R (on the application of Palestine Solidarity Campaign Ltd and another) v Secretary of State for Housing, Communities and Local Government

Facts

Local Government Pension Scheme administering authorities manage pension funds and must prepare investment strategies in accordance with guidance issued by the Secretary of State under the 2016 investment regulations. The Secretary of State issued guidance saying that authorities should not use pension investment policies to pursue boycotts, divestment and sanctions against foreign nations or UK defence industries, other than where the Government itself imposed sanctions or restrictions, so that investment decisions did not conflict with UK foreign and defence policy. The Palestine Solidarity Campaign, which supports boycott measures, challenged the guidance.

Issue

Whether the Secretary of State's power to issue guidance on the investment strategy of pension authorities extended to guidance whose purpose was to prevent those authorities from acting in ways contrary to government foreign and defence policy.

Held

The guidance was unlawful because it was issued for a purpose that fell outside the scope of the statutory power.

Ratio

• A statutory power must be exercised for the purposes for which it was conferred, and a power to give guidance on the investment of pension funds does not authorise guidance whose purpose is to impose the Secretary of State's view of foreign or defence policy on the administering authorities.

Key reasoning

• The statutory scheme gives administering authorities responsibility for the investment of their funds in the interests of scheme members and the guidance power exists to ensure that proper investment strategies are adopted, not to impose government policy on wider matters.
• Although the guidance was framed as concerned with the proper administration of the fund, its true purpose was to prevent authorities from taking investment decisions that the Secretary of State thought inconsistent with national foreign policy, and that purpose was not one for which the power was given.

Where it fits in the module

For FHS Administrative Law, this is the leading modern example of the improper purposes ground and tests how the courts identify the true purpose of a decision and whether the reasoning in Padfield survives alongside the dominant purpose and Wednesbury analysis. It also bears on the relationship between ministerial guidance and local autonomy and on whether the courts police the boundary between pension management and political purposes. Students can contrast it with cases where a mixed purpose was permitted.

Criticisms

• Identifying the true purpose of guidance is hard, since the Secretary of State could say that the guidance served pension-scheme purposes such as avoiding legal and financial risk, and the court's conclusion depends on how closely it scrutinises ministerial motives.
• The decision may rest on a contestable view of how far national policy can legitimately shape local pension decisions, and so it may raise questions about the proper relationship between central and local government.
• A strict improper purposes analysis risks being used to second-guess policy in an area where Parliament left wide discretion to the minister and the court's role should be limited.