Andrew Lilico argues that the decision to uprate pensions in line with CPI instead of RPI constitutes seizing the property of public sector workers who have accrued pension rights, akin to deciding to "take away their houses or their cars". There was a major case at the High Court which addressed exactly that issue – between the Government and a number of public sector unions. The judgement came just yesterday but Andrew doesn’t mention it. There are a few relevant points that came out of that case.
Even the claimants didn’t claim that there was an outright violation of their property rights here. The "Claimants disavow any private law claims by the individuals concerned because the relevant transactions must be taken to have occurred on the terms of the individual schemes and the legislation." All they claim is that some of the "explanatory literature" and assumptions during negotiations between unions and the Government suggested RPI would be used.
Public sector pensions just don’t work in the way Andrew understands them. They are more akin to benefits, and indeed there is a direct link between how public sector pensions and benefits are uprated with inflation, that people become entitled to by working in the public sector than the sort of claim someone has on a private sector pension fund.
Normally that actually means public sector pensions are relatively secure. They don’t depend on the fortunes of one company or a set of investments. They have a gilt-edged security that few private sector pensions can match. But that is a privilege those workers enjoy and not a property right short of national bankruptcy, as Andrew suggests.
In recognition of that, both Andrew and the claimants argue that, even if this isn’t a property right, those holding accrued pension rights had a legitimate expectation that they would be uprated in line with RPI.
Again though, the court found that wasn’t the case. In the end, all three judges concluded that “legitimate expectation claims do not get off the ground and must fail.” You can read why in paragraphs 71 to 78 so I won’t quote the case at length here.
The three judges divided on another issue, whether or not it is legitimate for the decision over which inflation measure should be used to be made with an eye on the public finances. Two out of three decided that it was okay for the Government to do that when two legitimate indices were available.
Of course the ideal would be to stick to a consistent measure of inflation, and not make any changes that affect accrued pension rights. But all sorts of decisions violate the moral principle that Andrew is setting out much more severely. A hike in Stamp Duty will affect the value of people’s property. Accepting high inflation as the Government and the Bank of England are right now reduces the value of a whole range of financial assets. Even a rise in student fees could break a legitimate expectation of a tertiary education at a certain price, which people will have based financial decisions on.
Stability in Government policy is a worthwhile and moral objective. The failure here isn’t the shift from RPI to CPI though. It is the failure to reform public sector pensions over years, which left them imposing an unfair burden on taxpayers, and meant the policy had to change relatively sharply. There are already concerns that too much of the burden of correcting that is falling on younger workers. Keeping to the principle Andrew sets out, that no changes can affect accrued rights in any way, would exacerbate that.
The best way to ensure policy is to stable is to ensure it is affordable from the start. As I set out in Let them eat carbon, the green industries are discovering that is the case for environmental policy as well.