort of a agreed trigger point a cause which would resulting going back to court who's responsible for these court fees? If I might bring Mr Maguire in for us I think he's been wanting to get in then Professor Thank you that was actually one of the points I raised in my paper and just to deal with the matter more generally as well you ask how do I feel about the way that the bill is currently drafted on this point I have two specific issues with the current drafting and perhaps before doing that just to take the point generally you make about is it insurers or claimants who are most pro or anti PPOs generally? I think that properly advised the vast majority of pursuers in the most serious cases will see the benefit in PPOs so I think the suggestion that they would run away and go for lump sums only would be rare subjective what's been said correctly about concerns about liquidity etc however my concern is that the bill is currently drafted creates a situation where a PPO could be forced on a victim and I've got personal experience of acting at the Scottish end of litigations where the claim has been raised in England for jurisdiction reasons and where a Scottish person has had a PPO forced upon them and I know that that occurrence of them not wanting a PPO that them wanting the choice for themselves to get a lump sum but the court making that decision for them can be a very very difficult thing for somebody when they get to the very end of what is often an extremely long road to compensation as these catastrophic injury cases inevitably are that the process of finally getting compensation is an empowering one ultimately and in many ways they are disempowered by that decision being forced upon them so I personally would caution against the situation being created whereby it can be forced on a victim I would not necessarily say that is the case in terms of insurers that if a victim wants a PPO then they ought to be able to argue that and a court can make a decision irrespective of an insurer's view coming to your point about the reviews of the PPO rates it could be either way you indicate that it may be a victim who realises they're falling short and that they're looking for more it's entirely possible that an insurer may think that circumstances have changed the person's got better and it should be reduced I think you've highlighted a very important point that that will involve a court process that we now live in the post quarks world qualified one-way cost shifting and as far as I'm concerned those principles of qualified one-way cost shifting should apply to these further court processes in relation to PPO's and that the victims should have their cost shifting protected irrespective of the outcome of that and I think that's missing from the bill so you feel there's an exposure there at the moment as the bill was currently drafted there could be yes just the extension of that what happens with the pursuers who lack mental capacity how are they handled would require a guardian appointed on their behalf to represent them and to take decisions for them and the guardian would sign off on the compensation package of us to whether it's a lump sum or a PPO who points the guardian court you make an application to the court and the court points the guardian yes it's done in a different process it's done it's not done in the personal injury action it's done in another process in the sheriff court actually right well thank you very much to our panel we've run slightly over our time but thank you very much for coming in today and your contributions to this matter thank you I'll suspend the meeting now and move into private session