The government acted unlawfully when it banned local government pension scheme funds from divesting in countries contrary to UK foreign and defence policy, the High Court has ruled. The case was brought by a pressure group campaigning for an end to Israel's occupation of the West Bank.

The Palestine Solidarity Campaign challenged statutory guidance published in September 2016 which stated that administering authorities must not use pension policies to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries other than where formal legal sanctions, embargoes and restrictions have been put in place. Policies contrary to UK foreign or defence policy should also not be pursued.

High Court judge Sir Ross Cranston, handing down judgment today, said it was 'clear from the secretary of state's own evidence' that parts of the guidance under challenge were not issued in the interests of the proper administration and management of the local government pension scheme from a pensions perspective. Rather they reflect 'broader political considerations, including a desire to advance UK foreign and defence policy, to protect UK defence industries and to ensure community cohesion'.

The guidance, Cranston said, singled out certain types of non-financial factors that cannot be taken into account even if there is no significant risk of causing financial detriment to the scheme and no good reason to think scheme members would object. 'Yet the same decision would be permissible if the non-financial factors taken into account concerned other matters, for example, public health, the environment, or treatment of the workforce,' he noted.

'In my judgment the secretary of state has not justified the distinction drawn between these and other non-financial cases by reference to a pensions' purpose. In issuing the challenged part of the guidance he has acted for an unauthorised purpose and therefore unlawfully.'

However, Cranston said this part of the guidance was not unlawful for uncertainty.

The Palestine Solidarity Campaign was represented by London firm Bindmans. Jamie Potter, partner in the public law and human rights team, said: 'Individuals, and the pension schemes that work for them, should be entitled to take a stand against the role of foreign countries and the arms trade in violations of human rights around the world.

'This outcome is a reminder to the government that it cannot improperly interfere in the exercise of freedom of conscience and protest in order to pursue its own agenda.'

A Department for Communities and Local Government spokesperson said: 'It is an important principle that foreign policy matters are for the UK government to decide. We will consider the judgment and next steps.'