Retirement pension - Inflation uprating
R (on the application of FDA and others) v Secretary of State for Work and Pensions and another: Court of Appeal, Civil Division (Lord Neuberger MR, Lord Justices Maurice Kay VP and Sullivan): 20 March 2012
In June 2010, the government decided, with effect from April 2011, to base the annual inflation up-rating of public sector pensions by reference to the consumer price index (CPI) instead of the historically used retail price index (RPI). CPI used a geometric mean, whereas the RPI used an arithmetic approach to the calculation of inflation. One of the drivers behind the decision was the government's requirement that individual departments find ways in which to reduce expenditure in order to reduce the UK's deficit.
To put that decision into effect, the Social Security Benefits Up-rating Order 2011, SI 2011/821, was made. The consequential Pensions Increase (Review) Order 2011, SI 2011/827, was also passed. The claimants consisted of individuals, trade unions and other bodies that represented large sections of public sector employees. They contended that the change would detrimentally affect the value of every pension that was in payment. The claimants sought judicial review of the government's decision to adopt CPI referenced uplifts and the statutory orders that implemented that decision. The claim was dismissed. The appellants appealed.
They submitted that: (i) section 150 of the Social Security Administration Act 1992 (the 1992 act) did not permit the annual inflation adjustments to be made by reference to CPI because of the way in which CPI was compiled; and (ii) in making the decision to make the annual inflation adjustments by reference to CPI, the defendant secretary of state had taken into account an irrelevant consideration, namely the effect on the national economy. The appeal would be dismissed.
(1) It was permissible, within section 150 of the 1992 act, to use an index compiled on the basis of the geometric mean, rather than the arithmetic mean, for determining whether, and to what extent, state pensions and other annual payments had lost their value in relation to the general level of prices. It would have required clear exclusionary or limiting words in section 150(1) of the act before it could fairly be concluded that parliament had intended that such an index could not be invoked by the secretary of state for the purposes of that section. There were no such words.
Section 150(1) of the act left it to the secretary of state to select the method by which he estimated whether, and if so to what extent, certain benefits and pensions had lost their value in relation to the general level of prices obtaining in Great Britain during a particular year. The obvious way, or at least an obvious way, of making such an estimate was the use of an official, professionally compiled index, whose function was to measure the extent to which prices of consumer goods and services had increased in sterling terms over the period in question.
CPI was such an index. Provided that the secretary of state acted rationally and took all appropriate, and no inappropriate, matters into account, it was a matter for him which such an index he chose (see , , , , ,  of the judgment). In the instant case, it could not be said, nor was it contended by the claimants, that the weighting method adopted by CPI was irrational (see , ,  of the judgment).
(2) When selecting the appropriate index or other method for making his estimate under section 150(1) of the 1992 act, the secretary of state was not precluded from taking into account the effect of his selection on the national economy, although it could play only a relatively attenuated role in limited circumstances.
By referring to the national economic situation in section 150(2)(b) of the act, parliament had made clear that, before the secretary of state could make any up-rating, in his discretion under subsection (2)(b), he was required to have regard to that situation. It did not follow, as a matter of logic or natural implication, that he was not intended to be allowed to have regard to that situation when performing his functions under subsections 150(1) and (2)(a).
However, the secretary of state could not opt for an index which was clearly less good, and more detrimental to the recipients of pensions, than another index, simply because the former index was beneficial to the national exchequer (see , , , ,  of the judgment). It was unrealistic to say that the secretary of state had been required to ignore the wider economic realities, irrespective of the circumstances, when carrying out his functions under section 150 of the act.
The exercise required by section 150 was macro-economic in nature and had the obvious potential of having a significant effect on the country's finances. The claimants' contention that, whatever the circumstances, the secretary of state should, as a matter of course, be required wholly to put out of his mind the effect on the national economic situation when carrying out his functions under section 150(1) and (2)(a) had been unreal (see , ,  of the judgment). Padfield v Minister of Agriculture, Fisheries and Food  1 All ER 694 considered; R v Tower Hamlets London Borough Council, ex p Chetnik Developments Ltd (1988) 86 LGR 321 considered.
Per curiam: While I am not seeking to lay down a firm standard, it seems to me that, before the secretary of state could invoke the benefit to the national exchequer by selecting an index he considered less good, three requirements would normally have to be met. Those requirements are (i) there would, in the secretary of state’s view have to be little to choose between the indices in terms of reliability and aptness, (ii) the benefit to the national exchequer of choosing the less good index would have to be significant, and (iii) the need to benefit the national exchequer, in terms of the national economy and demands on the public purse, would have to be clear.
In other words, the secretary of state could only select the less good index if it was proportionate to do so, and, bearing in mind the purpose of the up-rating exercise, the circumstances would normally have to be unusual before it could be proportionate to select an index, or other method, which the secretary of state considered was less good than another.
It may be said that this approach represents a dangerous concession by the courts to the executive, as it would permit the wider economic consequences to be taken into account by any decision-maker in any circumstances. I do not agree. First, as cases such as R v Tower Hamlets London Borough Council ex p Chetnik Developments (86 LGR 321) make clear, the question has to be determined by reference to the specific language, context and purpose of the statutory provision concerned.
Secondly, this case concerns a macro-economic decision affecting millions of people, and therefore it will inevitably have very wide-ranging consequences. Thirdly, at least in my view, the ability of the decision-maker in this case to take into account the interests of the national exchequer is pretty circumscribed, as described in  above. Fourthly, it seems to me unsurprising to suggest that the wider public economic interest can have a proportionate and limited bearing on an annual decision which will cost the national exchequer many hundreds of millions of pounds in most years (per Lord Neuberger MR at - of the judgment). Decision of the Divisional Court  All ER (D) 15 (Dec) affirmed.
Michael Beloff QC and Martin Westgate QC (instructed by Russell Jones and Walker) for the first to sixth claimants; Nigel Giffin QC and Christopher Knight (instructed by Thompsons Solicitors LLP) for the seventh to eleventh claimants; James Eadie QC, Clive Sheldon QC and Amy Rogers (instructed by the Treasury Solicitor) for the secretary of state.