British Telecommunications Plc, R (on the application of) v Her Majesty's Treasury [2018] EWHC 3251 (Admin)

“109. – Annual increase of guaranteed minimum pensions. (1) The Secretary of State shall in each tax year review the general level of prices in Great Britain for a period of 12 months commencing at the end of the period last reviewed under this section. (2) Where it appears to the Secretary of State that that level has increased at the end of the period under review, he shall lay before Parliament the draft of an order specifying a percentage by which there is to be an increase of the rate of that part of guaranteed minimum pensions which is attributable to earnings factors for the tax year in the relevant period for– (a) earners who have attained pensionable age; and (b) widows, widowers and surviving civil partners.

“59. – Increase of official pensions. (1) Where by virtue of section 151 of the Administration Act a direction is given that the sums mentioned in section 150(1)(c) of that Act are to be increased by a specified percentage the Minister for the Civil Service shall by order provide that the annual rate of an official pension may, if a qualifying condition is satisfied or the pension is a derivative or substituted pension or a relevant injury pension, be increased in respect of any period beginning on or after the date on which the direction takes effect – (a) if the pension began before the beginning of the base period for that direction, by the same percentage as that specified in the direction; (b) if the pension began during the base period, by that percentage multiplied by A / B where A is the number of complete months in the period between the beginning of the pension and the end of the base period and B is the number of complete months in the base period …”

“59. – Increase of official pensions. … (5) The increases in the rate of a pension that may be provided for by an order under this section are to be calculated by reference to the basic rate of the pension as authorised to be increased by section 1 of the said Act of 1971 or by any order under section 2 of that Act or this section; but where— (a) a person is entitled to a guaranteed minimum pension when an order under this section comes into force; and (b) entitlement to that guaranteed minimum pension arises from an employment from which (either directly or by virtue of the payment of a transfer credit) entitlement to the official pension also arises; the amount by reference to which any increase authorised by that or any subsequent order is to be calculated shall be reduced by an amount equal to the rate of the guaranteed minimum pension.”

“59A.— Modification of effect of section 59(5). (1) This section applies where the amount by reference to which an increase in an official pension is to be calculated would, but for the provisions of this section, be reduced under section 59(5) of this Act by an amount equal to the rate of a guaranteed minimum pension. (2) The Minister for the Civil Service may direct that in such cases or classes of case as may be specified in the direction— (a) no such reduction shall be made; or (b) the reduction shall be of an amount less than the rate of the guaranteed minimum pension; and in any case to which such a direction applies the increase shall, in respect of such period or periods as may be specified in the direction, be calculated in accordance with the direction, notwithstanding section 59(5).”

“10.2 Pension increases Any pension in payment will be increased from time to time in accordance with: (i) the Pensions (Increase) Act 1971, and (ii) Sections 59 and 59A of the Social Security Pensions Act 1975, as if the pension was payable under the Principal Civil Service Pension Scheme 1974 (and any amendment or replacement of that scheme) …”

“i. An alternative legislative approach which would look to carve the Principal Civil Service Pension Scheme (PCSPS) (which BTPS mirrors) out of the Treasury Direction under s.59 of the Social Security Pensions Act 1975 and instead make changes via the PCSPS scheme rules; ii. An alternative delivery approach which would see these payments be made through the State rather than the public service pension schemes.”

“From a policy perspective, the BT Group are right that the intention of this policy was not to impose a cost on BTPS but rather to deal with an inequality in the public service schemes. However, having considered both of these options we have reservations from a policy and legal perspective.”

“[redacted] the government doesn’t have the legal powers necessary to deliver this option. Further it is possible the government or BT made commitments to these private sector employees at the point of privatisation. It is not clear the Government should deliberately craft the relevant legal instruments to deprive the affected members of the BT Pension Scheme (and possible other private sector ‘mirror’ schemes) of the rights they would otherwise have been entitled to. [redacted] Finally, while we expect most other ‘mirror’ schemes to mimic the PCSPS, it is possible a solution which works for BT, might not work for other ‘mirror’ schemes, including because they mirror a different public service pension scheme.”

“Specifically, Treasury officials set out the reasons we are of the view that the proposals from your letter cannot be taken forward, and officials have shared the detailed legal analysis with your colleagues to allow them to consider. However, it was also agreed that further work must be done to look at ways for the government to support schemes like BT, where they decide to no longer follow the indexation provisions of the public service pension schemes. We have asked both Treasury and Department for Work and Pensions officials to continue discussions with your colleagues and to keep us informed of progress. And though the finer details have still to be worked through, we believe one option would be for this to form part of the government’s consultation on the long-term solution to GMP indexation and equalisation for public servants.”

“The government recognises that, for some private sector organisations and wider public sector organisations, the way any of these policy options are implemented is relevant in determining whether it would impact on their pension scheme. We are keen to hear from such organisations and representatives of their scheme members and pension fund trustees. We wish to understand: how their rules align to those of the public service pension schemes; whether the government should take action to avoid a read across, and if so what specific actions they feel the government could take to avoid direct implications for their pension schemes, including which policy options would be expected to directly require changes to such schemes. Question 12 How could the delivery of any of the policies in the consultation impact wider public sector or private sector schemes who are not ‘official pensions’ under the PIA 1971? Question 13 If wider public sector or private schemes who are not ‘official pensions’ are impacted by any policy set out in the consultation, why were the pensions designed to mirror official pensions originally? Question 14 Should the government take action to avoid any read across between private sector schemes and any policy announced? Question 15 Are there actions the government could take to restrict the impact on wider public sector or private sector pension schemes who are not ‘official pensions’ under the PIA? Question 16 Why should government allow for members of schemes whose rules mimic/mirror those in the public services, to be deprived of the benefit of those rules?”

“1.11 In order to prevent substantial, unnecessary and unjustified costs arising in respect of private sector employers, we request that HMT makes certain adjustments to its proposals: (a) introducing into legislation a unilateral employer statutory modification power, which is subject to an employer consultation requirement, to address additional GMP increases (a “Statutory Override”) (see paragraphs 3.2(c)-(d) below, and either (b) implementing full indexation (or the case by case option) through: (i) an Act of Parliament other than the Increases Legislation (as defined in paragraph 2.8 below); or (ii) an amendment to the rules of, specifically, the Principal Civil Service Pension Scheme (“PCSPS”) (see paragraph 3.2(b) below); or (c) converting GMPs into ‘normal’ scheme pension and revoking the ministerial direction which has been used to implement a full indexation requirement (see paragraph 3.3 below).” (i) an Act of Parliament other than the Increases Legislation (as defined in paragraph 2.8 below); or (ii) an amendment to the rules of, specifically, the Principal Civil Service Pension Scheme (“PCSPS”) (see paragraph 3.2(b) below); or (c) converting GMPs into ‘normal’ scheme pension and revoking the ministerial direction which has been used to implement a full indexation requirement (see paragraph 3.3 below).”

“(b) …. if continued full indexation was implemented through an Act of Parliament other than the Increases Legislation, our view is that the Section B pensions increase rule would not be triggered. For example, if continued full indexation was required under a new statutory regime via a new Pensions Act, or by regulations or order under existing primary legislation other than the PIA71 or SSPA75 (e.g. the Pensions Act 2014), there should be no consequential, unintended additional funding impact on Section B of the BTPS. In a similar vein, implementing continued full indexation through a PCSPS rule amendment, rather than via legislation, would also avoid the unintended Section B impact. (c) That said, the legal analysis is likely to be complex and there could be differing views on how the Section B pension increase rule should be interpreted (with the potential need for clarificatory Court proceedings). This approach may also not ‘work’ for other affected private sector schemes, depending on their scheme rules. Given this legal uncertainty, we would urge Government to also introduce into legislation a Statutory Override. (d) The Statutory Override would enable affected private sector employers to make amendments to pension scheme rules unilaterally to remove any additional GMP increases payable as a result of the abolition of defined benefit contracting-out. It would override certain restrictions contained in section 67 of the Pensions Act 1995 (“Section 67”) and the Rules themselves…. We enclose as an Annex advice received from Freshfields (which we have shared previously with HMT and DWP) setting out the clear public interest basis for introducing such a Statutory Override. Included as Appendix 1 to the Annex is a ‘high level’ public interest justification for the Statutory Override….”

“7. We do not believe case-by-case is a deliverable option. Current systems are unable to separate nSP entitlement (earned through NICS contributions) gained from either public service or other employment. It would require schemes to hold data on GMP, public service pension and old/new State Pension and run a shadow system over 40-50 years. This would add major burdens to public service schemes (and departments), increase the risk of incorrect administration and require major investment now in HMRC/DWP State Pension/NICS systems. In addition, this solution would not be future-proof if nSP changed in future. 8. We believe there are significant operational and legal reasons why we should extend the interim solution for now: • Schemes are undertaking a GMP data reconciliation exercise (linking HMRC NICS data with scheme data), which will not complete until December 2018. Allowing more time would give us greater confidence in underlying data. • The implications of the Walker v Innospec Supreme Court judgement for public service schemes are not yet clear. Mr Walker had a GMP entitlement, and the court’s judgment may extend to others with similar entitlement. This judgment enforces survivor pension rights for same-sex couples in the Innospec private pension scheme. Without a full understanding of these implications it would not be advisable to add further complexity at a moment of legal uncertainty. In addition, there is a pending legal challenge concerning Lloyds Bank’s approach to GMP equalisation, which could have unknown read across for public service schemes. 9. We believe that conversion is the preferred solution in the longer-term, although this cannot be implemented now: • Conversion would require, at a minimum, amending the Pension Schemes Act 1993 and the Social Security Pensions Act 1975, through an affirmative consequential order made under the Pensions Act 2014. Finding Parliamentary time would be challenging where a non-legislative vehicle, the Treasury direction, is available to deal with the problem in the short term. • GMP legislation is known to be complex to administer and there have been instances where large amounts of money has been overpaid in public service schemes. This included a total of £125m discovered in 2008 made over several years, and est. total of £50m up to 2017 (see submission 24 July 2017). Conversion could simplify this system if implemented correctly, removing requirements for public service schemes to follow burdensome GMP uprating legislation and the need for schemes to hold GMP data beyond a certain point. Public service schemes believe this solution is deliverable, based on data and systems available, although some work will be required in order to develop systems to deliver the conversion process. If implemented well, it could also be more transparent for scheme members. 10. Government’s obligation to index/equalise is met by the current solution, but we believe conversion would be a better long-term solution. Do you agree to extend the current solution for two years and to commit to exploring conversion during this period? 11. Implementing conversion will need to be accompanied by a defensible methodology developed with the Government Actuary’s Department, suitable legislation and a full legal analysis. 12. The AME costs of extending the interim solution would be a few £million over the SR period, and a total cost of up to a few hundred £million, spread over the next 40-50 years (covering future indexation/equalisation of pension entitlements of those reaching SPa for two years beyond December 2018). This would be a small proportion of the total £5bn liability of extending the current solution permanently or conversion, and these costs are unavoidable in order to meet legal obligations. Estimations of cost per year are limited by data quality.”

“15. BT has estimated that either conversion or full extension of the current solution would add an additional £c600m to their total scheme liabilities, a figure that we question. To prevent this cost to scheme, BT has requested that we consider a statutory override of scheme rules, an Act of Parliament or an amendment to Civil Service Pension Scheme rules (which BT mirror). BT has stated it believes “case-by-case” would be a more appropriate methodology on the grounds of reduced cost, although we do not believe this is a deliverable methodology. 16. Treasury Legal Advisers have indicated that there is a risk of judicial review from BT of our consultation response. Our initial view is that at privatisation in 1984 it was the policy intent that the rights of BT employees to future pension benefit indexation be protected, regardless of any future changes in the pension system. 17. We are seeking your preliminary and in principle agreement that we should develop our consultation response on the basis of extending the interim solution, with a commitment to look at conversion as a long-term solution. In order to meet our legal obligation to fully consider all responses to the consultation a final decision will only be made once all the issues raised by consultees have been fully considered. We will provide further advice on potential private sector impacts.”

“A few points worth bringing out for you: • We are seeking a preliminary policy steer on our consultation response (with further advice on private sector impacts, see below). For reasons outlined, we wish to extend the current solution by two years with a review of a more suitable long-term option during this period. • This is a decision falling out of the introduction of new State Pension in 2016, namely how we continue to index (price protect) and equalise (pay equal payments to men and women) the pensions of a certain cohort of public servants. The previous system in place between 1978 and 1997 (with the mechanism remaining in place until 2016) did this for us. We have clear legal obligations to continue to do index/equalise, following counsel advice. This is a cross-public sector policy, with all public service schemes impacted. • We consulted on three options. Two of the three have the same cost in term of additional liabilities (£5bn, around 0.5% of the value of public service pension liabilities). One option has a headline cost of £1.5bn of additional liability – however – this does not include the additional operational costs to DEL of this solution, and we now consider it to be unworkable and not deliverable. • This decision will have private sector impacts, for workforces in ex-nationalised industries such as BT. We will provide the CST with separate advice on this – legal advice has indicated this is a contentious issue with a chance of challenge.”

“Impact on British Telecom: 9. However, the BT defined benefit Pension Scheme (BTPS) also faces considerable extra cost, if we proceed. BT was privatised in 1984 and two sections of the BTPS (A & B, covering employees up to 1986) mirror the indexation requirements of the Civil Service Pension Scheme. BT has asked us to legislate to exclude section B members (employed at privatisation) from the obligation in BTPS rules to index pensions in accordance with the legislation governing public service schemes so that extending the interim solution does not impose additional costs upon them. 10. BT argue the current “interim solution” has already added c£250m to scheme liabilities, and extending this policy to cover all those reaching SPa in future would add around a further £500m (just under 1% of the scheme’s total liabilities). Government Actuary’s Department think that the cost of extending the current “interim” approach forward for two years might represent c£150m of that £500m (a proportion of the overall extra liability quoted by BT). 11. GAD has said that assumptions and data provided by BT (subject to future market conditions), appear reasonable. The decision to extend the current policy forward a further two years will mean that BT will have to fund fully indexed GMP benefits for its scheme members who reach SPa by the end of 2020. 12. BT have suggested a number of solutions for this: (i) a new Act; (ii) amending the 1974 civil service scheme; or (iii) providing a statutory override. TLA advise that in each case there would need to be a policy justification for preferring the interests of BT to the interests of the scheme members. The scheme rules have the result that members are entitled to benefit from an HMT direction in the same way as members of the 1974 civil service scheme and there would need to be a legally defensible justification for interfering with BT scheme members’ property rights. There are significant legal issues with the first option BT have put forward: • Section B members of the BTPS have an “Article 1 Protocol 1” property right under the European Convention of Human Rights to pension increases under the Pensions (Increase) Act 1971 and the Social Security Pensions Act 1975 as if the pension was payable under the 1974 civil service pension scheme. Any interference with these rights requires a legitimate aim and proportionate means of furthering that aim. BT suggest a legitimate aim would be to prevent an increase in the scheme’s deficit and the resulting risk it is placed into the Pension Protection Fund (a lifeboat for failed pension schemes). However, DWP believe this risk is low. Extending the “interim” would appear to add just under 1% to the BTPS’s total liabilities. • BT also consider the decision to end contracting-out and fully index public servants’ GMPs, moving the cost of indexation to their scheme, to be “unforeseen and arbitrary”, creating a “new, unexpected and proprietary right for a narrow group of individuals”

“I attach: • A final submission advising on private sector impacts of this decision, focused on BT’s consultation response and their request for a carve-out. • A write-round letter summarising our position. • A draft consultation response (for reference). We will be clearing this with TLA – but the substantial nature of what we’re intending to say in our response won’t change. • Our exchange in October when CST agreed her preliminary steer. This is a decision relating to a previous consultation between November 2016 and February 2017. We consulted on how to meet our obligations to continue to index and equalise (make equal payments) to male and female public servants. • The consultation response only attracted a small number of submissions (68). In the big picture this is a minor announcement concerned with a methodology to meet our obligations which continue into the future. This falls out of the new State Pension introduction in 2016. • We previously sought CST’s steer that we would extend the current solution beyond 6 December 2018 for a further two years (we are seeking a decision now in order to ensure schemes can implement in time). We recommend that the current solution continues until April 2021 (for administrative simplicity – linked to when pension indexation increases are applied). During this time we will investigate (develop methodology and potentially look to legislate if possible) a longer-term solution known as conversion – which could lessen the burdens on departments. • Last time we advised (in October), CST was content for us to proceed on this basis – subject to this further advice on private sector impacts. BT, in particular, have asked for us to legislate for a carve-out of their obligation to follow public service pension index rules (in their scheme rules). We recommend against doing so – the bar for removing indexation rights from BT members would be very high. • BT have written again (on 21 November), which should arrive shortly with your office. We have seen a copy already but will provide you with a draft shortly.”

“As indicated, there were some requests that the government consider introducing legislation or altering scheme rules in order to allow such private sector schemes to deviate from obligations to follow such indexation requirements. However, the government does not believe that it is appropriate to legislate or to alter scheme rules to allow this to happen and this would not, in any event, be a matter for legislation on the indexation of public service pensions.”

“BT/PUBLIC SERVICE PENSIONS CONSULTATION • You received advice on this, and asked a Junior minister to look into the detail. The CST has been considering. • In order to ensure we continue to meet our legal obligations to index (price protect) and equalise (make equal payments to men and women) public service pensions, we need to issue a response to the Treasury “GMP equalisation and indexation consultation”. • We propose that the CST extends the current, interim solution from 6 December 2018 until 4 April 2021 while we investigate longer-term solutions. • This will also apply to a section of BT’s scheme (from before when BT was privatised). BT asked for a legislative carve-out, arguing that this will impose an additional £500m of cost (equivalent to around 1% of scheme liabilities). BT are linking this additional cost to their ability to continue to invest in digital infrastructure. • We recommend against providing an exemption: we would be criticised for reducing former public sector workers pension rights and the legal bar for interfering in accrued rights is high. Were we to agree an exemption for BT, legal advice is that the risk of challenge is high and the chances of successfully defending such a challenge are low. CST agrees. • Are you content with this approach?”

“3.19 The other consultee [BT] requested that the government should craft its response in such a way as to avoid the read across from public service schemes to their private sector scheme. However, the government believes that it would not be appropriate to act in a way that would deprive members of indexation, to which they would otherwise be entitled. Acting to do so would also raise legal questions, including whether there was a legitimate aim to justify such an interference in the property rights of scheme members. In addition, some of the mechanisms suggested by [BT] to avoid [the read across from public service schemes to BT’s private sector scheme] are outside the scope of the government’s statutory powers.”

“Case-by-case approach 4.1 Based on the detailed responses received in this consultation, the government does not believe that a case-by-case solution should be implemented. Although, if deliverable, the additional liability to public service schemes is less than the cost of full indexation or conversion it would be both challenging and costly to implement and administer. In addition, the government does not believe this could be shown to precisely deliver obligations to index public service pensions. 4.2 Case-by-case would be a very complex solution for schemes to implement, and differs significantly from the interim solution currently in place. Running a case-by-case solution would require ongoing work, for many years, in order to calculate whether a member would be better off under the old or new system. 4.3 New systems would be needed to make annual comparisons between actual and notional benefits and to deliver data on National Insurance contributions. These systems would need to take account of public service employment, state pension entitlements and public service pensions (including GMPs) related to that employment. Such a system would need to account for and separate out data on rights earned while in employment covered by public service schemes, other employments, through National Insurance credits (from periods of unemployment) and through voluntary National Insurance contributions. This would involve fundamental changes to HMRC and DWP systems, as well as public service schemes’ rules and systems. The systems required to run this solution do not currently exist, and could not be easily designed. 4.4 The government will therefore not implement a case-by-case solution to resolve the issue of GMP indexation and equalisation. This solution would increase public service pension liabilities by less than alternative solutions, but does not meet the policy tests set out in the original consultation. Importantly, implementing a case-by-case solution would not make the system more transparent and easier to understand for members or adequately honour the commitment to fully index public service pensions. Full indexation 4.5 Full indexation, or extending the current interim solution permanently, meets the key policy tests set out in the government’s consultation. These tests are primarily ensuring that members are at least as well off as before introduction of the new State Pension and that pension payments made to men and women continue to be equal. 4.6 This policy, along with conversion, was generally favoured in responses to the consultation as a way to meet the government’s obligations to index and equalise public service pensions. 4.7 However, despite meeting these tests, full indexation was noted in the consultation as a more burdensome way of meeting the government’s obligations. Scheme administrators and pensions advisers pointed out that full indexation would leave in place current GMP legislation and underpins which are complex to administer. Conversion 4.8 The option to convert guaranteed minimum pension benefit into normal scheme benefit was strongly supported. 4.9 In the original consultation, Government Actuary’s Department provided estimates that the increase in schemes’ liabilities of conversion would be broadly equivalent to that of full indexation. Both conversion and full indexation meet the test of ensuring that members and their survivors are at least as well off as they would have been, had the new State Pension not been introduced. 4.10 Conversion may be less burdensome administratively in the long-term than the full indexation (extending the current interim solution permanently). If implemented correctly, it should make the system more transparent and make it easier for members to see how their benefits have been derived. 4.11 Accurate reconciled data would be required in order to start the process of converting GMP. Public service schemes are currently reconciling GMP data with HMRC, to ensure members are able to receive accurate GMP payments. This exercise is due to complete in December 2018, and improved scheme data will help in determining longer-term policy. 4.12 To implement conversion properly would require an agreed methodology. A longer-term decision to convert would also need to be underpinned by suitable legislation. 4.13 The government remains prepared to consider conversion as an option in future, at a time where there is a legally and practically robust conversion methodology and when this can be underpinned by appropriate legislation. The government intends to continue to review this position, following the reconciliation exercise, and will investigate further whether conversion best meets the tests set out in the government’s original consultation. Conclusion 4.15 In this response, the government is discounting the case-by-case method in future, for the reasons outlined above. The government believes that conversion may best meet the policy tests set out in the original consultation, but that methodology and legislative issues need further consideration. 4.16 The current interim solution is in place for members who reach SPa on or before 5 December 2018, and meets the obligations of government to index and equalise public service pensions. 4.17 The government is announcing the extension of the current interim solution so that it applies to those who reach SPa on or before 5 April 2021. Members of public service pension schemes with guaranteed minimum pension entitlements, who reach SPa on or after 6 December 2019 and before 6 April 2021 will be covered by this extension of the interim solution. The end date of 5 April 2021 is the day before annual guaranteed minimum pension increase orders are applied. 4.18 The additional liability created by this further extension of the current policy solution will be a proportion of the estimated cost of full indexation. 4.19 During this period, the government will review the possibility of implementing conversion as a longer-term solution. It will continue to consult with departments and schemes to decide whether a suitable methodology and legislation can be brought forward to enable conversion to take place in the future. The government will also continue to take account of alternative solutions that may also address this issue.”

“In considering its response to this consultation the government has sought to balance the interests of scheme members, public service schemes and departments, those private sector schemes affected by this policy as well as the taxpayer. … We believe that removing the existing obligation of the BT Pension Scheme to index in line with the Principal Civil Service Pension Scheme 1974 would be to act against the interests of members. As you have recognised, these members have a property right to indexation. The bar for removing these rights is high. You put forward several proposals as to how government could deliver its policy objectives to equalise and index the public service GMP but avoid the impact on the BT Pension Scheme… All such proposals would involve the government acting against members interests, and as the consultation response says the government believes that it would not be appropriate to act in a way that would deprive members of indexation to which they would otherwise be entitled. There would in addition be legal issues as to whether the high legal bar to removing property rights was met. Our view is that there would be a significant risk of a legal challenge being brought were the government to craft a policy which interfered with members’ rights. …”

“12. BT contends that HM Treasury should have implemented its decision to provide full indexation of GMP by way of an amendment to the rules of the Principal Civil Service Pension Scheme 1974 (“PCSPS”), rather than through use of the powers in s. 59A of the SSPA 1975. 13. BT contends that this possibility was rejected on the basis that it would involve unlawfully interfering with the property rights of BTPS members (¶41). This is incorrect. The reasons why it was rejected are as follows. 14. First, even assuming HMT had the power to make the amendment suggested by BT, it would not be appropriate to exercise it merely in order to deny to BTPS members benefits they would otherwise receive. It was appropriate for HMT to decide (as set out in para. 3.19 of the Response to Consultation) not to circumvent the entitlements that would otherwise flow to the Section B members, in essence in order to save BT money. Under the BTPS, those members are entitled to increases where increases are made to official pensions under the PIA 1971 and the SSPA 1975. BT’s suggested approach would be to prefer the interests of BT to the interests of BTPS scheme members, without adequate reason. 15. Secondly, because, from a policy perspective, HMT did not consider that BT’s approach was the correct one, it was not necessary to determine whether that approach would have resulted in the infringement of the Section B members’ rights. Certainly, if HMT had otherwise favoured BT’s approach, it considered that legal issues would have arisen as to whether or not that approach would have resulted in such an infringement. But the fact remains that HMT did not favour BT’s approach as a matter of policy. If the decision fell to be taken again, irrespective of the correct legal analysis in relation to A1P1, the decision would have been the same. These issues are therefore irrelevant to BT’s proposed claim. 16. Thirdly, in any case, even on BT’s own case, an amendment to the PCSPS rules would not necessarily result in the Section B members of the BTPS having no entitlements under the BTPS rules, and this position would result in “legal uncertainty”

“BT/PUBLIC SERVICE PENSIONS JUDICIAL REVIEW • In January 2018 we announced our intention to continue to index and equalise the guaranteed minimum pension (an element of occupational pension) for public servants reaching State Pension age between 6 December 2018 and 5 April 2021, using a direction. This ensures we meet our legal obligations to public servants in this area. • Some private sector schemes “mirror” public service schemes. When a direction requires public service schemes to provide indexation, the private sector schemes have to provide the same. • BT requested a legislative carve-out for its pension scheme (and other similarly-affected private schemes). The decision was taken by the Chief Secretary in the first instance. She decided not to offer a carve out. You were then asked whether you agreed, which you did. The reasons were given publicly in a consultation response, which you and the CST cleared, as follows: “The other consultee [i.e. BT] requested that the government should craft its response in such a way as to avoid the read across from public service schemes to their private sector scheme. However, the government believes that it would not be appropriate to act in a way that would deprive members of indexation, to which they would otherwise be entitled. Acting to do so would also raise legal questions, including whether there was a legitimate aim to justify such an interference in the property rights of scheme members. In addition, some of the mechanisms suggested by the consultee to avoid this impact are outside the scope of the government’s statutory powers.” • BT are judicially reviewing the decision not to provide a carve- out. Unfortunately the short summary of the CST’s decision that you were given was incorrect. We need to ask you whether you still agree. • The advice you received said this “We recommend against providing an exemption: we would be criticised for reducing former public sector workers pension rights and the legal bar for interfering in accrued rights is high. Were we to agree an exemption for BT, legal advice is that the risk of challenge is high and the chances of successfully defending such a challenge are low. CST agrees.” (Emphasis added.)

“Were we to agree an exemption for BT, legal advice is that the risk of challenge is high and the chances of successfully defending such a challenge are low unless we were able to develop a defensible justification for interfering in the property rights of pensioners. CST decided not to commission the further legal work necessary to test whether a legally defensible justification could be developed. • We need to know whether you maintain your original decision, in the light of this correction.” “The other consultee [i.e. BT] requested that the government should craft its response in such a way as to avoid the read across from public service schemes to their private sector scheme. However, the government believes that it would not be appropriate to act in a way that would deprive members of indexation, to which they would otherwise be entitled. Acting to do so would also raise legal questions, including whether there was a legitimate aim to justify such an interference in the property rights of scheme members. In addition, some of the mechanisms suggested by the consultee to avoid this impact are outside the scope of the government’s statutory powers.” “We recommend against providing an exemption: we would be criticised for reducing former public sector workers pension rights and the legal bar for interfering in accrued rights is high. Were we to agree an exemption for BT, legal advice is that the risk of challenge is high and the chances of successfully defending such a challenge are low. CST agrees.” (Emphasis added.)

“… BT has requested that we consider a statutory override of scheme rules, an Act of Parliament or an amendment to Civil Service Pension Scheme rules (which BT mirror)….”

“12. BT have suggested a number of solutions for this: (i) a new Act; (ii) amending the 1974 civil service scheme; or (iii) providing a statutory override.”

“…BT, in particular, have asked for us to legislate for a carve-out of their obligation to follow public service pension index rules (in their scheme rules). We recommend against doing so – the bar for removing indexation rights from BT members would be very high….” (ii) The November Submission which stated among other things that: “12…. The scheme rules have the result that members are entitled to benefit from an HMT direction in the same way as members of the 1974 civil service scheme and there would need to be a legally defensible justification for interfering with BT scheme members’ property rights…. 13. TLA advise that it may be possible to devise a mechanism to avoid impacting on schemes such as BT e.g. if the Secretary of State agreed to make negative resolution regulations under s.67 of the Pensions Act 1995. However, that would require identifying a legally defensible justification for the interference in property rights…. …. 15. Legal risk is high. A judicial review brought by members or trade unions is likely and, unless we were able to develop a defensible justification for interfering in property rights, there is a high risk of the judicial review being successful.” (iii) The 8 December email which stated that: “BT asked for a legislative carve-out… We recommend against providing an exemption: we would be criticised for reducing former public sector workers pension rights and the legal bar for interfering in accrued rights is high…” (iv) The Consultation Response which stated at paragraph 3.19 that: “….the government believes that it would not be appropriate to act in a way that would deprive members of indexation, to which they would otherwise be entitled. Acting to do so would also raise legal questions, including whether there was a legitimate aim to justify such an interference in the property rights of scheme members….”

“104. The November Submission refers to this as one of the “presentational” aspects of the decision. As the submission makes clear, our advice was that a carve-out for BT should not be offered, and that Ministers would struggle to justify it in public or before Parliament. … HMT considered that Ministers would be seen to have preferred the interests of BT over those of its pension fund members. The recommended approach was to prefer neither.”

"Where there are general words in a later Actcapable of reasonable and sensible application, without extending them to subjects specifically dealt with byearlier legislation, you are not to hold that earlierand special legislation indirectly repealed, altered orderogated from merely by force of such general wordswithout any indication of a particular intention to doso."

“27. In my view…Mr Sauvain is right in his submission that the council is entitled to rely on the clear words of section 80 of the 1980 Act for the power they seek. There is no express or implied restriction on its use…the fact that section 66(2) may confer an alternative power to achieve the same object, which is subject to compensation, is beside the point. That is clear in particular from the Westminster Bank case [1971] AC 508: see para 10 above. There also the legislation provided two different ways of achieving the council's objective, one under the planning Acts and the other under the Highways Act, only the latter involving compensation. The authority was entitled to rely on the former. 28. Lord Reid (giving the majority speech) said, at p 530: “Here the authority did not act in excess of power in deciding to proceed by way of refusal of planning permission rather than by way of prescribing an improvement line. Did it then act in abuse of power? I do not think so. Parliament has chosen to set up two different ways of preventing development which would interfere with schemes for street widening. It must have been aware that one involved paying compensation but the other did not. Nevertheless it expressed no preference, and imposed no limit on the use of either. No doubt there might be special circumstances which make it unreasonable or an abuse of power to use one of these methods but here there were none.” “Here the authority did not act in excess of power in deciding to proceed by way of refusal of planning permission rather than by way of prescribing an improvement line. Did it then act in abuse of power? I do not think so. Parliament has chosen to set up two different ways of preventing development which would interfere with schemes for street widening. It must have been aware that one involved paying compensation but the other did not. Nevertheless it expressed no preference, and imposed no limit on the use of either. No doubt there might be special circumstances which make it unreasonable or an abuse of power to use one of these methods but here there were none.”

“57. It was suggested on behalf of the council that this case represented an opportunity for this court to “make it clear that canons of construction should have a limited role to play in the interpretation” of statutes (and indeed contracts). In my view, canons of construction have a valuable part to play in interpretation, provided that they are treated as guidelines rather than railway lines, as servants rather than masters. If invoked properly, they represent a very good example of the value of precedent. 58. Interpretation of any document ultimately involves identifying the intention of Parliament, the drafter, or the parties. That intention must be determined by reference to the precise words used, their particular documentary and factual context, and, where identifiable, their aim or purpose. To that extent, almost every issue of interpretation is unique in terms of the nature of the various factors involved. However, that does not mean that the court has a completely free hand when it comes to interpreting documents: that would be inconsistent with the rule of law, and with the need for as much certainty and predictability as can be attained, bearing in mind that each case must be resolved by reference to its particular factors. 59. Thus, there are some rules of general application—eg that a statute cannot be interpreted by reference to what was said about it in Parliament (unless the requirements laid down in Pepper v Hart [1993] AC 593 are satisfied), or that prior negotiations or subsequent actions cannot be taken into account when construing a contract. In addition, particularly in a system which accords as much importance to precedence as the common law, considerable help can often be gained from considering the approach and techniques devised or adopted by other judges when considering questions of interpretation. Even though such approaches and techniques cannot amount to rules, they not only assist lawyers and judges who are subsequently faced with interpretation issues, but they also ensure a degree of consistency of approach to such issues. 60. Hence the so-called canons of construction, some of which are of relatively general application, such as the so-called golden rule (that words are prima facie to be given their ordinary meaning), and some of which may assist in dealing with a more specific problem, such as that enunciated by Sir John Romilly MR in Pretty v Solly 26 Beav 606, 610. With few, if any, exceptions, the canons embody logic or common sense, but that is scarcely a reason for discarding them: on the contrary. Of course there will be many cases, where different canons will point to different answers, but that does not call their value into question. Provided that it is remembered that the canons exist to illuminate and help, but not to constrain or inhibit, they remain of real value.”

“61. Although the principle expressed by Sir John Romilly MR, sometimes referred to by the Latin expression generalia specialibus non derogant, is a valuable canon of construction, I do not consider that it applies in relation to section 66 and section 80 of the Highways Act 1980 . That is because I do not think that it is possible to treat section 66(2) as a specific provision in contrast with section 80(1) as the more general provision. They are, as Mr Sauvain QC for the council submitted, simply different provisions concerned with overlapping aims and with overlapping applications.”

“My Lords, I start my consideration of the issue from a basic principle which I have found nowhere more clearly expressed and explained than by Professor Sir William Wade Q.C. in Administrative Law, 5th ed. (1982), pp. 355-356 in the chapter entitled "Abuse of Discretion" and under the general heading "The Principle of Reasonableness." After quoting from authorities going back to Rooke's Case (1598) 5 Co. Rep. 99b, the author introduces a new subheading "No unfettered discretion in public law" and writes, at pp. 355-356, 357: The common theme of all the passages quoted is that the notion of absolute or unfettered discretion is rejected. Statutory power conferred for public purposes is conferred as it were upon trust, not absolutely - that is to say, it can validly be used only in the right and proper way which Parliament when conferring it is presumed to have intended. … Thus before deciding whether a discretion has been exercised for good or bad reasons, the court must first construe the enactment by which the discretion is conferred. Some statutory discretions may be so wide that they can, for practical purposes, only be challenged if shown to have been exercised irrationally or in bad faith. But if the purpose which the discretion is intended to serve is clear, the discretion can only be validly exercised for reasons relevant to the achievement of that purpose.”

"… a public power is not exercised lawfully if it is exercised not for a public purpose for which the power was conferred, but in order to promote the electoral advantage of a political party. The power at issue in the particular case is section 32 of the Housing Act 1985, which conferred power on local authorities to dispose of land held by them subject to conditions specified in the Act. Thus a local authority could dispose of its property, subject to the provisions of the Act, to promote any public purpose for which such power was conferred, but could not lawfully do so for the purpose of promoting the electoral advantage of any party represented on the council."

“(1) Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. (2) The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

“129. The concept of “possessions” in the first part of Art.1 of Protocol No.1 has an autonomous meaning which is not limited to the ownership of material goods and is independent from the formal classification in domestic law. In the same way as material goods, certain other rights and interests constituting assets can also be regarded as “property rights”, and thus as “possessions” for the purposes of this provision. In each case the issue that needs to be examined is whether the circumstances of the case, considered as a whole, conferred on the applicant title to a substantive interest protected by Art.1 of Protocol No.1”

“35. An applicant can allege a violation of Article 1 of Protocol No. 1 only in so far as the impugned decisions related to his ‘possessions’ within the meaning of this provision. ‘Possessions’ can be either ‘existing possessions’ or assets, including claims, in respect of which the applicant can argue that he or she has at least a ‘legitimate expectation’ of obtaining effective enjoyment of a property right. By way of contrast, the hope of recognition of a property right which it has been impossible to exercise effectively cannot be considered a ‘possession’ within the meaning of Article 1 of Protocol No. 1, nor can a conditional claim which lapses as a result of the non-fulfilment of the condition (see Prince Hans-Adam II of Liechtenstein v. Germany [GC], no. 42527/98, §§ 82-83, ECHR 2001-VIII, and Gratzinger and Gratzingerova v. the Czech Republic (dec.) [GC], no. 39794/98, § 69, ECHR 2002-VII).”

“34. While it is true that under English law the option was rendered invalid due to the operation of the doctrine of ultra vires, the Court observes that the applicant had entered into the agreement with Dorchester on the basis that he would have the possibility of extending the term of the lease. Neither party had been aware that there was any legal obstacle to this term forming part of the applicant’s consideration for agreeing to the contract. The applicant proceeded to build on the land, pay ground rent to the local authority and enter into sub-leases with other persons who conducted business in the premises which he constructed. He clearly expected to be able to renew the option and continue to obtain the benefit of rent from the occupation of those premises which he had sub-let. He reached in negotiations with the local authority the stage of preparing a draft renewal lease with an agreed increased ground rent, already signed on his side and had proceeded to enter into agreements with his sub-lessees. The local authority, West Dorset, itself only raised the problem of invalidity at a very late stage (October 1995, according to the first instance judge). 35. The Court considers, in the circumstances of this case, that the applicant must be regarded as having at least a legitimate expectation of exercising the option to renew and this may be regarded, for the purposes of Article 1 of Protocol No. 1, as attached to the property rights granted to him by Dorchester under the lease.”

"For nearly 50 years since the coming into force ofthe Pensions Increase Act 1971 public service pensionshave been increased, usually on an annual basis, as a means of protecting pensioners from inflation. The Increase Act 1971 applied to the entirety of a public servant's occupational pension."

"The invariable practice from the outset of the old two-tier state pension was that the Treasury direction be used to switch back on full indexation for public service GMP in any circumstances where that would otherwise not be provided by the AP."