This morning, the Supreme Court handed down an important judgment finding the UK government to have acted unlawfully in issuing binding guidance preventing local authorities which administer the Local Government Pension Scheme from making specific ethical investment decisions, including “using pension policies to pursue boycotts, divestment and sanctions against foreign nations“. The judicial review was brought by the Palestine Solidarity Campaign. The Supreme Court judgment was a majority 3-2 decision.
This judgment protects, for the time being, the freedom of local authority decision-makers to make investment decisions that go against UK foreign and defence policy.
In our view, the UK government’s attempt in 2016 to prevent administering authorities from acting on ethical grounds was wrong in principle. It is welcome news that it has been overturned by the Supreme Court.
The Supreme Court specifically found that the Department for Communities and Local Government exceeded the scope of the power conferred to it under primary legislation; and therefore the government had acted unlawfully. In a key paragraph of the judgment, Lord Wilson found that the power to direct how administrators should approach the making of investment decisions by reference to non-financial considerations does not include power to direct what investments they should not make.
Two caveats should however be noted in the wake of this important judgment. One, this judgment can be overridden by primary legislation; and significantly the government has recently expressed its intention to bring forward such legislation in this parliament. Second, this judgment does not affect LPHR’s long-held position – supported by assurances given by government ministers – that local authorities are not prevented from divesting funds on human rights and international law grounds.