Thursday, 7 May 2020

Government extra-judicial interference in local government investment slapped down by Supreme Court

The news item from last week which touches most closely on the average council tax payer should have been included in my posting of this morning. It was not given much publicity outside the specialist press, partly because the subject may have seemed to editors to be arcane but partly I suspect because of the identity of the successful litigant.

The Supreme Court has overturned ministerial guidance to the Local Government Pension Scheme (LGPS) that was intended to put a stop to certain types of ethical disinvestment.

Judges ruled by a 3-2 majority in a case brought by the Palestine Solidarity Campaign (PSC) that the Secretary of State for Housing, Communities and Local Government had exceeded his powers by issuing the guidance.

The Secretary of State published ‘Local Government Pension Scheme: Guidance on Preparing and Maintaining an Investment Strategy Statement’ in September 2016, which included a provision that the scheme’s administrators should not pursue policies contrary to UK foreign or defence policy.

This would in effect prohibit measures such as the boycotts supported by the PSC.

The PSC argued that the Secretary of State’s guidance was outside the statutory purposes authorised by the Public Services Pensions Act 2013 and the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016.

The High Court had agreed, but the Court of Appeal later overturned this.

Giving judgment, Lord Wilson said the Act identified the procedures and strategy that administrators should adopt.

But in the passages of the guidance under challenge, “the Secretary of State has insinuated into the guidance something entirely different…an attempt to enforce the government’s foreign and defence policies”.

Lord Wilson said the Secretary of State “was probably emboldened ... to exceed his powers” by the misconception that scheme administrators were part of the machinery of the state and discharge conventional local government functions”. That though failed to recognise that their duties are similar to those of trustees, who should act in their members’ best interests.

He said the Secretary of State’s claim that contributions to the scheme were ultimately funded by the taxpayer was misleading as the fund comprised contributing employees’ money, not public money.

[Thanks to for the extensive quotation]

The Court was split 3-2 on the matter but one suspects that if the immediate cause of the action had been less controversial than boycotts of Israeli goods then the margin would have been greater. It is clear that the Tory government was intent on putting curbs on local government investment decisions which were not legally authorised. It would have been the thin edge of an unacceptably authoritarian wedge.

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