Rotherham Borough Council & Ors, R (On the Application Of) v Secretary of State for Business, Innovation And Skills [2014] EWCA Civ 1080

[2014] EWCA Civ 1080

Case No C1/2014/0638

IN THE COURT OF APPEAL (CIVIL DIVISION)

[2014] EWHC 232 (Admin)

ON APPEAL FROM THE HIGH COURT, QUEEN’S BENCH DIVISION, ADMINISTRATIVE COURT

MR JUSTICE STEWART

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date Monday 28 th July 2014

Before

MASTER OF THE ROLLS

LORD JUSTICE MAURICE KAY

LORD JUSTICE FLOYD

Between

THE QUEEN ON THE APPLICATION OF ROTHERHAM BOROUGH COUNCIL & ORSAppellants

THE SECRETARY OF STATE FOR BUSINESS, INNOVATION AND SKILLSRespondent

(Transcript of the Handed Down Judgment of

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Jason Coppel QC and Joanne Clement (instructed by Rotherham Legal Services) for Appellant

Jonathan Swift QC and James Cornwell (instructed by Treasury Solicitor) for Respondent

Hearing Hearing dates: 30 June and 1 July 2014

Judgment

Master of the Rolls: this is the judgment of the court to which each member has contributed.

[1]The claimants are the four local authorities in the South Yorkshire area largely comprising the Sheffield City Region Local Enterprise Partnership and the five local authorities in the Merseyside area largely comprising the Liverpool City Region Local Enterprise Partnership. The two Local Enterprise Partnerships comprise the two “NUTS 2” regions of Merseyside and South Yorkshire: NUTS 2 regions are the primary units of measurement for allocating EU Structural Funds. They brought a claim in the Administrative Court challenging two decisions of the Secretary of State for Business, Innovation and Skills (“the Secretary of State”) as to how to allocate the Structural Funds for the period 2014-2020 within the UK. In summary, they allege that the decisions have produced discriminatory and disproportionate funding cuts for their regions.

[2]Stewart J, in a careful and impressive judgment handed down on 7 February 2014, held that in making the decisions the Secretary of State had failed to comply with the public sector equality duty under section 149 of the Equality Act 2010, but otherwise dismissed the grounds of challenge. The claimants sought permission to appeal, and on 28 February 2014 Sir Stanley Burnton adjourned their application and directed that the appeal should be heard immediately if permission to appeal was granted. We give permission to appeal.

The background

[3]In order to put the decisions under challenge into their proper context it is necessary to set out at least some of the EU legislative background against which the decisions were taken. Article 174 of the Treaty on the Functioning of the European Union (“TFEU”) enjoins the Union, as a general objective, to develop and pursue actions leading to the strengthening of its economic, social and territorial cohesion. In particular it requires the Union to aim at “reducing disparities between the levels of development of the various regions and thebackwardness of the least favoured regions”. Particular attention is to be paid to rural areas, areas affected by industrial transition and regions which suffer from natural and demographic handicaps. Article 175 TFEU requires the Union to support the achievement of these objectives by, amongst other means, the action it takes through the European Structural Funds, which include the European Social Fund (“ESF”) and the European Regional Development Fund (“ERDF”). As Article 176 explains, the ERDF is intended to help redress the main imbalances in the Union through participation in the development and structural adjustment of regions lagging behind in development and in the conversion of declining industrial regions. Articles 162-164 TFEU explain that the ESF is established to render the employment of workers easier and to increase their geographical and occupational mobility within the Union, and to facilitate their adaptation to industrial changes through training and retraining. The allocation of funds was to be implemented by regulations. In practice this has meant a series of seven-year funding programmes, starting in 1993, i.e. the periods from 1993-99, 2000-06 and 2007-13. The current period is 2014-20 and is the ultimate focus of attention in this case.

[4]The EU budget determines the amount of structural funding for distribution to each member state. The Commission carry out calculations which refer not only to the individual member states but also to the NUTS 2 regions within each member state.

[5]EU Regulations provided for the classification of regions within a member state into categories by reference to their need. These categories have changed for each of the funding periods mentioned above.

[6]In the 2000-06 period, three categories of region were identified, namely (from most needy to least needy): Objective 1, Objective 2 and Objective 3. Objective 1 regions were those where the GDP per capita was less than 75% of the Community average. Merseyside and South Yorkshire were Objective 1 regions.

[7]By the commencement of the 2007-13 period, the EU had expanded from 15 to 25 member states. For this period there were two basic categories of region: Convergence regions and Competitiveness regions. Convergence regions were the most needy: they had a GDP per capita of less than 75% of the EU average, i.e. the average of all 25 member states. Competitiveness regions were those not covered by any other category, and were therefore more wealthy. Northern Ireland was a Competitiveness region in 2007-13.

[8]Two regulations are of particular relevance to the issues that arise in this case. These are Council Regulation EC 1083/2006 (“the 2006 regulation”) and Council Regulation EU 1303/2013 (“the 2013 regulation”).

The 2006 regulation

[9]The 2006 regulation created two exceptional categories for the 2007-13 period. The first exceptional category was that created by article 8(1). The enlargement of the EU from 15 to 25 states naturally had a lowering effect on the average GDP per capita over the EU as a whole. Thus whilst a region might have been categorised as Objective 1 in 2000-06 because its GDP per capita was less than 75% of the average of the 15 member states in 2000, the same region might find itself above that threshold in 2007-13 and therefore in the less well funded Competitiveness category, simply because of the expansion of the EU to 25 member states. Such regions were placed within an exceptional sub-category within the Competitiveness category (called Phasing-out regions). Their funding was to be 80% of the 2006 level in 2007 and then taper to reach the national average for Competitiveness regions by 2013. The Highlands & Islands was a Phasing-out region in 2007-13.

[10]The second exceptional category was that created by Article 8(2) of the 2006 regulation. To be within this category the region had to have been an Objective 1 region but to have ceased to be so (by reason of its GDP per capita exceeding the average of EU 15, and therefore necessarily the average of EU 25). In contrast to the Phasing-out regions, these regions had progressed economically in the sense that, applying the 2000-2006 criteria, they had developed to the extent that they would no longer be categorised as Objective 1 regions. Rather than place them directly into the Competitiveness category, these regions (called Phasing-in regions) were placed in an exceptional sub-category within the Competitiveness category. Their funding was to be at 75% of the 2006 level in 2007 and then taper to reach the national average for Competitiveness regions by 2011, and thereafter to continue at that level until the end of the period in 2013. This transitional funding was less generous, both in terms of percentage and period of taper, than that afforded to Phasing-out regions.

[11]Merseyside and South Yorkshire were both Phasing-in regions for 2007-13. They were therefore funded on a basis that was overall more generous to them than if they had been Competitiveness regions, which received a flat rate of funding throughout the period. However, Merseyside and South Yorkshire’s funding for 2011-13 was based on a national average for Competitiveness regions. Had they been true Competitiveness regions they contend that their funding for 2011-13 would have been based on actual economic indicators and would, for those years, have been higher. This fact is important, because, as we shall see, the Secretary of State decided that for the next period, 2014-20, funding for a group of regions which included South Yorkshire and Merseyside should be based on the figures for 2013 across the board. Although for the Phasing-in, Phasing-out and Convergence regions the level of funding was set by the European Commission, Member States were free to determine how funds for the Competitiveness regions should be distributed amongst those regions.

[12]The basis on which the Secretary of State allocated the 2007-13 funding between Competitiveness regions was disclosed in a response to a Freedom of Information Act (FOIA) request. This explained that allocations to the Competitiveness regions were based on a “basket of indicators” including population, research and development spend, business start-up rate, academic qualification rates, gross value added per capita and the level of worklessness. A safety net was applied in order to curtail sharp reductions, set at 20% for ESF and 6.7% for ERDF. This had the effect of directing relatively high levels of funding to the North (other than Merseyside and South Yorkshire) as compared with the South.

The 2013 regulation

[13]By virtue of the 2013 regulation, the categorisation for the period 2014-20 changed yet again. There were now to be three categories: Less Developed, Transition and More Developed.

[14]Less Developed regions were those whose GDP per capita was less than 75% of the average GDP per capita of the now 27 member states. Transition regions were those whose GDP per capita was between 75% and 90% of the average GDP per capita of EU 27. More Developed regions were those where the figure exceeded 90%. Merseyside and South Yorkshire now fell into the Transition category. The EU allocated funds for each of the three categories of region to each Member State. The funds for each category were (subject to a limited power to transfer up to 3%) ring-fenced by category. The Member States now had discretion to allocate funds to individual regions within each category.

[15]Apart from the categorisation of regions, some other aspects of the 2013 regulation are relevant. Recital (1) refers to the objectives specified in Articles 174 and 175 TFEU (see para 3 above). Recital (3) states that the Union and member states “should implement the delivery of smart, sustainable and inclusive growth, while promoting harmonious development of the Union and reducing regional disparities”. It also states that European Structural and Investment Funds (“ESI funds”) should play a specific role in the achievement of the objectives of the Union strategy for smart, sustainable and inclusive growth. Recital (14) states that the objectives of the ESI funds should be pursued “in the framework of sustainable development and the Union’s promotion of the aim of preserving, protecting and improving the quality of the environment”. Recitals (16) and (17) explain that a Common Strategic Framework should be established setting out how ESI funds are to achieve smart, sustainable and inclusive growth. Recital (20) states that, on the basis of this framework, each member state should prepare in dialogue with the Commission a Partnership Agreement. The Partnership Agreement should set out arrangements to ensure alignment with the Union strategy for smart, sustainable and inclusive growth.

[16]Article 2(1) defines the “Union strategy for smart, sustainable and inclusive growth” as the targets and shared objectives set out in Conclusions adopted by the European Council of 17 June 2010 and two further documents, namely(i) Council Recommendation of 13 July 2010 on broad guidelines for the economic policies of the member states and of the Union and

(ii) Council Decision 2010/707/EU of 21 October 2010 on guidelines for the employment policies of the member states. These documents describe a variety of strategic targets. It is sufficient to mention a few of them. Thus the Conclusions of 17 June 2010 include (i) a target of raising the employment rate for women and men aged 20-64 through the greater employment of young people, older workers, and low skilled workers and the better integration of legal migrants; (ii) a target of improving conditions for research and development;

(iii) a target of reducing greenhouse gas emissions by 20% compared to 1990 levels, increasing the share of renewables in energy consumption and moving towards a 20% increase in energy efficiency. The Council Recommendation of 13 July 2010 contains a lengthy Annex of guidelines for economic policies, including topics such as “addressing macro-economic imbalances” and “optimising support for R&D and innovation, strengthening the knowledge triangle and unleashing the potential of the digital economy”. The Council Decision of 21 October 2010 contains a similar Annex directed to guidelines for employment policies. Guideline 8, for example, is entitled “Developing a skilled workforce responding to labour market needs and promoting lifelong learning” and concludes by saying: “The ESF and other EU funds should be mobilised where appropriate by Member States to support these objectives: Policies stimulating labour demand could complement investments in human capital”.

[17]Recital (21) states that “Member States should concentrate support to ensure a significant contribution to the achievement of Union objectives in line with their specific national and regional development needs”.

[18]Article 9 provides that in order to contribute to the Union strategy for “smart, sustainable and inclusive growth”, each ESI fund shall support the eleven social and economic “thematic objectives” described. Article 15 sets out the detail for the content of Partnership Agreements, in particular that they should set out arrangements to ensure alignment with Union strategy for smart, sustainable and inclusive growth.

The challenged decisions

[19]On 26 March 2013 the Secretary of State announced in a press release how the UK’s allocation of EU structural funds would be allocated as between England, Northern Ireland, Scotland and Wales for the 2014-20 funding period (“the first decision”).

[20]On 27 June 2013 a written ministerial statement was published by the Secretary of State "confirming how the €6.2 billion England allocation of the… ERDF and … ESF will be allocated." (“the second decision”).

The grounds of challenge

[21]The first ground of challenge is that the Secretary of State breached the EU law principles of equal treatment and proportionality in that he failed to treat Merseyside and South Yorkshire in the same way as the similarly placed regions of Highlands & Islands in Scotland and Northern Ireland by protecting them from the effects of sudden and significant cutbacks as compared with their 2007-13 funding allocation. The claimants say that, as a result of the first decision, Highlands & Islands is to receive 98.8% of its 2007-13 allocation in 2014-20 (€478 per capita) and Northern Ireland will receive 96.7% of such funding (€284 per capita), whereas Merseyside and South Yorkshire will receive only 35% of such funding, representing a 65% reduction.

[22]The second ground of challenge is that, when allocating funding to the English Transition regions pursuant to the second decision, the Secretary of State breached the EU principles of equal treatment and proportionality by adopting the same rule for allocating the funds to all English Transition regions (using the funding allocated in 2013 as a baseline for all of them). The claimants submit that Merseyside and South Yorkshire were in a materially different position from the other English Transition regions. That is because the funding for Merseyside and South Yorkshire for 2007-13 was calculated on a different basis from that for the other English Transition regions: it was not based on their individual economic needs, but on an average which was below what their circumstances would have justified. This was in contrast to the other English Transition regions, whose allocation was calculated on the basis of their own economic needs.

[23]The third ground is a domestic public law challenge. The claimants say that the Secretary of State failed to take account of a mandatory relevant consideration, namely the economic needs of the Transition regions. That consideration was mandatory because the key objective of the 2013 regulation was reducing economic disparity between regions. By focussing on the national average for Competitiveness regions as the basis for 2014-20 funding for Merseyside and South Yorkshire, the Secretary of State necessarily failed to take account of the actual economic needs of those regions.

The First Decision in more detail

[24]The material part of the press release issued at the time of the first decision was as follows:

“… As a result of the new EU formula for allocating Structural Funds, agreed by the European Council in February, there would not have been a fair distribution across the UK, with each of the Devolved Administrations set to lose significant funding vital for economic growth. In view of this the UK government has decided to reallocate EU Structural Funds to minimise the impact of sudden and significant cut backs in Northern Ireland, Scotland and Wales. .….. The Government is providing: Northern Ireland with a total allocation of around €457 million, an uplift of €181 million compared to the amount that Northern Ireland would receive under the EU formula for allocation of the Funds to the UK. Scotland with total funding of around €795 million. This represents an uplift of €228 million compared to the amount that Scotland would receive under the EU formula for allocation of the Funds to the UK. Wales with total allocation of around €2.145 billion. This represents an uplift of €375 million compared to the amount that Wales would receive under the EU formula for allocation of the Funds to the UK. England with a total allocation of around €6.174 billion. This decision means that each administration is only subject to an equal percentage cut of around 5% in funding compared to 2007 – 13 levels. The government believes that this delivers the fairest deal for England, Northern Ireland, Scotland and Wales.”

The Government is providing:

[25]The overall reduction in EU Structural Funds to the UK was 5% in real terms (compared to the 2007-13 period: €10.3 billion as compared with €10.8 billion at 2011 prices). The figures are €9.6 billion and €10.1 billion respectively when European Territorial Co-operation Funding is excluded. The Commission has not disclosed to the member states the precise amount it calculated for each NUTS 2 region. It was a matter for each member state to determine the allocations within each category. The Commission has not provided notional allocations that it might have used for calculating the spending amounts for the three categories of region. The Government was, however, able to estimate the individual amounts for each NUTS 2 region based on the EU’s methodology and the amounts allocated to the three categories of region. It estimated that using the Commission’s methodology would have entailed an increase of €439 million for England (+7%), but decreases for Wales of €494 million (-22%), Scotland of €272 million (-32%) and Northern Ireland €216 million (-43%).

[26]Dr Baxter explains at paras 37 to 46 of her first witness statement how the Government arrived at the first decision. She was at the material time Deputy Director, EU Funding and Industrial Policy, in the Department for Business, Innovation and Skills. She says that Ministers were aware that, if the EU formula was used, the Devolved Administrations would have seen very significant cuts. They decided to limit these cuts, thereby protecting them from sudden and significant cutbacks. Dr Baxter says at para 42 of her statement that there was a number of reasons for applying the cut equally between the nations including• Transparency;

• Simplicity;

• Consistency; and

• Balance (“it took account of the status of the Devolved Administrations under the UK’s constitutional settlement”).

[27]The Government also stated that this delivered the “fairest deal” for the four nations. In reaching this decision, Ministers were aware that(i) this approach (rather than allocating on the basis of the Commission’s approach) would reduce the amount of money available for the regions in England and

(ii) it would limit the funding available for distribution between the Transition regions in England, since the allocation for Northern Ireland and Highlands & Islands regions (both Transition regions) would come out of the funds available for the Transition regions. It was decided that the allocation between the Transition regions would be dealt with at the next stage of the process and that only the “big picture” within the UK would be considered at the first stage when trying to distribute the cut fairly as between the UK nations.

[28]The only specific NUTS 2 regions considered at this stage were Cornwall & the Isles of Scilly and West Wales & the Valleys. These were the UK’s only Less Developed regions. It was decided to transfer the maximum 3% possible amount from the More Developed and Transition regions’ budget to the Less Developed regions’ budget and to allocate this to these two regions in order to achieve an equal 16% cut in funding compared to 2007-13. This transfer was expressly permitted under the 2013 regulation (which otherwise prohibits the transfer of funds between categories) and is not the subject of challenge.

The Second Decision in more detail

[29]The written ministerial statement included the following:

“… The Government has set allocations that deliver the fairest split of funding across England, as far as EU rules allow. Allocations by LEP area for ERDF and ESF are set out in the Annex …. The government has today also confirmed the detailed allocations for the Highlands and Islands region in Scotland as €172 million and the allocation for West Wales as €1.783 million and for East Wales as €361 million. All allocations are subject to final agreement on the EU Regulations and the EU 2014 – 2020 budget in the European Parliament. The European Commission will also need to agree the UK Government's specific proposals.”

[30]This split resulted in an allocation of €202 million for Merseyside and €178 million for South Yorkshire.

[31]The Secretary of State’s methodology came to light again as a result of the FOIA request. The methodology statement said:

“The 2007 – 2013 allocations took account of the greater development needs in the North and the Midlands compared to most of the South. The disparities have not lessened so the government decided that the UK's spending commitments scheduled against the EU budget for 2013 set the base line for the allocation of ESF – ERDF for 2014 – 20. With regard to the area designations described at EU level this meant that: All "Transition" regions received an equal c.20% uplift – based on those regions' 2013 spending commitments…”

[32]The same document also dealt specifically with South Yorkshire and Merseyside in the following way:

“9. From 2014 – 2020 both South Yorkshire and Merseyside will be classified as Transition regions, reflecting their current economic position, along with nine other UK regions. As such they will receive a proportionate share of the UK's budget for Transition regions but they will not enjoy special status over and above other UK Transition regions. 10. As Phasing-in regions, South Yorkshire and Merseyside have been subject to a downward taper of Structural Funds spending commitments across 2007 – 13 in order to give time to adjust to lower levels of receipts. 11. The spending commitments are not all spent in the year in which they are allocated as under the "n+3" rule, programmes have three years in which to spend these commitments. In terms of actual spending, the profile in 2007 – 13 is partly a function of the n+3 rule, and partly a function of the speed and profile of implementation by the responsible authorities. The same will also be true in 2014 – 20. However we must compare like with like. The announcement on allocations concerns spending commitments and the comparator must therefore be spending commitments in 2007 – 13. So it is true to say that these areas will see a 20% increase in their annual allocations in 2014 – 20 compared to a 2013 base line (or 15% once the 4.3% reserve of Funds by government is taken into account). 12. Taking into account the 4.3% reserve of funds by government, this will mean that in 2013 South Yorkshire was allocated €20 million and in 2014 it will be allocated €23 million. Merseyside was allocated €23 million in 2013 and in 2014 it was allocated €26 million.”

[33]The Secretary of State says that the second and third reference to “UK” (but not the first) were in error and should have read “England” and “English” respectively.

[34]Having identified the funding for England, the Ministers had to decide how to allocate that funding as between(i) regions in the Transition category and

(ii) the regions in the More Developed Category. The total funding for each was fixed by the EU Regulations. Four options were considered:

• Option A which was based on the EU Commission’s methodology, which overall would have brought a significant uplift in funding to the South of England as compared with the North.

• Option B based the allocations on 2007-13 levels, using the allocation in 2013 as the baseline for purposes of the calculations.

• Option C relied on 2007-13 figures, but basing South Yorkshire and Merseyside’s allocations on their average allocation under the previous settlement. This would have resulted in a substantial cut to all Transition regions (including Merseyside and South Yorkshire) of 25% in real terms compared with 2007-13, but significantly higher funding for Merseyside and South Yorkshire compared to 2013.

• Option D was a hybrid option using the EU formula for Transition regions with a UK-specific formula for More Developed regions. For the Transition regions, this option was the same as Option A.

[35]Dr Baxter explains at para 49 of her first witness statement that Ministers saw a “strong case” for using a basket of indicators based on the latest economic data to determine the allocations, together with applying a suitable safety net. But they rejected Option A because they believed that it would result in an unacceptably large drop in funding in the North of England and the Midlands and a consequent increase in funding in the South of England.

[36]As regards Option C, the significance to be attached to the transitional arrangements applied for the 2007-13 period to the two Phasing-in regions (South Yorkshire and Merseyside) was specifically identified as a matter to be considered. So far as the other Transition regions were concerned, using the year 2013 as a baseline for funding for the period 2014-20 would not produce a different result from taking the average over the period 2007-13. This is because their funding allocation for each year was essentially flat in real terms. For South Yorkshire and Merseyside, however, the average per annum for the entire period was substantially higher than the amount received in each of the years 2011, 2012 and 2013. As the amount of money available to be allocated between the Transition regions was fixed (for the UK as a whole by the Commission’s allocation decision and for England as a result of the first decision), basing the allocation on average funding over the 2007-13 period would have meant significantly reducing the funding for other Transition regions in England.

[37]Ministers rejected Option C because a decision to base the funding allocation on the average over the 2007-13 period:(i) would have resulted in funding cuts in excess of 20% to all Transition regions, while More Developed regions would have received an increase of 1% because that funding came from a different ring-fenced pot: this would not have promoted the objective of reducing regional disparities;

(ii) would have resulted in Merseyside and South Yorkshire still receiving uplifted funding some 10 years after their transitional period from Objective 1 status should have ended; and

(iii) would have seen Transition regions with a per capita GDP equal to or lower than that of Merseyside and South Yorkshire receiving far lower levels of funding than they would have received.

[38]Following consideration of the options over the period from April to June 2013, the Secretary of State decided to adopt Option B. This option was considered to have a number of advantages including the following:(i) it provided continuity of funding as compared with 2007-13 for most of the Transition regions;

(ii) it avoided large alterations in receipts between 2013 and 2014 (even in relation to Merseyside and South Yorkshire);

(iii) it avoided a substantial movement of funding from the North/Midlands (where needs were greatest) to the South when no fundamental changes to the economic geography of the UK had occurred between 2006 and 2013 (the rationale for the previous allocation of funding which took account of the greater development needs of the North and Midlands continued to apply); and

(iv) it was consistent with the approach adopted in relation to the Devolved Administrations.

[39]The decision resulted in a 15% increase in real terms to all the English Transition regions (including Merseyside and South Yorkshire) when compared with 2013. The Secretary of State recognised that this solution would see a 65% cut in the funding for Merseyside and South Yorkshire when compared with the 2007-13 funding as a whole. However, when compared with the final three years of that period, the allocation gave Merseyside and South Yorkshire a 15% increase in funding.

[40]Further detail of the decision-making process is contained in Dr Baxter’s evidence. The decision to use 2013 rather than 2007-13 as the baseline was of central importance. Dr Baxter explains that, if allocations had been based on a 2007-13 average, Ministers felt that Merseyside and South Yorkshire would have been unduly advantaged in comparison with other English Transition regions, in so far as “their boosted allocations in the period 2007-2010 were expressly intended to be ‘transitional and specific’, rather than enshrined into future allocations” (para 55). At para 59, she says that Ministers were aware that the allocations approach that they adopted would have a significant impact on Merseyside and South Yorkshire. As a result, they discussed whether to introduce a safety net for these two regions which would limit the reduction in funding as compared with 2007-2013 as a whole. They rejected this idea on balance “due to the impact on other English Transition regions from which the funds to finance such a safety net would be taken”.

Legal principles

[41]It is common ground that, in making the first and second decisions, the Secretary of State was acting within the scope of EU law and that accordingly the EU law principles of proportionality and equal treatment apply. There is a good deal of overlap between the claimants’ arguments that the first and second decisions breached these two principles. Although the main focus of the claimants’ EU law challenge is on equal treatment, it is convenient to start (as did the judge) with proportionality.

PROPORTIONALITY

[42]The judge reasoned as follows. First, a proportionality challenge can only add significantly to a rationality challenge where there has been a derogation from a specific legal standard (para 62). Secondly, the proportionality challenge in this case does not add anything to a rationality challenge because there is no legal standard imposed by EU law on the Secretary of State as to how to allocate funds within the 2013 regulation categories and, in particular, the Transition regions. There was nothing which required the Secretary of State to apply any overarching principle, and in particular any criterion based on EU average GDP (para 63). Thirdly, it followed that the applicable standard of review was a “very high threshold of unreasonableness” (para 68(iii)).

[43]Mr Coppel relies on the summary of the legal elements of the test for proportionality stated by Lord Sumption in Bank Mellat v HM Treasury (No 2)

[2013] 3 WLR 179

at para 20:

“….the question depends on an exacting analysis of the factual case advanced in defence of the measure, in order to determine (i) whether its objective is sufficiently important to justify the limitation of a fundamental right; (ii) whether it is rationally connected to the objective; (iii) whether a less intrusive measure could have been used; and (iv) whether, having regard to these matters and to the severity of the consequences, a fair balance has been struck between the rights of the individual and the interests of the community. These four requirements are logically separate, but in practice they inevitably overlap because the same facts are likely to be relevant to more than one of them. Before us, the only issue about them concerned (iii), since it was suggested that a measure would be disproportionate if any more limited measure was capable of achieving the objective. For my part, I agree with the view expressed in this case by Maurice Kay LJ that this debate is sterile in the normal case where the effectiveness of the measure and the degree of interference are not absolute values but questions of degree, inversely related to each other. The question is whether a less intrusive measure could have been used without unacceptably compromising the objective.”

[44]He submits that the judge’s analysis was wrong because(i) it is inconsistent with authority;

(ii) the proportionality principle does not only apply where there has been a derogation from a specific legal standard;

(iii) there was in any event a derogation from a specific legal standard in this case, namely the principle of equal treatment;

(iv) the judge should have afforded the Secretary of State a narrow margin of discretion; and

(v) if he had done so, he should have held that the first and second decisions were disproportionate and/or irrational.

Inconsistent with authority

[45]Mr Coppel relies in particular on R (Sinclair Collis Ltd) v Secretary of State for Health

[2012] QB 394

and R v Secretary of State for Health ex p Eastside Cheese

[1999] 3 CMLR 123

. Eastside Cheese was a case about ex-Article 34 EC which prohibited restrictions on the free movement of goods or measures having equivalent effect. The Secretary of State had ordered a supplier to stop producing cheese on public health grounds. It was common ground that this order derogated from ex-Article 34 EC and that the question that arose was whether the derogation could be justified in accordance with ex-Article 36 EC. Lord Bingham said at para 49:

“The judge’s task was (so far as Article 36 was concerned) to see whether the exercise of the secretary of state’s power under section 13 of the 1990 Act had been objectively justified and had been shown not to be disproportionate. The test is more demanding than that of “manifest error” and is also more demanding than that of Wednesbury unreasonableness (although in ex parte ITF, Lord Slynn, at page 1277, thought that the same result is often produced under both tests). The difference between the two tests has been lucidly described by Laws J in R v MAFF ex parte First City Trading [1997] 1 CMLR 250, 278 - 9; the whole passage repays close study; its conclusion is that: ‘Wednesbury and European review are different models - one looser, one tighter - of the same juridical concept, which is the imposition of compulsory standards on decision-makers so as to secure the repudiation of arbitrary power.’” ‘Wednesbury and European review are different models - one looser, one tighter - of the same juridical concept, which is the imposition of compulsory standards on decision-makers so as to secure the repudiation of arbitrary power.’”

[46]Lord Bingham’s analysis says nothing about the standard of review outside the context of ex-Articles 34 and 36 EC, let alone whether (and if so how) proportionality applies where there has been no derogation from a specific legal standard at all. The fact that Lord Bingham did not intend to lay down a general test for substantive review in EU law is reflected in his earlier statement at para 41 that “because the [proportionality] principle is so general....it must be related to the particular situation in which it is invoked”.

[47]Sinclair Collis was a case about tobacco vending machines. The claimants argued that the Secretary of State’s ban on selling cigarettes from vending machines was a disproportionate derogation from Article 34 of TFEU, which prohibits quantitative restrictions on imports. Laws LJ (in his dissenting judgment) said:

“40…..Mr Paines submits (as I have shown) that a "manifestly inappropriate" test for the margin of appreciation should proceed on the footing that in this area the courts will not enquire whether the benefits to human health to be obtained from the measure in question outweigh any detriments. As advanced by Mr Paines the test would also, I think, disapply proportionality's ordinary rule that the least intrusive measure be chosen, or so dilute it that the rule's value as a legal standard for public decision-making would be critically undermined. If it were otherwise, any substantive distinction between Mr Paines' test and proportionality's paradigm case is effectively lost. Though he was at pains to disavow it, in my judgment Mr Paines in truth contends for an approach effectively tantamount, at least very close, to the Wednesbury standard of judicial review ([1948] 1 KB 223). That position is not vouchsafed on the authorities. I do not consider that the Court of Justice has evolved such a test for the margin of appreciation in public health cases, or comparable cases of public policy, at least where a national measure is challenged on proportionality grounds. In Eastside Cheese this court was as we have seen faced with an argument that "the Court of Justice [had] approved the application of a special test [for proportionality] in special circumstances" (paragraph 48). Lord Bingham held (ibid.) that "there seems to be no good reason in principle or authority for two sharply different tests". He proceeded to discuss the considerations which broaden or narrow the margin of appreciation, but was clear (paragraph 49) that at no point did the test approximate to one of Wednesbury unreasonableness.”

[48]But it is to be noted that this was a case which involved a derogation from the specific legal standard set out in Article 34 TFEU and proportionality fell to be considered in relation to the derogation from that prohibition: see per Laws LJ at para 19 and Arden LJ at para 115. In our judgment, this decision provides no assistance on the question whether (and if so how) proportionality can apply in a case where the decision under review does not involve a derogation from a specific legal standard. We therefore reject Mr Coppel’s first criticism. Does the proportionality principle only apply where there is a derogation from a specific legal standard?

[49]Mr Coppel submits that the judge’s conclusion was inconsistent with the status of proportionality as a general principle of EU law. So far as we are aware, there is no authority which states explicitly that the proportionality principle only applies where there has been a derogation from a specific legal standard. As a matter of principle and logic, however, we find it difficult to fault the judge’s analysis. The proportionality doctrine measures the relationship between two variables. Under the traditional proportionality formula summarised by Lord Sumption, these variables are(i) the objective pursued by the decision and

(ii) the claimant’s fundamental right(s). It is difficult to see how the proportionality principle can be applied unless there is an appropriate reference point against which the legality of the decision can be measured. The problem can be tested by considering the “least restrictive means” stage of the proportionality analysis. If there is no legal reference point (such as the right of free movement) against which the decision can be measured, what is being “restricted”?

[50]In our judgment, if the judge was right to hold that there is no specific legal standard in this case, he was also right to hold that the principle of proportionality adds nothing to a rationality challenge. This conclusion can be reached either(i) by saying that the proportionality analysis cannot as a matter of principle be undertaken where there is no specific legal standard against which to judge the proportionality of a measure; or

(ii) by applying the nomenclature of the proportionality principle, but diluting it to such an extent that, in substance, the only practicable standard of review of the measure is a rationality review. The former accords better with principle. But it does not sit well with the notion that proportionality (as traditionally explained) is a fundamental principle of EU law.

Has there been a derogation from a specific legal standard in this case?

[51]Mr Coppel’s principal submission is that the equal treatment principle is a specific legal standard and that there has been a derogation from it in this case. For the reasons that we give below, we explain why we do not consider that there was a derogation from the equal treatment principle in this case.

[52]Proportionality is intrinsic to the equal treatment principle: see Arcelor Atlantique

Case C-127/07

para 47:

“A difference in treatment is justified if it is based on an objective and reasonable criterion, that is, if the difference relates to a legally permitted aim pursued by the legislation in question, and it is proportionate to the aim pursued by the treatment.”

[53]It follows that the proportionality challenge only has free-standing significance if there has been no derogation from the equal treatment principle. Mr Coppel does, however, also submit that, even if there was no derogation from the equal treatment principle, the proportionality principle in any event required the court to identify the key objective pursued by the TFEU and the 2013 Regulation as being to reduce disparities between regions and to analyse whether the Secretary of State’s decisions were a proportionate means of achieving that objective. We shall deal with this after we have dealt with the issue of the margin of discretion.

Margin of discretion in relation to the proportionality issue

[54]The judge held that the first and second decisions involved “political policy and macro-economic judgment concerning the allocation of funding at the highest level” (para 68(iii)). He therefore held that a wide margin of discretion should be afforded to the Secretary of State and that the court should only interfere “if a very high threshold of unreasonableness is met”. It is common ground that the margin of discretion allowed by EU law may be broad or narrow according to the circumstances of the case, in particular “the identity of the decision-maker, the nature of the decision, the reasons for the decision and the effect of the decision”: per Lord Neuberger MR in Sinclair Collis at para 200. Of these factors, we consider that the nature of the decision is usually the most important. Lord Neuberger also said:

“203. However, [the existence of a less restrictive alternative] should not be applied by a court in such a way as to usurp the role of the primary decision-maker. So, where there is an alternative possible measure, there may be a difference of view as to which measure would be less onerous, and, unless the view of the Member State's government that its measure is the more appropriate is manifestly wrong, the court should not substitute its own view for that of the government…. 204. So, too, when there is said to be a less onerous measure than that proposed, it seems to me that, before rejecting the proposed measure, the court would have to bear in mind, in the context of the overall margin of appreciation afforded to the Government, that there may reasonably be different opinions on questions such as the relative disadvantages of the allegedly less onerous alternative, and the degree of difference in onerousness. 205. Accordingly, when considering a challenge to any measure which engages article 34 and which a Member State government seeks to justify on the basis of policy and evidence, the court should avoid being too exacting when it comes to an attack on the evidence on which the measure is based. On the other hand, it would be wrong not to address and evaluate the supporting evidence……”

[55]Mr Coppel submits that a narrow margin of discretion was appropriate in the circumstances of this case for a number of reasons including that(i) the decisions were taken by the Secretary of State not by Parliament;

(ii) there was no question of the court having to rule on issues of macro-economic policy: the relevant policy to be applied (reducing disparities between levels of economic development of regions) is set out in the 2013 Regulation; and

(iii) the Secretary of State’s stated aim when allocating funds was “to deliver the fairest split of funding across England as far as EU rules allow” (second decision): whether the decisions did deliver the fairest split of funding is a matter on which the court is well-placed to adjudicate.

[56]In our view, the judge was right to hold that the margin of discretion was a wide one in the circumstances of this case. In Sinclair Collis, Arden LJ considered that, in a case involving social and economic policy, the appropriate threshold was whether the measure was “manifestly inappropriate” (para 181). Lord Neuberger considered that, where there was a choice of possible measures (in the context of social and economic issues), the test was whether the member state government’s assessment of the appropriateness of a measure was “manifestly wrong” (para 203) and his view was that the court could not intervene unless no reasonable Secretary of State could have made the decision (para 255). There must be a broad discretion in areas that involve political, economic or social choices: see per Arden LJ at paras 120 and 136 and per Lord Neuberger at para 199 citing Lord Bingham in the Eastside Cheese case at para 46.

[57]In our view, the first and second decisions were plainly concerned with matters of high level policy and economic, social and political judgment. They involved the making of choices as to funding allocations between the regions. As we have seen, four options were considered in relation to the second decision. Even if the only objective was the reduction of the disparities between levels of economic development of regions, that would involve the making of complex assessments of their respective economic circumstances. These are not hard-edged decisions which admit of clear and straightforward answers. But as we have seen, the objectives of allocating the funds so as to achieve “smart, sustainable and inclusive growth” were not limited to narrow issues of economics. They specifically included detailed guidelines on employment policies, a target of improving conditions for research and development and a target for reducing greenhouse gas emissions and increasing energy efficiency. These objectives could be achieved in many different ways. In our view, this is classic territory for affording the decision-maker a wide margin of discretion. Adopting the language of Sinclair Collis, we consider that the court should only interfere if satisfied that the decisions were manifestly inappropriate or manifestly wrong.

Were the first and second decisions disproportionate and/or irrational?

[58]As we have said, Mr Coppel’s principal submission is that the equal treatment principle is a specific legal standard from which there has been a derogation in this case. In so far as the proportionality challenge to the first and second decisions is put on this basis, we consider that it adds nothing to the equal treatment challenge with which we deal below.

[59]Mr Coppel also submits that the first and second decisions were irrational and therefore disproportionate for a number of detailed reasons. We do not propose to consider them all. For example, we do not consider it appropriate in what is essentially a rationality challenge to embark on the task (addressed in detail in the evidence) of deciding whether the claimants would have been allocated a greater or lesser amount of EU structural funds in 2007-13 if they had been classified as Competitiveness regions rather than Phasing-in regions. We shall confine ourselves to the following points.

[60]First, Mr Coppel submits that the funding allocation to Merseyside and South Yorkshire was “artificially low” for 2013 as a result of their special treatment as Phasing-in regions under the previous funding regime. It is only in a very limited sense that the appellants’ funding levels in 2013 were artificially low. If one were to use Mr Coppel’s terminology it would be equally appropriate to say that their funding levels at the beginning of the 2007-13 period were artificially high. The additional funding in 2007-10 was transitional funding to soften the effect of moving out of Objective 1 status. As Mr Swift says, this transitional funding was never intended to be permanent and it is incorrect to describe it as “front loaded”. This description wrongly assumes the entrenchment of that which was intended to be temporary.

[61]Secondly, Mr Coppel submits that the second decision was premised on a misinterpretation of the 2006 regulation. He takes issue with the Secretary of State’s case that it was the funding between 2007 and 2010 (and not the funding during the entire 2007-13 period) that was transitional. As the judge pointed out, the fact that there was transitional and specific funding in the 2007-13 period did not mean that such funding lasted throughout the entire period. It is difficult to see how there could be “transitional support” after 2010, when a Phasing-in region received only the national average per capita aid level for a Competitiveness region after that date. In our view, the judge’s reasoning at para 30 of his judgment is unimpeachable.

[62]Thirdly, Mr Coppel submits that the first and second decisions, in combination, produced an unjustifiable mismatch between the Transition regions’ relative levels of deprivation and the funding they were allocated. He says that the claimants are to receive significantly less funding per capita than other Transition regions with comparable development needs and even those with less severe development needs. In support of this, they rely on the table set out at para 79 of Dr Baxter’s first statement. Dr Baxter says that the table shows that neither region is at the bottom of the scale. Anyway, she says, it was never intended perfectly to match GDP per capita with structural funding per capita: that would have been achieved by the EU notional formula, but this option was rejected for the reasons explained earlier. As the judge said at para 55.4, the allocation for the claimants is not out of kilter with all other Transition regions. As he put it:

“Unsurprisingly, given the actual basis of allocation, there are fluctuations. Nevertheless, the Lincolnshire and Merseyside allocations are extremely similar whereas Devon’s per capita allocation is low, even taking into account the fact that they are the second highest in terms of average GDP per capita””

[63]In short, the figures reflect, at worst, a mixed bag of results rather than a pattern which singles out Merseyside and South Yorkshire for especially harsh treatment.

[64]In our judgment, these submissions do not, whether considered individually or in combination, come anywhere near demonstrating that the first and second decisions were irrational or manifestly inappropriate or manifestly wrong.

EQUAL TREATMENT

[65]The equal treatment principle requires that “comparable situations must not be treated differently and different situations must not be treated in the same way unless such treatment is objectively justified”: see, for example, Arcelor Atlantique at para 23. Justification is not in issue in this case. Accordingly, the only question is whether there was a failure to treat like cases alike and unlike cases differently.

[66]In his skeleton argument, Mr Swift QC submitted that the judge adopted the correct approach. During the course of his oral submissions, he accepted that the first and second decisions fell within the scope of EU law and that the principle of equal treatment therefore applied. He submitted, however, that(i) the content of the equal treatment principle was context-specific; and

(ii) in the context of a decision about allocating resources between public authorities who had no specific right to receive them, the equal treatment principle entailed no more than that the decision-maker should apply the objectives of the applicable EU legislation.

[67]We do not accept that the equal treatment principle reduces to a requirement that the decision-maker does no more than apply the objectives of the applicable EU legislation. The objectives of the legislation do not themselves necessarily say anything about equal treatment. In our view, EU law requires the decision-maker to apply the equal treatment principle in meeting those objectives.

[68]It became clear during the course of argument that the real issue between the parties is not about what the equal treatment principle entails. Rather it is how it should be applied and, in particular, what margin of discretion should be afforded to the Secretary of State in applying the principle. Since this is not a case about justification, the central question is what margin of discretion (if any) should be afforded to the Secretary of State in deciding whether different categories are like or unlike each other (“the comparability issue”).

The margin of discretion in relation to the equal treatment issue

[69]Mr Coppel submits that there should be no margin of discretion or alternatively a low margin of discretion in relation to the comparability issue. He says that decisions as to comparability are routinely reviewed by the CJEU without any margin of discretion being allowed to Member States at all: see, for example, Rodriguez Caballero [2002] ECR 1-11915 and Emam and Sevinger [2006] ECR 1-8055. No authority was cited to us in which a margin of discretion has been afforded to the decision-maker in relation to a question of comparability. On the other hand, no authority has been cited which discusses, still less decides, what margin of discretion (if any) should be afforded.

[70]In the absence of authority on the point, we must address the issue from first principles. We see no reason in principle why the width of the margin of discretion in relation to a decision on comparability should be approached differently from any other decision made within the scope of EU law. In other words, it may be broad or narrow according to the circumstances of the case and in particular the nature of the decision: see Sinclair Collis at para 200 (para 54 above). In a simple case of discrimination, there may be no margin of discretion at all in deciding the comparability issue. For example, there is obviously no room for a margin of discretion in relation to whether a man is like a woman or a black person is like a white person. But some comparisons are less straightforward and are not so clear cut. They may involve making complex evaluative judgments as to which there is real scope for differences of opinion. In principle, the more complex and the more judgment-based the decision, the greater the margin of discretion should be afforded to the decision-maker.

[71]Mr Coppel accepts that, in accordance with the principle of subsidiarity, a member state has a wide discretion in its choice of economic indicators for the purpose of making allocations of funds. He submits, however, that once the decision-maker has chosen the economic indicators that he proposes to apply, he must apply them in accordance with the equal treatment principle and he is afforded either no margin of discretion at all or only a narrow margin of discretion in relation to its application.

[72]We do not accept this submission. We see no basis for compartmentalising the decisions to allocate funds in this way. The context in which the first and second decisions were taken is critical to the intensity of the court’s review of them. As Mr Swift points out, they were required to be taken so as to implement the TFEU and the 2013 regulation. This is where the objective of achieving “smart, sustainable and inclusive growth” assumes significance (see para 16 above). The Secretary of State was required to have regard to a number of different overlapping considerations, and the regulation does not prescribe the weight to be given to each of them. Mr Coppel submits that there is a clear hierarchy with article 174-176 of the TFEU at the top and that the reduction of disparities between the levels of development of the various regions is the most important norm. But it is clear from the definition of “smart, sustainable and inclusive growth” that the reduction of regional disparities does not involve a simple comparison of the development level and economic performance of one region with another. Mr Coppel does not say that it was wrong in principle for the Ministers to undertake the exercise which is described by Dr Baxter. In our view, he is right not to do so. It is a complex exercise. It includes not only making comparisons of the economic performance of different regions, but also inter alia of their respective employment rates for different age groups, their respective conditions for research and development and their respective greenhouse gas emissions. Each of these comparisons might individually involve making judgments. Overall, the exercise of comparing one region with another is or ought to be multi-factorial. It involves making a substantial number of value judgments of an economic and social nature. In our view, the decision-maker is entitled to a wide margin of discretion in making such a decision.

Failure to treat like cases alike

[73]Mr Coppel makes a number of points in support of his submission that the combined effect of the first and second decision was to fail to treat Merseyside and South Yorkshire in the same way as the regions of Northern Ireland and Highlands & Islands which he says were in a materially identical situation. He submits that, unlike the Highlands & Islands and Northern Ireland, Merseyside and South Yorkshire have not been protected from the effects of “sudden and significant cutbacks” as compared with their 2007-13 allocations. The outcome of the first decision was that the Highlands & Islands is to receive 98.8% of its 2007-13 allocation in 2014-20 and Northern Ireland 96.7% of its 2007-13 funding, whereas Merseyside and South Yorkshire will receive 35% of their 2007-13 allocation. These outcomes are particularly difficult to justify since Northern Ireland is more prosperous than both Merseyside and South Yorkshire and the Highlands & Islands is more prosperous than Merseyside and has a similar level of prosperity to South Yorkshire.

[74]The answer to this submission is that there was a “sudden and significant cutback” for Merseyside and South Yorkshire only if the fact that there was transitional funding during the period 2007-13 is ignored. It cannot be ignored that Phasing-in regions such as Merseyside and South Yorkshire had a higher, but downward tapering, funding allocation for the four years 2007-10 which was provided “on a transitional and specific basis” before receiving the same amount for the three years 2011-13. When comparing overall allocations across the 2007-13 period with those likely for the 2014-20 period, it was to be expected that there would be a significant drop in funding because (as was the inevitable consequence of the application of the 2006 regulation) the additional transitional funding would no longer be provided.

[75]The next point made by Mr Coppel is that the Highlands & Islands is the region most similar to Merseyside and South Yorkshire in that it enjoyed special transitional Phasing-out status in 2007-13. The Secretary of State decided to perpetuate the transitional funding arrangements for the Highlands & Islands by, inter alia, basing his funding on a baseline over the entire 2007-13 period, rather than on the funding for 2013 and putting in place additional protection from “sudden and significant cutbacks”. But he refused to apply the same or similar arrangements to Merseyside and South Yorkshire.

[76]Mr Swift submits that the Highlands & Islands (which was a Phasing-out region) had a different status in 2007-13 from that of Merseyside and South Yorkshire (which were Phasing-in regions). The former was “phasing out” of the Convergence category,but not yet wealthy enough to be in the Phasing-in category. The Highland & Islands’ poorer status as a Phasing-out region was also recognised by the more gradual transitional period provided for by the 2006 regulation. A Phasing-out region’s aid started in 2007 at 80% (as opposed to 75%) of its 2006 level and then declined over a longer period ending in 2013, not 2011. Its poorer status was also recognised in other ways which are explained at paras 61 and 62 of Dr Baxter’s statement. The Secretary of State was, therefore, entitled to take the view that the economic position of the Highlands & Islands was materially different from that of Merseyside and South Yorkshire.

[77]Northern Ireland was not a Phasing-in region and had a flat funding profile in 2007-13. Mr Coppel submits that the fact that Northern Ireland was a Competitiveness region in 2007-13 cannot be a material difference because, like Merseyside and South Yorkshire, it too is now a Transition region. He says that this historical difference is no answer to the complaint that Northern Ireland has been more favourably treated. We do not agree. In view of the fact that the 2014-20 allocation decisions were based on previous funding patterns, the Secretary of State was entitled to regard the previous categorisation of Northern Ireland as a Competitiveness region as a material difference.

Application of the same rule to different situations

[78]The complaint here is that to take the amount of funds allocated for 2013 as the starting point for the allocation of funds to the Transition regions for 2014-20 failed to differentiate between Merseyside and South Yorkshire on the one hand and the remaining nine English Transition regions on the other hand. Mr Coppel submits that their situations were materially different. The central point is that the 2013 funding allocation for Merseyside and South Yorkshire was calculated on a different basis from that of the remaining Transition regions. Mr Coppel emphasises the following points. The 2006 regulation regarded Merseyside and South Yorkshire as being in a materially different position: they were within the category of Phasing-in categories and the remaining Transition regions fell within the Competitiveness category. The funding of Merseyside and South Yorkshire under the 2006 regulation for 2007-13 was heavily front-loaded and tapered to a level in 2011-13 which corresponded to a national per capita figure. In other words, their 2013 funding was not based on their own economic characteristics or needs, but on an average which, given their own economic circumstances and the greater prosperity of other regions whose allocations were used to calculate the average, was far below what their own circumstances would have required. By contrast, the other English Transition regions (as Competitiveness regions) had funding allocations in 2013 which(a) were substantially greater than those of Merseyside and South Yorkshire in absolute terms, notwithstanding their greater prosperity at the time;

(b) represented a substantially greater proportion of their 2007-13 allocations (approximately 15%);

(d) being calculated as a proportion of an overall amount which had been derived from the economic characteristics of the former Competitiveness regions, were allocations which were based on the economic needs of those regions and not on some notional average figure.

[79]We have earlier (paras 34 to 40 above) set out some details of the methodology adopted in relation to the second decision. We do not propose to repeat what we have already said. It is sufficient if we add the following. The Ministers decided to base the allocations for 2014-20 on equally distributed changes to the allocations at the end of the 2007-13 period. As Dr Baxter says, this largely avoided significant shifts in funding between the two periods and therefore minimised the number of areas that would lose out from the resulting allocations.

[80]They considered whether to use a formula based on a 2007-13 average, or to use 2013 only as the basis of the allocations. It was calculated that using the 2007-13 average would result in all Transition regions receiving a 22% cut in funding as compared with 2007-13, principally because of the high baseline for Merseyside and South Yorkshire that would have resulted from taking into account allocations for the 2007-10 period which were made on a higher, but downward tapering, basis. Dr Baxter summarises the position at para 56 in these terms:

“Had allocations been calculated based on a 2007-2013 average or overall quantum, then Ministers felt that Merseyside and South Yorkshire would have been unduly advantaged in relation to other English Transition areas, in so far as their boosted allocations in the period 2007-2010 were expressly intended to be “transitional and specific”, rather than to be enshrined into future allocations.”

[81]Dr Baxter rejects the argument that the 2011-13 allocations did not reflect the economic situation of Merseyside and South Yorkshire and that the 2013 baseline was artificially low. She says at para 58 of her first witness statement: “allocations were determined by both economic characteristics and the historical level of receipts. Funding for Merseyside and South Yorkshire was determined by the European Commission using a methodology based on historical receipts and an appropriate rate of downward taper”.

[82]For understandable reasons, Dr Baxter does not clearly distinguish between(i) whether basing the 2014-20 allocations on the 2013 allocations for all the English Transition regions treated Merseyside and South Yorkshire in a materially different way from the other English Transition regions and, if it did,

(ii) whether the differential treatment was justified. As we have said, the Secretary of State does not rely on justification. We acknowledge that, as a matter of legal analysis, there is a clear distinction between the fact of differential treatment and its justification. But in the circumstances of this case, as is clear from the evidence of Dr Baxter the dividing line is not easy to maintain.

[83]Mr Swift submits that the Transition category included former Phasing-in, Phasing-out and Competitiveness regions. A degree of generalisation between regions which had experienced different historical funding profiles was inherent in the new Transition region categorisation under the 2013 regulation. The EU could have afforded special status to some regions based on their historical position (as it had done in the 2007-13 funding period). If the EU had intended Member States to treat Phasing-in regions in a materially different way from Competitiveness regions, it could have carved out a special funding category for such regions in the 2013 regulation. But it did not do so. He submits that, in these circumstances, the Secretary of State was entitled to take as his starting point that, whatever their position was in 2007-13, all Transition regions were now classified in the same broad category.

[84]We are satisfied that, bearing in mind the width of the margin of discretion, the Secretary of State was entitled to treat all the English Transition regions alike for the reasons given by Mr Swift and the judge. There is, however, one particular point which we should address. We have earlier stated that the Secretary of State was entitled to consider the previous categorisation of Northern Ireland as a Competitiveness region as a material difference for the purposes of comparing it with Merseyside and South Yorkshire. We have also said that he was entitled to treat Highlands & Islands differently as a result of its previous position as a Phasing-out region. In these circumstances, the question arises whether he was entitled to regard as immaterial the previous difference in categorisation of Merseyside and South Yorkshire and of the other English Transition regions.

[85]Dr Baxter has not addressed this particular issue in her evidence. That is no doubt because it was not identified as a discrete point of complaint. So we do not have the benefit of a focused response to it. Nor is it the main focus of Mr Coppel’s challenge. Nevertheless, bearing in mind the width of the margin of discretion afforded to the Secretary of State, we are not persuaded that this apparent inconsistency is sufficient to impugn the decisions in this case. The Secretary of State has explained in some detail how the two decisions were made. This was a complicated exercise. It is not surprising that there were some rough edges and that the comparability issue was not determined with scientific precision. Nor is it surprising that it is possible to expose some inconsistencies in the detail. But, having regard to the margin of discretion, the court should only interfere if such inconsistencies are serious. In our view, the inconsistencies to which we have referred are not serious.

Overall conclusion on the equal treatment issues

[86]Despite the cogent and persuasive way in which Mr Coppel presented his arguments, we cannot accept them. We have not rehearsed all the detailed submissions skilfully advanced by him. We hope that we have addressed the principal ones. For the reasons already given, the Secretary of State was entitled to a wide margin of discretion in deciding questions of comparability. We agree with the judge that the court should only interfere if a high standard of unreasonableness is met. The evidence of Dr Baxter shows that the Secretary of State approached the task of allocating the funds in a careful and systematic way and had particular regard to the relative position of the different regions. He gave particular consideration to the position of Merseyside and South Yorkshire. We are satisfied that the high threshold for interference by the court has not been crossed in this case. Failure to take into account mandatory relevant consideration: the domestic law dimension.

[87]Mr Coppel submits that the Secretary of State failed to take into account as a mandatory relevant consideration the actual relative needs of the Transition regions. That consideration was mandatory because the key objective of the 2013 regulation was to reduce economic disparities between regions. Even if the Secretary of State was entitled to ignore the criterion of GDP relative to the EU average, he could not ignore economic need altogether. Mr Coppel submits that this is what the Secretary of State has done.

[88]We are content to assume that the objective of reducing economic disparities was a mandatory relevant consideration and that the Secretary of State was therefore required to have regard to the relative economic needs of the Transition regions. We do not, however, accept that the Secretary of State ignored the economic needs of Merseyside and South Yorkshire. It is clear from para 9 of the methodology statement to which we have referred at para 34 above (“reflecting their current economic position”) that he took this into account. A further relevant point is that the Secretary of State rejected the case for using a basket of indicators based on the latest economic data to determine the allocation, because he believed that it would result in an unacceptably large drop in funding for the North of England and the Midlands, with a consequent increase in funding for the South of England. In other words, the Secretary of State did have regard to the economic needs of all the Transition regions. The complaint is not so much that he did not have regard to these needs as that he did not do so properly. But that is a different complaint and better considered by reference to the EU principles of proportionality and equality of treatment on which we have already expressed our conclusions.

[89]In our view, the judge was right to reject this domestic law challenge to the decisions.

Overall conclusion

[90]For all these reasons, we are satisfied that the judge came to the right conclusions on all the main issues and essentially for the right reasons. This appeal is therefore dismissed.