The High Court considers RPI replacement challenge

Introduction 

The High Court is currently hearing a judicial review brought by the BT, M&S and Ford Pension Scheme Trustees against the UK Statistics Authority’s (“UKSA”) decision to align the Retail Prices Index with the Consumer Prices Index including Housing Costs (“CPIH”). 

The UKSA’s decision follows a general acceptance among statisticians that RPI is no longer an accurate measure of inflation. However, the decision to replace it with CPIH (which is typically up to 1 percentage point lower year on year) is anticipated to cause a 13% loss in the value of gilts held by defined benefit pension schemes, and a similar impact is anticipated on the value of the approximately £250 billion of RPI swaps held by pension funds. Scheme members with RPI linked benefits will therefore see the value of their pension decrease significantly compared to what they may have anticipated. The total anticipated impact on all index-linked gilt investors is up to £100 million, and the Decision is also expected to affect index-linked student loans, certain train fares and certain tax liabilities.[1]

The challenge raises tricky issues of statutory interpretation that may have wider implications for how the UKSA is supposed to weigh up various competing interests when making other statistical decisions, and potentially for other public bodies taking decisions that require balancing complex policy and economic factors.  

Below, we set out a recap on the key grounds of challenge and the outlook for the case.    

The grounds 

The Pension Trustees are challenging: (1) the UKSA’s decision to align RPI with CPIH from 2030 onwards; and (2) the Chancellor’s decision not to compensate holders of index-linked gilts on the basis that there will be no change to the applicable index ratio – only a change in methodology (together, the “Decision”). 

The Pension Trustees have advanced both public law grounds of challenge and a contractual claim in respect of the Decision:

Ground 1 – Breach of UKSA’s statutory duty: The UKSA has a statutory authority “to compile, maintain and publish the RPI” under section 21(1) of the Statistics and Registration Service Act 2007 (the “Act”). The Pension Trustees argue that the Act does not permit the UKSA to discontinue RPI, and that by changing the basket of items that make up RPI to those which make up CPIH, the Decision is an attempt to achieve that outcome “through the back door”.[2] The UKSA argues that the Act allows it to make fundamental changes to RPI’s methodology and sources, and says that a requirement to continue using a flawed calculation would be contrary to the purpose of the Act. 

Ground 2 – Failure to take into account material relevant considerations: the Pension Trustees argue that, by failing to consider the impact of the Decision on legacy users of RPI, the UKSA and the Chancellor have breached their public law duty to take into account material relevant considerations. In addition to citing the potential scale of the issue for gilt-holders and pension funds generally, they say there will be a disproportionate impact on women’s pension scheme earnings and a corresponding breach of the duty to assess the potential equalities impact of the Decision. The primary answer put forward by the UKSA is that these interests and considerations weren’t relevant to the Decision, while the Chancellor argues that he gave sufficient consideration to these matters when deciding not to compensate gilt-holders.  

Ground 3 – Breach of obligation of proper consultation: the Pension Trustees allege that the Chancellor failed to properly consult on the impact of the Decision on relevant gilt-holders. They also identify deficiencies in the joint 2020 consultation which focussed on the technical implementation of the change to RPI rather than the merits or impact of the proposed change. This ground is defended on limitation – the consultation having concluded in August 2020, and any challenge needing to be brought promptly.  

Contract Claim – the Pension Trustees are asking the Court to declare that the relevant provisions of the new-style gilts will be triggered in 2030 by the change in RPI, in turn triggering the contractual process for designating an alternative index and potentially compensating the gilt-holders. The Chancellor maintains that those provisions won’t be triggered because RPI will continue to be published albeit in a different form. He accepts that if the Court finds otherwise, the provisions will be triggered, and he will be required to follow the contractual process for agreeing a replacement index, which may or may not lead to an agreement to compensate gilt-holders.  

Outlook and next steps 

The Court’s decision will have a significant impact on index-linked gilt investors and other legacy users of RPI. It may also provide clarity on the scope of the UKSA’s duties in respect of the other statistics within its remit, as well as broader principles for public decision-making that engages matters of economic policy. However, the bar for a successful challenge is high, and the Court will not delve into the merits of the Decision or retake it. 

If the Pension Trustees are successful, the outcome will largely depend on which grounds succeed. If the Court agrees with the Pension Trustees on the statutory interpretation ground, the Decision is likely to be reversed unless primary legislation is introduced to pave the way for the change sought. If, on the other hand, the Pension Trustees are successful only on the other grounds, the UKSA and the Chancellor may simply remedy the procedural defects in the Decision and ultimately reach the same conclusion, without having to go to Parliament. 

The hearing continues on 22 June. Judgment is not expected before the end of the current court term on 29 July. 

Further case updates to follow
 

Footnotes

[1]    Statement of Facts and Grounds, §3.  

[2]    Ibid, §81.