The trade unions have lost their legal challenge on behalf of millions of public sector workers over what inflation index is used to calculate annual increases to their pensions.
The High Court has today ruled that 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 was lawful.
The move was announced by chancellor George Osborne in the June 2010 Budget as part of wider changes to the welfare system. He 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.”
Unions opposed the change on the grounds that it was not permitted under social security legislation and that it reneged on assurances given by successive governments that RPI would apply.
However, government lawyers successfully argued that the change was legal and would save £6bn a year, helping the UK’s economic recovery.
Responding to today’s ruling, TUC’s general secretary, Brendan Barber, said: “This is a disappointing judgement 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.”
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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