R (Rotherham MBC) v Secretary of State for Business, Innovation and Skills [2015] UKSC 6

Local authorities in Merseyside and South Yorkshire challenged the Secretary of State's allocation of EU Structural Funds for 2014-2020, arguing they received disproportionately less than comparable UK transition regions. The Supreme Court dismissed the appeal by majority, holding the allocation was within the Secretary of State's wide discretion.

Facts

The appeal concerned the distribution within the United Kingdom of European Structural Funds (the European Regional Development Fund and the European Social Fund) for the 2014-2020 funding period, governed by Regulation (EU) 1303/2013. The Commission allocates funds to each Member State based primarily on regional GDP per capita, using three categories: less developed regions (GDP below 75% of EU average), transition regions (75%-90%), and more developed regions (over 90%). Internal distribution within Member States is governed by a Partnership Agreement between the Member State and the Commission.

The Secretary of State adopted a two-stage process. First, he allocated the UK’s funds between England, Scotland, Wales and Northern Ireland by applying a uniform 5% reduction to each territory’s allocation from the previous (2007-2013) period. Second, he distributed the English portion such that the nine English transition regions received a 15.7% uplift on their 2013 allocations.

Merseyside and South Yorkshire had been “phasing-in” regions during 2007-2013, receiving tapered transitional funding under article 8 of Regulation (EC) 1083/2006 that reduced to the national average competitiveness level by 2011. Using 2013 as the base year meant their uplift was applied to their lowest funding year. They received approximately €130 per capita for 2014-2020, compared to Highlands & Islands (a former phasing-out region) at approximately €400 per capita and Northern Ireland at approximately €260 per capita.

Issues

The principal issues were:

• Whether the Secretary of State’s two decisions complied with Regulation (EU) 1303/2013;
• Whether they breached the EU general principle of equality by treating comparable situations differently or different situations comparably without objective justification;
• Whether they were disproportionate or otherwise unlawful under domestic public law principles.

Arguments

Appellants

The appellants argued that Merseyside and South Yorkshire had been treated differently from Highlands & Islands and Northern Ireland when in materially the same position (all transition regions), and the same as other English transition regions when in a materially different position (the others having been competitiveness regions whose 2013 allocations reflected their relative needs). They submitted that the use of 2013 as the base year ignored that their 2013 allocation was derived from a national average rather than their actual circumstances, and that the first-stage territorial allocation unjustifiably constrained fair distribution.

Respondent

The Secretary of State argued the decisions involved complex evaluative judgments attracting a wide margin of discretion; that the first decision reflected the constitutional settlement of devolution; that the differences between phasing-in and phasing-out regions justified differential treatment; and that the additional funding Merseyside and South Yorkshire had received in 2007-2010 was expressly transitional and should not be carried forward.

Judgment

By a majority of five (Lord Neuberger, Lord Sumption, Lord Clarke, Lord Hodge, and partially Lord Carnwath who dissented) to two (Lord Mance and Lady Hale, with Lord Carnwath in dissent), the appeal was dismissed.

Majority reasoning (Lord Sumption, with Lord Hodge agreeing; Lord Neuberger, Lord Clarke concurring)

Lord Sumption held that the allocation was a discretionary decision of the kind courts are particularly reluctant to disturb, involving complex policy judgments and the distribution of finite resources between regions. The 2013 Regulation contains no formula for internal regional allocations and uses broadly qualitative criteria including the “thematic objectives” in article 9, which extend well beyond mere reduction of regional disparities to encompass smart, sustainable and inclusive growth.

On the first decision, Lord Sumption considered the Secretary of State was entitled, consistent with R (Horvath) v Secretary of State for the Environment, Food and Rural Affairs (Case C-428/07), to have regard to the constitutional settlement of the United Kingdom and treat the four countries as separate entities for allocation purposes, provided the basis was not unjustifiably discriminatory and the financial implications were consistent with the Regulation.

On the second decision, the tapered transitional funding under article 8 of the 2006 Regulation was by its nature temporary and its function could properly be treated as spent by 2013. To base the uplift on the average of the whole previous period would have continued the impact of transitional additional funding into 2014-2020, contrary to the purpose of the transition category. The distribution of structural funds within each category is a zero-sum game; alternative options would have disadvantaged other transition regions.

Lord Neuberger emphasised the wide margin of discretion appropriate to high-level financial decisions and acknowledged that disparities such as those between the appellants and Highlands & Islands gave “pause for thought” but did not render the decision unlawful. There is no precise correlation required between GDP per capita and allocation, as demonstrated by variations among other English transition regions.

Dissent (Lord Mance, with Lady Hale agreeing, and Lord Carnwath)

Lord Mance considered that the first decision committed significant transition funding to Northern Ireland and Highlands & Islands on a basis preserving their average period funding (less 5%), without regard to the impact on the new pot available for English transition regions, which included seven former competitiveness regions. The reasons given (transparency, simplicity, consistency, balance) did not relate to the fund-specific mission of strengthening economic and social cohesion.

The second decision treated unlike situations alike by applying a uniform 15.7% uplift to a 2013 base, where the base for the seven former competitiveness regions reflected their actual relative needs (including a policy favouring northern over southern regions), but the base for Merseyside and South Yorkshire reflected an average for UK competitiveness regions bearing no relationship to their actual position. The combined effect was to allocate funding on inconsistent bases producing unjustified discrepancies.

Lord Carnwath agreed, finding that the anomalies were sufficiently serious to require explanation that had not been given, rendering the decisions “manifestly inappropriate” under EU and domestic principles.

Implications

The decision confirms that courts will afford a wide margin of discretion to ministerial decisions involving the allocation of public funds, particularly where the decision involves complex policy judgments, competing public interests, and the distribution of finite resources between regions of the United Kingdom. Lord Hoffmann’s observations in his 2001 lecture “Separation of Powers” on the limitations of judicial intervention in matters affecting public expenditure were endorsed.

The judgment clarifies that the EU general principle of equality – that comparable situations must not be treated differently and different situations must not be treated comparably without objective justification – applies in this context but that the two-stage analysis (comparability and justification) is a tool rather than a rigid rule, and that the questions often overlap where the relevant scheme provides no clear measure of comparability.

The decision affirms that, consistent with Horvath, EU law is not insensitive to internal constitutional arrangements within Member States, and that the Secretary of State may properly take account of the United Kingdom’s devolution settlement when distributing EU funds, provided the resulting differences are consistent with the relevant Regulation.

The judgment also illustrates the limited role of proportionality as a free-standing ground where it adds nothing to the analysis under equality or rationality. The minority judgments, while not prevailing, indicate the limits of judicial deference: where decisions are based on irrelevant considerations, fail to treat like cases alike, or treat unlike cases alike without justification connected to the statutory purpose, courts retain the power to intervene even in policy-laden decisions.

Verdict: Appeal dismissed by a majority (Lord Neuberger, Lord Sumption, Lord Clarke and Lord Hodge in the majority; Lord Mance, Lady Hale and Lord Carnwath dissenting). The Secretary of State’s allocation of European Structural Funds within the United Kingdom for the 2014-2020 period was held to be lawful and within his wide margin of discretion.

Source: R (Rotherham MBC) v Secretary of State for Business, Innovation and Skills [2015] UKSC 6