CPI/RPI Legal Challenge: Court Case Result and Appeal

Circular: 2011HOC0629MW

Dear Brother/Sister

You will be aware that the FBU has challenged the Government's imposed change to the way pensions are increased to take account of inflation; from a practice using the Retail Price Index (RPI) to one using the Consumer Price Index (CPI).

This challenge was by way of Judicial Review and the hearing took place between 25 and 27 October at the High Court in London.

There were two sets of claimants with different legal representation, and pursuing different but complementary legal arguments. The FBU claim also included five other unions; PCS, POA, NASUWT, Unite and Unison.

The other claim was brought by the Staff Side of the Police Negotiating Board, the Police Federation, the National Association of Retired Police Officers, FDA, Prospect, the Civil Service Pensioners Alliance, GMB and certain individual Claimants.

The decisions under challenge

The Secretary of State for Work and Pensions is required each year, under social security legislation, to review various social security benefits to determine whether they have kept up with general increases in prices in such manner as s/he €œsees fit€. S/he must then up-rate those benefits by at least the same percentage as the increases in general prices.

The relevant pensions legislation requires the Treasury, in turn, to increase public service pensions by the same percentage as the annual increases to benefits made by the Secretary of State for Work and Pensions.

In June 2010, the Chancellor, in his Budget report, announced that the longstanding practice of measuring the increases in general prices using RPI was to be changed and that, from April 2011, CPI would be used. The rationale for the switch was that CPI was a statistically more appropriate index, which would also save money. The FBU has maintained that it is actually a deficit-reduction measure.

The cost savings by the Government and private sector employers

The Chancellor estimated that the resulting savings from public service pensions would be £6 billion in the lifetime of this parliament.

CPI is generally about 1.2% lower than RPI annually. It is estimated that the loss to public service pension scheme members over time will be in the region of 15%.

Now that the switch to CPI has also been applied to private sector pensions the Department for Work and Pensions estimates that £73 billion has also been wiped off the value of private sector pensions which represents a substantial windfall for their sponsoring employers and an equivalent loss for private sector workers.

The FBU claim covered four areas:

(i)        The construction argument: Government has acknowledged that a substantial part of its purpose in changing from RPI to CPI was to reduce expenditure on pensions and other benefits. This was not a permissible consideration under the relevant statutory provisions.

 

(ii)      The legitimate expectation argument: many statements had been made in the past by the Government, to employees and their unions, that pensions would be adjusted by RPI. These statements gave rise to legitimate expectations that RPI would continue to apply. The claim also included similar arguments the change from RPI to CPI in relation to accrued rights would amount to a breach of the right to peaceful enjoyment of possessions under Article 1 of the 1st Protocol to the European Convention on Human Rights.

 

 

(iii)     The Equalities Duties argument: Government had failed to consider properly the equalities implications of the change and so had breached its statutory duty under the Equality Act 2010.

 

 

(iv)      The supplementary misdirection/irrelevant considerations argument: the decision to change from RPI to CPI was flawed either as a matter of misdirection or through failure to have regard to relevant considerations.


The outcome

The Judgment of the High Court was handed down on 2 December 2011. The claimants only required any one of the four challenges to be successful to have the Government's action declared unlawful.

The Court was split on challenge (i) 'The construction argument' with two judges finding in favour of the Government, and one finding that the decision was unlawful and should be quashed. The Courts found unanimously against both sets of Claimants on the remaining 3 heads of challenge.

The court's reasoning for the decision was that:

 

 

(i)        Provided that the Secretary of State for Work and Pension chooses a fair and genuine measure for estimating the increase in prices, which legitimately protects the purchasing power of pensions and benefits, he can take into account public finances;

 

 

(ii)      The representations made to unions and their members did not amount to legally enforceable legitimate expectations;

 

 

(iii)     The decisions by Ministers were taken before the relevant provisions of the Equality Act came into force, and the previous provisions in the Sex Discrimination Act did not apply because of  the unusually high degree of parliamentary scrutiny required under the social security legislation; and

 

 

(iv)      Because of the finding on (i), irrelevant considerations had not been taken into account.


The Court therefore dismissed both applications for Judicial Review.

Next steps: an appeal

This is clearly a disappointing judgment although it does acknowledge that the intention in making the switch from RPI to CPI was to assist deficit reduction. This contradicts the claims of Government that the shift was merely based on CPI being a better measure of inflation.

The FBU immediately instructed our lawyers to proceed with an appeal. The other unions concerned have also joined the FBU in this action and this process is now under way.

Members will be kept informed of the situation as more information becomes available.

Best wishes.

Yours fraternally

Matt Wrack

General Secretary

2011HOC0629MW

 

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