FDA & Ors, R (on the application of) v Secretary of State for Work and Pensions & Anor

An official, professionally compiled consumer price index may measure changes in the general level of prices even where it uses a geometric mean and assumes some substitution between products. Under section 150(1) of the Social Security Administration Act 1992, the Secretary of State may choose among rational measures of inflation.

The effect on the public finances may have a limited and proportionate bearing on that choice. Selecting an index considered less suitable would normally require little difference between the indices, a significant fiscal benefit and a clear economic need. A decision materially influenced by an irrelevant consideration may nevertheless stand where the lawful reasons can be disentangled and the same decision would inevitably have been made.

The Government replaced the Retail Price Index with the Consumer Price Index as the measure used to increase public service pensions and certain benefits from April 2011. Trade unions, representative bodies and individual pensioners challenged the decision and the statutory orders implementing it.

The Divisional Court rejected the challenge in [2011] EWHC 3175 (Admin). Elias LJ and Sales J rejected all grounds, while McCombe J dissented on the relevance of fiscal considerations. The appellants appealed on two grounds: that CPI was incapable of measuring the general level of prices for section 150 of the Social Security Administration Act 1992, and that the Secretary of State had relied on savings to the public purse as an irrelevant consideration or for an improper purpose.

1. The appeal was dismissed unanimously. CPI was a permissible measure of changes in the general level of prices under section 150(1) of the Social Security Administration Act 1992. Its use of a geometric mean, and the associated assumption of some substitution within product categories, did not prevent it from being a price index. Section 150(1) conferred a broad choice of estimation method. The Secretary of State could select an official, professionally compiled index provided that the choice was rational and rested on appropriate considerations.

2. The national economic situation was not necessarily irrelevant when the Secretary of State chose between permissible indices. Section 150 had to be construed as a whole. Its macro-economic character and potentially substantial effect on public finances permitted fiscal consequences to have a limited and proportionate role. Ordinarily, an index considered less suitable could be chosen for fiscal reasons only where there was little difference in reliability and aptness, the fiscal benefit was significant, and the economic need was clear. Those requirements were satisfied because CPI was regarded as no worse than RPI, the savings were significant and the Government considered the economic situation grave.

3. The decision was also lawful on the alternative assumption that fiscal consequences were irrelevant. Although fiscal savings were a substantial driving force, the evidence established independent and rational reasons for preferring CPI. These included its treatment of mortgage interest, broader coverage of pensioner households, reduced volatility, international use and geometric aggregation. Those lawful reasons could be disentangled from the fiscal consideration, and the Secretary of State would inevitably have selected CPI without considering savings to the public purse.

4. The 2011 Up-rating Order and the consequential Pensions Increase Order therefore remained valid.

1. Court of Appeal (Civil Division): The court unanimously dismissed the appeal and upheld the decision that the use of CPI and the implementing orders were lawful: [2012] EWCA Civ 332.
2. High Court, Divisional Court: Elias LJ and Sales J rejected the challenges. McCombe J dissented in part and in the result on the relevance of fiscal considerations: [2011] EWHC 3175 (Admin).