UNIONS were left smarting yesterday after losing their battle in the Court of Appeal against the Coalition Government's change to the way the pensions of public sector workers are calculated.

To add insult to injury, they have been ordered to pay the government's legal costs.

The unions are entitled to feel hard done by. The switch from using RPI (the Retail Prices Index) to CPI (the Consumer Prices Index) may sound like a minor technicality but, as the latter measure is consistently lower, the cumulative effect over many years will leave millions, including some of Britain's poorest pensioners, thousands of pounds worse off. It also reneges on assurances given by successive governments over many years that RPI would apply.

The Government claims it is entitled to decide which measure is most appropriate. The measure it has chosen will save the Treasury billions at the expense of pensioners. The High Court ruling against the unions in December was a majority decision. By contrast, yesterday's unanimous judgment appears to suggest that the Government can tinker with public sector pensions any time some belt tightening is required. This is worrying.

The Coalition is right to tackle the issue of public sector pension reform and former Labour minister, John Hutton, made a good job of his review. Career average pensions give public sector workers the reassurance of a defined benefit scheme and low-paid workers lose least from the abandonment of final salary schemes. It is also necessary to bring retirement ages more into line with the private sector and the state pension age.

However, Lord Hutton was clear that accrued benefits should be protected. The Coalition claims to have done this. Yet the change to the uprating mechanism not only breaks explicit undertakings made by both the Conservatives and Liberal Democrats prior to the last General Election but is also, in effect, a stealth cut. Depending on the gap between the two measures, the difference, compounded over many years could be up to 20%. And for the millions with frozen public sector pensions, the value of their pensions on retirement will be significantly less.

Furthermore, because some private sector schemes are tied to public sector ones, their members will also lose out.

Should judges be making such decisions? A number of bodies, including the Royal Statistical Society, have called for a review of the validity of the CPI as a measure of inflation. If the Government is sincere in its desire to link pension increases to the real inflation experienced by pensioners, then it should consider a Pensioners Price Index, with appropriate weightings for council tax, television costs, food and fuel. When the Institute for Fiscal Studies tried doing this, it found inflation for the over-80s was running five percentage points higher than average household inflation. The Government is selling public sector pensioners short.