Six unions have mounted a legal challenge on behalf of millions of public sector workers over what inflation index is used to calculate annual increases to their pensions.
At a judicial review hearing starting in the High Court today, unions including Unison and Unite will challenge the government’s decision to link pensions to the consumer price index (CPI) instead of the traditionally higher retail price index (RPI) from April this year.
The move was announced by chancellor George Osborne in the June 2010 Budget as part of wider changes to the welfare system.
Osborne said: “The consumer price index not only reflects everyday prices better; it is, of course, now the inflation measure targeted by the Bank of England.”
September’s inflation figures put CPI at 5.2% and RPI at 5.6%, according to Unison – however, CPI is about 1.2% lower on average.
Unions argue that the loss to existing public sector pensioners could reach the 15% mark.
The unions’ legal case is that the imposed move was not permitted under social security legislation, and that it reneges on assurances given by successive governments that RPI would apply.
Some have already balloted for a national day of industrial action over pensions on 30 November, while other unions are still balloting or plan to show their support in other ways.
Dave Prentis, general secretary of Unison, which represents around 40,000 social workers, said: “The government has stepped over the mark – the switch is nothing but a cynical, multi-million pound raid on pensioners to pay down a deficit they did nothing to cause.
“This flawed measure of inflation does not even include housing costs – a major expenditure for many retired people.”
His counterpart at Unite, Len McCluskey, added: “Our legal challenge against the coalition government is hugely significant for workers in both the public and private sectors.
“This government wants us all to work for longer and for less.”
A spokesperson for the Treasury said: “Public service pensions will continue to provide protection against inflation and will remain among the very best available, providing a guaranteed pension level for all employees.
“CPI is an internationally recognised, internationally comparable measure – the headline measure reported by the Office for National Statistics – and is already used by the Bank of England to set its inflation target. Unlike RPI, CPI is designed to take account of the fact that consumers tend to shop around, switching to cheaper alternatives when prices for similar goods change.”
The differences between CPI and RPI
The basic approach to the measurement of inflation adopted by both the CPI and RPI is the same. Both track the changing cost of a fixed “shopping basket” of goods and services over time and both are produced by combining together around 180,000 individual prices for over 650 representative items. Differences arise due to coverage, the population base of the indices and the way in which individual price quotes are combined at the first stage of aggregation. To find out more, download this document from the Office for National Statistics
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