FDA and Others v The Secretary of State for Work and Pensions and Another
| Jurisdiction | England & Wales |
| Judge | The Master of the Rolls:,Lord Justice Maurice Kay:,Lord Justice Sullivan: |
| Judgment Date | 20 March 2012 |
| Neutral Citation | [2012] EWCA Civ 332 |
| Docket Number | Case Nos: 2011/3128 & 2012/0095 |
| Court | Court of Appeal (Civil Division) |
| Date | 20 March 2012 |
The Queen on the application of
[2012] EWCA Civ 332
The Master of the Rolls
THE VICE-PRESIDENT OF THE COURT OF APPEAL (CIVIL DIVISION)
and
Lord Justice Sullivan
Case Nos: 2011/3128 & 2012/0095
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION, ADMINISTRATIVE COURT
Lord Justice Elias, Mr Justice McCombe and Mr Justice Sales
Case Nos CO/3570/2011 and CO/4082/2011
Royal Courts of Justice
Strand, London, WC2A 2LL
The Hon Michael Beloff QC and Mr Martin Westgate QC (instructed by Messrs Russell, Jones and Walker) for the first to sixth appellants
Mr Nigel Giffin QC and Mr Christopher Knight (instructed by Messrs Thompsons) for the seventh to eleventh appellants
Mr James Eadie QC, Mr Clive Sheldon QC and Ms Amy Rogers (instructed by The Treasury Solicitor) for the respondents
Hearing dates: 20 and 21 February 2012
This is an appeal from a decision of the Divisional Court (Elias LJ and Sales J, McCombe J dissenting in part and in the result), rejecting a challenge to the Government's alteration to the basis upon which public service pensions are annually adjusted (or 'up-rated') to take account of inflation. Such adjustments are normally made each April by statutory instrument, and, for many years, they have been up-rated in accordance with the increase in the Retail Price Index ('RPI') over the year ending the previous September. However, the Government decided that, from and including April 2011, such adjustments should be made in accordance with the increase in the Consumer Price Index ('CPI'), rather than RPI, over the year ending the previous September.
A summary of the issues
Until recently, public service pensions were all based on final salary, but more recent schemes base such pensions on career average salary. Such pensions (together with some state benefits) are statutorily required to be annually up-rated to take into account inflation. The decision made in April 2011 to base any up-rating on CPI rather than on RPI, if effective, would detrimentally affect the value of every pension in payment. And, in the case of career average schemes, it would also detrimentally affect the way in which the career average is calculated. The question raised by these proceedings is whether the decision to up-rate public service pensions by reference to CPI rather than RPI, and the statutory orders implementing that decision, were lawfully taken and made.
Before us, as before the Divisional Court, there are a number of applicants, who include a few individuals but are mostly trades unions and other bodies representing large sections of public employees. Some of the applicants are represented by Mr Beloff QC and Mr Westgate QC, and others by Mr Giffin QC and Mr Knight. Before the Divisional Court, the applicants advanced, between them, four main grounds (all of which were rejected) for challenging the decision to change the basis upon which annual inflation adjustments are made. Before us, only two of those grounds are maintained.
The first ground it is convenient to consider is advanced by Mr Beloff. It is that the centrally relevant statutory provision, section 150 of the Social Security Administration Act 1992 ('the 1992 Act'), does not permit the annual inflation adjustments to be made by reference to CPI, because of the way in which CPI is compiled. Ultimately, once the relevant feature of CPI is appreciated, this issue turns on the proper interpretation of section 150 of the 1992 Act ('section 150').
The second ground has been primarily developed by Mr Giffin, with Mr Beloff making some supportive points. That second ground is that, when making the decision to make the annual inflation adjustments by reference to CPI rather than RPI, the Government (or, more precisely the Secretary of State for Work and Pensions, whose decision it was) took into account an irrelevant consideration; to put what is essentially the same point another way, the Government made the decision for an improper purpose.
The Divisional Court unanimously rejected the applicants' case on the first ground – see [2011] EWHC 3175 (Admin), paras 44–51. On the second ground, Elias LJ and Sales J again found for the Government (see [2011] EWHC 3175 (Admin), paras 52–67), while McCombe J agreed with the applicants – see [2011] EWHC 3175 (Admin), paras 118–139.
The structure of the remainder of this judgment is as follows. First, I shall discuss RPI and CPI; then I shall describe, in summary form, the evidence relating to the choice of CPI as the index used for the 2011 up-rating; next, I shall set out the relevant statutory provisions. I shall then turn to the first main issue, described in para 4 above. I shall then deal with the second issue, described in para 5 above, by considering three questions, namely (i) whether the effect on the national economy can be taken into account by the Secretary of State when selecting an index for the purposes of up-rating; (ii) if not, whether the 2011 up-rating could, as a matter of principle stand; and (iii) whether, in the light of the answers to (i) and (ii), the decision in 2011 to up-rate by reference to CPI can stand.
The two indices, RPI and CPI
The following description is taken in part from the Divisional Court's judgment, [2011] EWHC 3175 (Admin), paras 7–15.
RPI and CPI both measure the change in the level of prices, and each is produced and disseminated by the Office for National Statistics ('ONS'). The ONS is an independent public body responsible for producing a range of national statistics, and it is an executive office of the UK Statistics Authority, which now has statutory status and reports directly to Parliament.
In a publication dated 2010, 'Implications of the Differences between [CPI] and [RPI]', the ONS describes them as 'the two main measures of consumer price inflation'. In the same publication, the ONS states that 'CPI and RPI both measure the average change in price of a fixed basket of goods and services over time.'
In another 2010 publication, 'Consumer Price Indices Technical Manual', the ONS describes CPI as 'the main domestic measure of inflation for macroeconomic purposes' and RPI as 'the most long-standing general purpose measure of inflation in [the UK]'. Later in the Manual there are slightly fuller definitions. RPI 'is defined as an average measure of change in the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK.' And CPI is described in somewhat less friendly terms as being 'a Laspeyres-type consumer inflation or pure price index measuring the average price change on the basis of changed expenditure of maintaining the consumption pattern of households and the composition of the consumer population in the … reference period'.
RPI in its current form dates back to the 1950s. CPI was introduced in 1996, and is governed by EU regulations, as it was designed to enable comparison of inflation levels in different European countries. CPI has been used by the Bank of England as the headline measure for price inflation in December 2003.
There are a number of similarities in the ways in which RPI and CPI are determined. They are both calculated by reference to representative goods and services. Each year the ONS identifies a 'shopping basket' of around 700 representative goods and services on which consumers typically spend their money. The items will be changed each year so as to ensure that they reflect changes in the pattern of consumer spending. It is the movement in the price of these goods which is used to measure the relevant price changes. Prices are obtained from many outlets, and an overall inflation rate is worked out by a process of, first, aggregating particular items into defined categories of products and calculating an inflation rate within each category, and then by weighting those categories and the inflation rates within them so as to produce a single overall figure for inflation.
There are three main differences between RPI and CPI. First, they are weighted differently in that they reflect different population bases. The population base used in calculating the RPI is narrower than that which is used for determining CPI. The CPI includes all UK private households and foreign visitors to the UK. By contrast, the RPI excludes a number of households including those households where income is in the top 4% nationally. It also excludes pensioner households mainly dependent on state benefits, which constitute some 20% of pensioner households.
Secondly, there are certain differences in the goods and services which fill the relevant baskets. So, for example, university accommodation fees are included in CPI but not in RPI, and CPI does not include direct taxes such as TV licences, road tax, or council tax, which are included in RPI. CPI also excludes a number of housing costs, such as mortgage interest payments, building insurance, and depreciation, which again are included in RPI.
Thirdly, the basis for aggregation of rates of increase in the prices of items in the basket is different as between the two indices. The RPI uses an arithmetic mean to combine prices within each category of product at the first stage of aggregation whereas the CPI uses that for only around 30% of the categories. For the remaining 70% of categories, CPI uses the geometric mean. It has...
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