British Telecommunications PLC, R (On the Application Of) v Treasury

Divisional Court of the Queen’s Bench Division (“the Divisional Court”), dismissing BT’s claim for judicial review of the decision of Her Majesty’s Treasury to implement full indexation of the guaranteed minimum pension (“GMP”) payable to members of public service pension schemes (including the Principal Civil Service Pension Scheme (“the PCSPS”)) who reach State pension age between December 2018 and April 2021.

On 11 February 2016 BT’s Pensions Risk Director, Mr Paul Rogers, wrote to the Treasury setting out the impact that any ministerial direction would have in respect of the BTPS. The letter proposed alternatives to such a direction, such as the State continuing to meet GMP increases for public sector scheme members outside of the PCSPS framework or introducing a statutory override for private sector schemes.

why the Treasury considered that the option of amending the rules of the PCSPS was not feasible. Following further emails from BT, on 24 March 2016 the Chief Secretary and the Minister for Pensions replied to Sir Michael Rake’s letter of 8 March 2016. The letter stated that Treasury officials had given BT reasons why the proposals in the letter could not be taken forward. It also stated that an option would be for the issue of the impact on schemes like that of BT to be included in the government’s consultation on the long-term solution to GMP indexation and equalisation for public servants.

Ground 1: The supposed property rights of BTPS members.

Ground 1A: Implementing indexation by way of an amendment to the PCSPS would not have been ultra vires.

Ground 2: Irrationality and disproportionality - the rejection/postponement of the conversion option.

Ground 3: Irrationality and disproportionality - the rejection/postponement of the case-by-case option.

Ground 4: The November 2018 decision.

BT’s core case on those two grounds, as developed orally at the hearing, as being that the PCSPS amendment route (which the Divisional Court called the PCSPS workaround) provided a free-standing and workable option, which did not interfere with BTPS members’ property rights and which was capable of being implemented by the Treasury, and that in failing to recognise it as such, the Treasury erred in law and/or acted irrationally and/or discriminated against BT, such that the decision should be set aside and re-taken adopting a legally correct approach to the PCSPS workaround.

a clear risk that the Government would be seen as preferring the interests of BT over its Section B members, a risk which would be liable to give rise to questions by Section B Scheme members, unions, Parliament, press and the public. The Divisional Court said (at [131]) that those policy concerns were reflected in the consultation itself.

"Where there are general words in a later Act capable of reasonable and sensible application, without extending them to subjects specifically dealt with by earlier legislation, you are not to hold that earlier and special legislation indirectly repealed, altered or derogated from merely by force of such general words without any indication of a particular intention to do so."

The Divisional Court erred in finding that BT had not presented the PCSPS amendment route as a stand-alone option, in responding to the consultation, but had presented the statutory override as a “necessary element” of each of its proposals; and that Treasury Officials had reasonably understood this to be the case.

The Divisional Court erred in finding that the Treasury had rejected the PCSPS amendment route for policy reasons that were separate and severable from its concerns about property rights, and were the central reason for the January 2018 decision, and were sufficient to support a lawful decision whether or not there was in fact any interference with property rights.

The Divisional Court erred in law in concluding that there was no power under SAA 1972 ss. 1 and 2 to amend the PCSPS so as to provide for increases in pensions in payment to uprate them for inflation, and that the Increases Legislation contain the exclusive regime for increases on public sector pensions.

The Divisional Court erred in law in finding that it would have been improper and accordingly unlawful for the Treasury to adopt the PCSPS amendment route because this would have involved a use of a power for a collateral purpose, namely the use of public powers conferred in public service pension schemes to serve the financial interests of BT.

The Divisional Court erred in law in finding that the adoption of the PCSPS amendment route would interfere with the property rights of Section B members of the BTPS under A1P1. In particular, the Court erred in law in concluding, based solely on what it asserted to be invariable prior administrative practice, that such members had a legitimate expectation that any indexation of the PCSPS would be given effect through the Increases Legislation. The Court further erred in rejecting BT’s submission that, in any event, the effect of the 2016 direction and the consultation process was to destroy any prior legitimate expectation.

Discussion

Appeal Ground 1: The PCSPS amendment route as a stand-alone proposal

The conclusion of the Divisional Court that the statutory override was put forward as a necessary element of BT’s alternative options, and that BT did not put forward the PCSPS amendment route as a stand-alone option until BT’s preaction protocol letter, were findings of fact. We can only overturn a finding of fact if we conclude that it was wrong: CPR 52.21(3). As is normally the position, this appeal is a review and not a re-hearing: CPR 52.21(1). The meaning of “wrong” in this context has been expressed in different ways.

In Henderson v Foxworth Investments Ltd [2014] UKSC 41, [2014] 1 WLR 2600, the test was said (at [62]) to be whether the decision under appeal was one that no reasonable judge could have reached, and (at [66]) whether the decision of the judge cannot reasonably be explained or justified. In Volcafe Ltd v Cia Sud America de Vapores SA [2018] UKSC 61, [2019] AC 358, (at [41]) it was said to be whether the trial judge fundamentally misunderstood the issue or the evidence, or plainly failed to take the evidence into account, or arrived at a conclusion which the evidence could not on any view support. In Smech Properties Ltd v Runnymede Borough Council [2016] EWCA Civ 42, on an appeal in judicial review proceedings, Sales LJ (as he then was), with whom the two other members of the Court of Appeal agreed, said (at [27]) that the question was whether the first instance judge had legitimate and proper grounds for reaching the decision she did. He said (at [29]) that, where an appeal proceeds by way of review rather than a re-hearing, it will often be appropriate for the Court of Appeal to give weight to the assessments of the facts made by the judge below, even where that assessment has been made on the basis of written evidence which is also available on the appeal; and that, even if the Court of Appeal might disagree if it approached the matter afresh for itself on a re-hearing, it did not follow that the judge lacked legitimate and proper grounds for making her own assessment and hence it did not follow that it could be said that her decision was “wrong”.

We consider that there is no difference of substance between those different ways of explaining the approach of an appeal court in deciding whether or not a finding of fact by a trial judge was “wrong” for the purposes of CPR 52.21(3)(a) on a review. We consider it is convenient to use Sales LJ’s approach of asking whether the Divisional Court had legitimate and proper grounds for reaching the findings of fact which are challenged on this appeal under Appeal Ground 1 and Appeal Ground 2.

Ms Rose submitted that (1) the only permissible conclusion on the evidence is that BT was suggesting the PCSPS amendment route should be adopted whether or not the statutory override was also adopted; (2) in any event, the Government understood that is what BT was proposing.

As to (1), she emphasised the following evidential material. In his letter dated 8

An email from BT to the Treasury on 9 March 2016 attached a note of a consultation between BT’s solicitors and leading counsel. The final paragraph of that note said that it was understood that the Treasury’s policy objective was to require additional GMP increases to be paid under the PCSPS (and on other official pensions) but that private sector schemes would not be required to provide those pension increases. The note recorded that, in counsel’s view, the only way of achieving that objective “before the 6 April ‘deadline’” would be to amend the rules of the PCSPS directly, rather than by changing the Increases Legislation or issuing a further ministerial direction under section 59A. Again, there was no reference in the email or the note to a statutory override.

An email from BT to the Treasury dated 22 March 2016 said that BT had considered the amendment option further with its solicitors, Freshfields Bruckhaus Deringer LLP (“Freshfields”) and that BT remained of the view that the option was feasible from a legal perspective. There was no reference to a statutory override.

The Government’s consultation on indexation and equalisation of GMP in public service pension schemes was published on 28 November 2016. In paragraph 4.2 it was stated that “the government recognises that, for some private sector organisations and wider public sector organisations, the way any [of the Government’s] policy options are implemented is relevant in determining whether it would impact on their pension scheme”. It said that the Government was keen to hear from such organisations and representatives of their scheme members and pension fund trustees, and that it wished to understand how their rules aligned to those of the public service pension schemes; whether the Government should take action to avoid a read across, and if so what specific actions they felt the Government could take to avoid direct implications for their pension schemes, including which policy options would be expected to directly require changes to such schemes. There then followed five specific questions relating to those issues, as follows: Question 12: “How could the delivery of any of the policies in the consultation impact wider public sector or private sector schemes who are not ‘official pensions’ under the PIA 1971”; Question 13: “If wider public sector or private sector schemes who are not ‘official pensions’ are impacted by any policy set out in the consultation, why were the pensions designed to mirror official pensions originally”; Question 14: “Should the government take action to avoid any read across between private sector schemes and any policy announced”; Question 15: “Are there actions the government could take to restrict the impact on wider public sector or private sector pension schemes who are not ‘official pensions’ under the PIA”; Question 16: “Why

BT’s response to the consultation was contained in a lengthy and very detailed letter dated 20 February 2017, the annex to which was prepared by Freshfields.

There then followed specific responses to Questions 12-16 in the consultation. In response to Question 12, BT said at paragraph 3.2(b) that, if continued full indexation was implemented through an Act of Parliament other than the Increases Legislation, its view was that the BTPS Section B pensions increase rule would not be triggered and, in a similar vein, implementing continued full indexation through a PCSPS rule amendment, rather than via legislation, would also avoid the unintended BTPS Section B impact. Paragraph 3.2(c) then said as follows:

“(c)

That said, the legal analysis is likely to be complex and there could be differing views on how the Section B pension increase rule should be interpreted (with the potential need for clarificatory Court proceedings). This approach may also not ‘work’ for other affected private sector schemes, depending on their scheme rules. Given this legal uncertainty, we would urge Government to also introduce into legislation a Statutory

Override.”

The statutory override was explained and described in paragraph 3.2(d) as follows:

“(d)

The Statutory Override would enable affected private sector employers to make amendments to pension scheme rules unilaterally to remove any additional GMP increases payable as a result of the abolition of defined benefit contracting-out. It would override certain restrictions contained in section 67 of the Pensions Act 1995 … and the Rules themselves.”

BT said that it enclosed as an annex advice received from Freshfields (shared previously with the Treasury and the Department for Work and Pensions) “setting out the clear public interest basis for introducing a Statutory Override”.

In response to Question 15, BT said (with a cross reference to paragraphs 3.2(c)(d) and paragraph 3.14 of its response) that, by way of adjustment to the

Paragraph 3.14 was as follows:

“Given potential interpretation uncertainty concerning the Section B pension increase rule (see paragraph 3.2(c) above) and the fact that we do not know if implementation methods alone would ‘work’ for other private sector schemes, we would urge Government to also introduce a Statutory Override into legislation. Please see the Annex for the detail but, in summary, we suggest that primary legislation is enacted (either by an order made under section 54 of the Pensions Act 2014 or otherwise) to provide that:

(a)

a sponsoring employer of a private sector occupational pension scheme;

(b)

may unilaterally modify the rules of its pension scheme;

(c)

in relation to all or part of the members’ subsisting rights;

(d)

in order to disapply the requirement to pay a higher amount of increases pursuant to an order under section 59A of the Social Security Pensions Act 1975, or any new legislative requirements that apply to official pensions.”

Advice by Freshfields to BT on the statutory override and its legal justification was annexed to BT’s consultation response. That advice was a lengthy and detailed document which explained how a statutory power could be introduced to modify the rules of affected private sector schemes, such as the BTPS, so as to change the requirements to provide increases on GMPs, overriding restrictions contained in section 67 of the Pensions Act 1995. The effect of that section is to prevent a power in a private occupational pension scheme being exercised by any person to modify the scheme in a manner that would or might affect any entitlement, or accrued right, of any member of the scheme save in certain specified circumstances. In the document Freshfields said that they considered that the pension benefits protected by section 67 would amount to a property right protected by A1P1 but that such interference could be legally justified as being in the public interest and proportionate. The document set out the basis for that view. In the course of Freshfields’ detailed explanation of those matters it was asserted (in paragraph 3.1) that “in order to ‘decouple’ the BTPS from the practices of the PCSPS in relation to the payment of increases on GMPs, it would be necessary to amend the relevant increases rules of the BTPS”.

On the face of it, BT’s consultation response was a clear and unequivocal statement, carefully crafted by it and its lawyers, that, if the Government adopted the PCSPS amendment option, the Government would also have to introduce a statutory override. The reason, also clearly articulated by BT’s lawyers, was that, if the PCSPS amendment stood alone, it would still be a complex legal question whether or not pension increases under the PCSPS would be read across to Section B members of the BTPS. Although not elaborated in BT’s consultation response, it seems likely, as Ms Demetriou explained, that the doubt and the complexity would arise from a variety of facts, including in particular the following. The pension increase rule (rule 13.2) in Section A of the BTPS is identical to the material part of rule 10.2 in Section B, and it is accepted by BT that a stand-alone amendment of the PCSPS would not prevent a read-across of increases to Section A of full indexation, albeit because (BT says) of the particular wording of rule 1 of Section A (which is not mirrored in Section B) that members would be paid the like superannuation benefits as the maximum benefits which could be paid to or in respect of such member under the enactments and instruments relating to superannuation in the Civil Service as varied from time to time. A number of former members of Section A have moved to Section B on the assurance, or at the least the understanding, that they would be in no worse a position and that in fact the move would be to their financial advantage. Further, some of those members would have been, or might have been, not merely employees of the Post Office, who received assurances about indexation of pensions at the time Section A was created in 1971 but also former civil servants, who received assurances about indexation of their pensions before the establishment of the Post Office in 1969.

Ms Rose submitted that, when assessing whether BT was always proposing to the Treasury the PCSPS amendment route as a stand-alone option, BT’s consultation response must not be read in isolation but rather must be seen in the context of, and as following on from, the previous engagement between BT and the Treasury. She submitted that the Divisional Court was wrong not to have done so. That, however, is to underplay significantly the fact that BT’s consultation response was BT’s formal response to the Government's request to private sector pension schemes to inform the Government of their views on the various options put forward in the consultation and, in particular, to Questions 12-16 in the consultation, and the fact that it was a lengthy, detailed analysis prepared with obvious care by BT and its lawyers.

BT sought before us, as it had before the Divisional Court, to support its case that it had always put forward the PCSPS amendment route as a stand-alone option by

The Secretary to the Treasury and the Pensions Minister replied to Sir Michael Rake’s pre-consultation letter of 8 March 2016 by a letter dated 24 March 2016. This stated, among other things, that one option would be for the Government’s consultation on the long-term solution to GMP indexation and equalisation for public servants to include how the Government could support schemes like BT which decided no longer to follow the indexation provisions of the public service pension schemes. There was no reference to any statutory override.

Following the consultation and consideration of the responses to it, the submission of Officials to the Chief Secretary dated 19 October 2017 recommended that the “current policy solution” be extended for a further two years and there be a review for a longer term solution during that period. Paragraph 15 of that document said the following in relation to BT:

“BT has estimated that either conversion or full extension of the current solution would add an additional £c600m to their total scheme liabilities, a figure that we question. To prevent this cost to scheme, BT has requested that we consider a statutory override of scheme rules, an Act of Parliament or an amendment to Civil Service Pension Scheme rules (which BT mirror). BT has stated it believes “case-by-case” would be a more appropriate methodology on the grounds of reduced cost, although we do not believe this is a deliverable methodology.” (underlining added)

Ms Rose emphasised the underlined word “or”.

In paragraph 11 of the further submission to the Chief Secretary dated 23 November 2017 Officials stated that the decision to extend the current policy forward a further two years would mean that BT would have to fund fully indexed GMP benefits for its scheme members who reached State pension age by the end of 2020. Paragraph 12 of the submission then said the following, among other things:

“BT have suggested a number of solutions for this: (i) a new Act; (ii) amending the 1974 civil service scheme; or (iii) providing a statutory override. TLA [Treasury Legal Advisers] advise that in each case there would need to be a policy justification for preferring the interests of BT to the interests of the scheme members.”

Ms Rose emphasised the word “or” and the words “in each case” in that passage.

The Government’s formal response to the consultation was published in January 2018. Ms Rose relied on paragraph 3.19, which was as follows (substituting “BT” where appropriate”):

“[BT] requested that the government should craft its response in such a way as to avoid the read across from public service schemes to their private sector scheme. However, the government believes that it would not be appropriate to act in a way that would deprive members of indexation, to which they would otherwise be entitled. Acting to do so would raise legal questions, including whether there was a legitimate aim to justify such an interference in the property rights of scheme members. In addition, some of the mechanisms suggested by [BT] to avoid this impact are outside the scope of the government’s statutory powers.”

Ms Rose emphasised that there was no reference to a statutory override in that paragraph. She further submitted that the last sentence of the paragraph was referring to the PCSPS amendment route. She referred us to the first witness statement of Paul Kirk, who at the time of the witness statement was the head of the Public Service Pensions Branch of Workforce, Pay & Pensions within the Public Spending Group at the Treasury and was the policy official responsible for UK public service pensions policy. He said (at paragraph 108) that paragraph

Ms Rose then referred us to the letter from the Treasury to BT dated 14 February

Ms Rose submitted that the letter shows that the Government was plainly treating the PCSPS amendment route as a separate option. She was particularly critical of the absence of any reference to the letter by the Divisional Court.

Ms Rose referred to the following passage in the second witness statement of Mr

Despite Ms Rose’s powerful submissions, we cannot see that, viewed in the round, the evidence supports the case that the Treasury was always under the impression that BT was advancing the amendment route as a stand-alone option.

The pre-consultation material does not assist. While BT is correct that there is nothing in the pre-consultation material which indicates that BT was advancing the PCSPS amendment route only in conjunction with a statutory override, BT’s consultation response was, as we have said, based upon advice from and indeed in part written by BT’s lawyers and represented BT’s considered answer to the Government’s questions. The ordinary and natural meaning of BT’s consultation response is that it was putting forward the PCSPS amendment route in conjunction with a statutory override and not as a stand-alone option. The question currently under consideration is whether, in view of the postconsultation material as to the Treasury’s understanding of BT’s position, BT’s consultation response should not be interpreted in that way but rather in a way that aligns with BT’s current litigation stance that it always put forward the PCSPS amendment route as a stand-alone option.

We consider that Ms Rose placed too much weight on the disjunctive “or” in paragraph 15 of the submission of Officials to the Chief Secretary dated 19 October 2017. This was not a lawyer’s document and it would be perfectly reasonable to read the paragraph as simply setting out the different elements of BT’s proposals or even as a request by BT for a statutory override plus one or other of a new pensions increase statute or an amendment to the PCSPS.

Again, we consider that Ms Rose sought to gain too much from the word “or” and the phrase “in each case” in paragraph 12 of the submission of Officials to the Chief Secretary dated 23 November 2017. They are not inconsistent with the view, which is a reasonable one, that paragraph 12 is simply setting out the different elements of the options presented by BT.

Moreover, read as a whole, the Officials’ submission is more consistent with the conclusion that the Officials were acting on the basis that the PCSPS amendment route was put forward by BT in conjunction with a statutory override and not as a stand-alone option. The “summary” on the first page of the submission stated that

“BT … has asked that we consider a legislative carve-out for their scheme.” It did not mention the PCSPS amendment route as a stand-alone option. Similarly, paragraph 9 of the submission stated that “BT has asked us to legislate to exclude section B members … from the obligation in BTPS rules to index pensions in accordance with the legislation governing public service schemes so that extending the interim solution does not impose additional costs upon them.” The recommendation of Officials was expressed on the same footing, saying that:

“you confirm the intention to extend the current GMP policy solution for a further two years while we review a longer-term solution; and agree not to legislate to change the rules of some affected private sector schemes (by removing or enabling the removal of their obligations to index pensions in accordance with the legislation governing public service schemes).” (underlining in the original)

The question posed for the Chief Secretary at paragraph 18 of the 23 November 2017 submission reflected that recommendation. It said:

“Do you (i) agree that we should extend the Government’s

“interim” GMP equalisation and indexation policy forward to cover those reaching their SPas until 4 April 2021, to meet legal obligations to public service pensioners? Do you (ii) also agree to rejecting BT’s request for the Government to legislate to remove or enable the removal of their obligations under the BTPS rules? If not agreeing (ii), should we work further with DWP on the possibility and implications of a carve out for BT and seek Counsel’s opinion?”

An internal Treasury email of 27 November 2017 accepted the Officials’ recommendation. It stated that the Chief Secretary agreed:

“[to] extend the current GMP policy solution for a further two years while we review a longer-term solution;

not to legislate to change the rules of some affected private sector schemes (by removing or enabling the removal of their obligations to index pensions in accordance with the legislation governing public service schemes).”

Contrary to Ms Rose’s submission we consider that the Government’s January 2018 response confirms, rather than undermines, the Treasury’s case that it understood BT to be proposing the PCSPS amendment route in conjunction with a statutory override rather than as a stand-alone option. The third sentence of paragraph 3.19 of the Government’s January 2018 response, which is set out in [68] above, was referring to the legal questions raised by, among other things, a statutory override. The final sentence was a reference to the PCSPS amendment route but that was mentioned as giving rise to an additional concern.

As Ms Demetriou observed, the email from BT to the Treasury on 31 January 2018 shows that this was also BT’s understanding. The email asked the Treasury, with reference to the third sentence of paragraph 3.19 of the Government’s formal response to the consultation, to set out its reasons for the Government’s rejection of Freshfield’s arguments in the annex to BT’s formal consultation response explaining why there was a legitimate aim for a statutory override which would interfere with scheme members’ property rights. There was no complaint in that email that there was no need to worry about “legal questions”, as mentioned in the third sentence of paragraph 3.19, as the PCSPS amendment route was a stand-alone option.

We do not agree with Ms Rose’s submission that the letter from the Treasury to BT dated 14 February 2018, the material part of which is set out in [70] above, plainly shows that the Government was treating the PCSPS amendment route as a stand-alone option. The structure of the letter is awkward and confusing. It is quite true, as Ms Rose observed, that on the face of it the paragraph beginning -

“You put forward several proposals” - expressed the PCSPS amendment route as a separate proposal from the statutory override. On the other hand, both the preceding paragraph and the subsequent paragraph are addressing what was regarded as a fundamental policy objection as well as an inevitable legal complexity, namely the interference with the BTPS members’ property rights caused by a statutory override. That perceived inevitability of legal complexity is made clear by the words – “There would in addition be legal issues” – in the final paragraph of the extract from the letter quoted above. Viewed in that way, the wording of the letter relied upon by Ms Rose, like the wording in paragraph 15 of the submission to the Chief Secretary dated 19 October 2017 and the wording in paragraph 12 of the submission to the Chief Secretary dated 23 November 2017 also relied upon by Ms Rose, is best seen as an enumeration of the different elements of the options presented by BT. Read as a whole, the letter supports the Treasury’s case, rather than that of BT, on Appeal Ground 1.

We accept Ms Demetriou’s submission that paragraphs 6 and 7 of Mr Kirk’s second witness statement do not show, as Ms Rose contended, that the Treasury understood that BT was putting forward the PCSPS amendment route as a standalone option. Mr Kirk states that it was clearly put forward to Ministers on the face of both the October and November 2017 submissions. He does not say that it was put forward as a stand-alone “option”; and, for the reasons we have given above, the 23 November 2017 submission is more consistent with the conclusion that Officials were acting on the basis that the PCSPS amendment route was put forward by BT in conjunction with a statutory override and not as a stand-alone option.

That understanding by the Treasury of BT’s PCSPS amendment proposal was consistently maintained up to the commencement of these proceedings. In paragraph 16 of the Government Legal Department’s letter of 9 April 2018 to Freshfields, in response to Freshfields pre-action protocol letter, it was stated that, due to the legal uncertainty arising from the fact that amendment of the PCSPS would not necessarily result in BTPS Section B members having no entitlement to carry-across pension increases, BT considered that the statutory override was necessary. The same point was made in paragraph 91 of the Treasury’s detailed grounds for resisting the judicial review claim.

As we have said above, it is sufficient for rejecting Appeal Ground 1 if the Divisional Court had legitimate and proper grounds for reaching its conclusions of fact that BT did not present the PCSPS amendment route as a stand-alone option in response to the Government’s consultation but presented the statutory override as a necessary element of the proposal and that Treasury officials understood that to be the case. For the reasons we have given, we consider it is plain that the Divisional Court did have legitimate and proper grounds for making those findings. Indeed, we consider that the Divisional Court was correct to reach those findings.

Finally, on Appeal Ground 1, we have recorded Ms Rose’s criticism that the Divisional Court did not make any reference to the letter from the Treasury to BT dated 14 February 2018. For the reasons we have given, that letter makes no difference to the analysis and does not undermine the findings of the Divisional Court. In any event, it is well established that it is not necessary for a trial judge to record in their judgment every argument advanced and every piece of evidence relied upon provided it is clear that the principal arguments and evidence have

Ms Rose submitted that, contrary to the finding of the Divisional Court, it is clear that the Government’s decision to reject each of BT’s options was for the policy reasons that they were ultra vires and would interfere with the property rights of the BTPS Section B members. Those reasons were, she submitted, legally misconceived, and so the Government failed to balance fairly and reasonably the interest of the BTPS Section B members, on the one hand, and the interest of BT, on the other hand. That submission is, therefore, tied to success on Appeal Grounds 3, 4 and 5.

BT’s difficulty with this ground of appeal is that its success is also dependent on success on Appeal Ground 1 as it is accepted by BT that BT’s proposed statutory override would indeed interfere with the BTPS Section B members’ rights under rule 10.2 and that those rights are property rights protected by A1P1. The property rights of such members which are the subject of Appeal Ground 5 are not the rights conferred by rule 10.2 but rights said to result from the alleged legitimate expectation of the members that any indexation of public sector GMP would be granted through, and only through, the legislation referred to in rule

In view of our decision on Appeal Ground 1, and the acceptance by BT that the proposed statutory override would interfere with BTPS Section B members’ A1P1 rights, and would require justification, Appeal Ground 2 ceases to have any significance. As it happens, even if we had found in favour of BT on Appeal Ground 1, we would have rejected Appeal Ground 2, and for that reason, as well as because the point was fully argued before us, we shall deal with its merits.

Ms Rose referred us to the following documents for the proposition that the Government’s decision was made for reasons which were legally unsound and not, as found by the Divisional Court, for policy reasons unrelated to the errors of law which are the basis for Appeal Grounds 3, 4 and 5.

The ministerial submission of 17 March 2016 referred to the PCSPS amendment option and said that the Government did not have the legal powers to deliver that option, and, further, that it was possible that the Government or BT made commitments to the private sector employees at the point of privatisation.

An email from the Treasury to BT of 21 March 2016 stated that there was no power to amend the PCSPS rules so that indexation was payable under those rules rather than the Increases Legislation.

The 23 November 2017 submission to the Chief Secretary contained the following statements:

“12.

… The scheme rules have the result that members are entitled to benefit from an HMT direction in the same way as members of the 1974 civil service scheme and there would need to be a legally defensible justification for interfering with BT scheme members’ property rights. …”

“13.

TLA advise that it may be possible to devise a mechanism to avoid impacting on schemes such as BT e.g. if the Secretary of State agreed to make negative resolution regulations under s. 67 of the Pensions Act 1995. However, that would require identifying a legally defensible justification for the interference in property rights, a justification which we would test with Counsel in the light of the difficulties outlined above. …”

“15.

Legal risk is high. A judicial review brought by members or trade unions is likely and, unless we were able to develop a defensible justification for interfering in property rights, there is a high risk of the judicial review being successful.”

Paragraph 3.19 of the Government’s formal response to the consultation is set out at [68] above.

We accept, as is plain from those documents, that an important concern of the Government was undoubtedly that the PCSPS amendment route would interfere with what the Treasury considered were property rights of BTPS members. As we have said, in view of our decision on Appeal Ground 1, the Government was justified in being concerned about that matter as a statutory override was an integral part of that proposal, and it is common ground that a statutory override would indeed interfere with BTPS Section B members’ A1P1 rights. We consider, however, that, looking at the evidence as a whole, it is also clear that the Government’s decision was motivated by policy considerations which were divorced from ultra vires and A1P1 infringement concerns.

In the Officials’ submission of 19 October 2017 to the Chief Secretary the Officials said that their initial view was that at privatisation in 1984 it was the policy intent that the rights of BT employees to future pension benefit indexation be protected, regardless of any future changes in the pension system.

As mentioned above, paragraph 12 of the 23 November 2017 submission to the Chief Secretary said that Treasury Legal Advisers had advised that there would need to be a policy justification for preferring the interests of BT to the interests of the scheme members. Paragraph 14 said that:

“Since 2015, Treasury “New Fair Deal” policy ensures that members of public service schemes transferred compulsorily to the private sector retain their pension rights (and a similar policy was in place previously). A decision to carve BT out would seem to contradict this policy. If we decided to do so, the

Government could be seen as acting to remove BTPS obligations to index pension benefits in the same way as under the 1974 civil service scheme BT have requested this.

Government could also be seen to be acting against members’ financial interests. It would be asked why it was preferring the interests of BT to those of BTPS members.”

Importantly, as Ms Demetriou observed, the question put to the Chief Secretary in paragraph 18 of that submission for his decision, which is set out at [78] above, is structured so as to pose in (ii) the general policy issue (reflecting Officials’ policy concern in paragraph 14) in relation to BT’s request for a “carve out”; and only if the Chief Secretary was not deterred by that policy concern, to pose the question whether there should be further work, including seeking counsel’s advice, on the possibility and implications of a carve out.

That policy concern, irrespective of any infringement of property rights, was carried through to the Government’s formal response to the consultation. Paragraph 3.19 of that document, which is set out in [68] above, stated that the Government believed that:

“it would not be appropriate to act in a way that would deprive members of indexation, to which they would otherwise be entitled. Acting to do so would also raise legal questions …” (emphasis added)

The word “also” highlights the distinction being made between, on the one hand, the general policy issue of the Government being seen to prefer the private interest of BT over that of BTPS Section B members and, on the other hand, consequential legal issues in addition to the question of general policy.

That same division was made in the letter of 14 February 2018 quoted above. The letter stated that, in considering its response to the consultation the Government sought to balance the interests of scheme members, public service schemes and departments, private sector schemes, as well as the taxpayer; and that BT’s proposals would involve the Government acting against members’ interests; and the Government believed that it would not be appropriate to act in a way that would deprive members of indexation to which they would otherwise be entitled. The letter then said that “there would in addition be legal issues as to whether the high legal bar to removing property rights was met”.

This interpretation of the documentary evidence is supported by the evidence of Mr Kirk, who said as follows in paragraph 5 of his second witness statement:

“ … as I described in my first witness statement, the decision not to adopt the PCSPS Workaround, or indeed any of BT’s proposed ‘solutions’, was a policy choice. It was not driven by the feasibility of the proposals presented by BT. We addressed a logically prior question first: did Ministers want to prefer the interests of BT over the interests of the BTPS members? If not, it was not necessary to determine the lawfulness of any of BT’s proposals. That approach was reflected in the November

Submission. It sought the Chief Secretary’s answer to that logically anterior policy question. The Chief Secretary’s answer was that BT’s interests should not be preferred, in the manner they proposed.

Consistently with the November 2017 submission to the Chief Secretary and that evidence of Mr Kirk, after the service of the claim form in these proceedings a submission was made by Officials to the Chancellor on 30 October 2018 which pointed out that the advice previously given to the Chancellor, on the basis of which the Chancellor decided against a carve out for private sector schemes in respect of continued indexation and equalisation of GMPs for public servants reaching State Pension age between 6 December 2018 and 5 April 2021, was incorrect. The advice had included an inaccurate summary of the legal advice before the Chief Secretary. The submission set out what the summary of the legal advice should have been, and asked whether the Chancellor maintained his original decision. The submission said that the summary should have said as follows:

“Were we to agree an exemption for BT, legal advice is that the risk of challenge is high and the chances of successfully defending such a challenge are low unless we were able to develop a defensible justification for interfering in the property rights of pensioners. CST decided not to commission the further legal work necessary to test whether a legally defensible justification could be developed.” (underlining in the original)

In other words, it was decided not to proceed with a legal justification because the decision was taken on general policy grounds and not on the basis that there was no proper legal basis for interfering with the BTPS Section B members’ rights. Ms Rose submitted that this was the first confirmation of a reason for the decision of the Government divorced from the issue of members’ property rights. We do not agree. The written evidence, to which we have referred in [96] – [103] above, makes it clear that the Government’s decision was based on general policy considerations in addition to, and unrelated to, any issues of vires or of infringement of legally protected property rights of BTPS Section B members.

As in the case of Appeal Ground 1, what is in issue in Appeal Ground 2 is a factual finding of the Divisional Court. We consider that it is plain that the Divisional Court had legitimate and proper grounds for making its finding, and for that reason we reject this ground of Appeal. In any event, we also consider that the Divisional Court was right.