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Supreme Court rules against government on LGPS and ethical disinvestment

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.

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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.

Lady Hale agreed with Lord Wilson. Lord Carnwath gave a concurring judgment. Lady Arden and Lord Sales dissented.

Jamie Potter, partner in the public law and human rights team at law firm Bindmans, which acted for the PSC, said: “We welcome the Supreme Court’s confirmation that the Government went too far in imposing its political opinions onto the management of the money of LGPS members.

“LGPS members now have the freedom to pursue their own principles in respect of the role of the arms trade and foreign countries in violations of human rights around the world, when determining how their pension monies are invested.”

The Government though said in December that it would introduce legislation under which “public institutions, including local councils, will be prevented from setting up boycotts against countries such as Israel”.

MHCLG has been contacted for comment.

Mark Smulian

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