A variety of unions and individual workers accused the Government of unlawfully attempting to reduce pension costs in the battle to cut the UK's financial deficit.
The legal challenge followed a decision to use the consumer price index (CPI), instead of the normally faster-rising retail price index (RPI), to measure price increases influencing pension upgrades.
Today the High Court in London accepted that the "immediate driving force" behind the change from RPI to CPI - a move expected to save almost £6 billion a year by 2014 - was "the need to secure cuts in the welfare budget".
Two of the judges, Lord Justice Elias and Mr Justice Sales, ruled the Government was entitled to have regard to cost implications when deciding which index to adopt, provided the selected index could properly and reasonably be said to measure price changes.
They agreed that, in any event, the Government chose CPI because it considered that it provided a better measure of price inflation than RPI.
But the third panel member, Mr Justice McCombe, said he would have quashed the decision because cost "potential savings to the public purse" were an "irrelevant consideration" that had been allowed to dominate the decision-making process.
The judge said the sole statutory requirement was to look for "the best" or "an appropriate" method to estimate whether benefits had retained their value against prices.
He ruled: "The minister is not entitled to have an eye on the likely result of the review before choosing the method of carrying it out."
Later TUC general secretary Brendan Barber said: "This is a disappointing judgment for pensioners and scheme members whether they draw a private, public or state second pension.
"But we take great heart that the court accepted the argument that the Government did this to cut the deficit rather than carry out a proper consideration of the best way of measuring the cost of living for pensioners, even if only one judge said that it was unlawful.
"With the Office for Budget Responsibility now predicting that the long-term gap between CPI and RPI will be 1.4%, pensioners in both private and public sector schemes will find that theirpensions will be 20p in the pound lower after 18 years of retirement.
"Ministers keep saying that they are cutting public sector pensions for the benefit of private sector workers, but this move hits both, as well as those with a SERPS or state second pension."
The switch to CPI, which came into effect in April, was announced by Conservative Chancellor George Osborne in the June 2010 emergency budget.
Lord Justice Elias declared an interest when the case first came to court, pointing out that members of the judiciary - as civil servants - would also be affected by its outcome.
Government lawyers argued that ministers were entitled to consider the CPI to be "a more appropriate measure of changes in the general level of prices".
A Treasury spokesman said today: "The Government welcomes the High Court's acceptance of its decision to use the Consumer Prices Index for inflation-proofing certain pensions and benefits."
But unions immediately lined up to announce that they were backing an appeal.
A spokesman for law firm Thompsons Solicitors, which acted for six unions, said: "While the High Court's split ruling is disappointing, the unions are pleased that their main argument, that the Chancellor was motivated by deficit reduction when he made the switch, was accepted.
"It is encouraging that one judge agreed that this was illegal. We have instructions to lodge an appeal urgently on behalf of the unions.
"At a time when public sector employees are being forced to bear the burden of the financial crisis, the unions will not allow this unfair and, in our view, unlawful breach of the contracts of millions of workers to rest."
Ian Rennie, general secretary of the Police Federation, described the judgment as "disappointing" and Government policy as smacking of double standards.
He said: "Because inflation as measured by CPI tends on the whole to be lower than RPI, the Government's decision to link police pensions to CPI rather than RPI effectively reduces the value of police pensions and is another kick in the teeth for hard-working, dedicated and professional police officers across the UK.
"It is ironic that in the week in which the courts have upheld the Government's decision to use CPI as a measure to uprate public service pensions, the Government has set out plans for increases in fuel duty and rail prices next year which are based on RPI - not the lower CPI.
"This smacks of double standards."
Chris Keates, general secretary of NASUWT, the largest teachers' union, said: "Hardworking serving teachers and their retired colleagues who have given a lifetime of service to children and young people were looking for justice in the face of a Government decision which overnight slashed the value of their pensions.
"They will clearly be disappointed that the High Court has not found in their favour.
"They can, however, take heart from the fact that the judges were unable to reach a unanimous decision on all of the key issues put before the court."
Prospect, a union representing professionals including engineers, scientists, and specialists in many areas, said it was backing an appeal.
General secretary Paul Noon said: "This may be the proper technical application of the law as the court have seen it, but it does not represent justice for millions of pensioners and those robbed of earned entitlements by the RPI switch to CPI."
Two groups, mainly consisting of unions, launched the legal action. The Fire Brigades Union, NASUWT, Prison Officers Association, Public and Commercial Services union, Unison and Unite make up one group, while the other consists of Prospect, the FDA, GMB, Police Federation, National Association of Retired Police Officers and the Civil Service Pensioners' Alliance.
The judges agreed to allow the National Union of Teachers, Association of Principal Fire Officers and National Federation of Occupational Pensioners to join the challenge.
PA
Comments