Rotherham Metropolitan Borough Council & Ors, R (on the application of) v Secretary of State for Business, Innovation and Skills [2014] EWHC 232 (Admin)

Case No CO/14079/2013[2014] EWHC 232 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Venue Leeds Combine Court
The Court House, 1 Oxford Row,
Venue Leeds LS1 3BGDate 07/02/2014
Before
MR JUSTICE STEWART
Between
The Queen (on the application ofClaimant(1) Rotherham Metropolitan Borough CouncilClaimant(2) Liverpool City Council and others)ClaimantThe Secretary of State for Business, Innovation and SkillsDefendant
Mr Jason Coppel QC and Miss Joanne Clement (instructed by Director of Legal and Democratic Services) for ClaimantsMr Jonathan Swift QC and Mr James Cornwell (instructed by Treasury Solicitor) for DefendantHearing Hearing dates: 28 - 29 January 2014
Judgment

The Claimants

[1]The Claimants are those South Yorkshire Local Authorities within the Sheffield City Region Local Enterprise Partnership and those Local Authorities within the Liverpool City Region Local Enterprise Partnership. These Local Enterprise Partnerships correspond approximately, but not exactly, to the Counties of South Yorkshire and Merseyside. The South Yorkshire Local Authorities within the Sheffield City Region are:• Barnsley Metropolitan Borough Council• Doncaster Borough Council• Rotherham Metropolitan Borough Council• Sheffield City Council The Merseyside Local Authorities within the Liverpool City Region are:• Knowsley Metropolitan Borough Council• Liverpool City Council• Sefton Metropolitan Borough Council• St Helens Metropolitan Borough Council• Wirral Metropolitan Borough Council

Glossary

[2]In this judgment the following abbreviations will be used: LEP – Local Enterprise Partnership SCR – Sheffield City Region LCR – Liverpool City Region The Cohesion Policy – The EU Economic, Social and Territorial Cohesion Policy ERDF – European Regional Development Fund ESF – European Social Fund NUTS – The EU Nomenclature of Territorial Units for Statistics TFEU – Treaty on the Functioning of the European Union The 2006 Regulation – Council Regulation (EC) 1083/2006 The 2013 Regulation – Regulation (EU) 1303/2013 CFR – The Charter of Fundamental Rights PSED – Public Sector Equality Duty

The Issue for Determination

[3]The Claimants challenge decisions of the Defendant in relation to the regional allocation of EU Structural Funds for the period 2014 – 2020. Two decisions of the Defendant are challenged:(i) The Defendant’s allocation of the EU Structural Funds for the period 2014 – 2020 as between the four countries of the United Kingdom. This decision was announced on 26 March 2013.(ii) The Defendant’s allocation of EU Structural Funds for the period 2014 – 2020 as between the English regions. This decision was announced on 27 June 2013.[4]The relief which the Claimants seek is that the court quashes both decisions so that they may be reconsidered by the Defendant.[5]The witness evidence in the case is from:(i) Martin Eyres. Mr Eyres’ statements are dated 15 October 2013 and 15 January 2014. He is the head of European Affairs based in the office of the Chief Executive of Liverpool City Council. His evidence is filed on behalf of the Claimants.(ii) Doctor Susan Chui Chi Baxter. Her statements are dated 18 December 2013 and 22 January 2014. Dr. Baxter is Deputy Director EU Funding and Industrial Policy and is a senior civil servant within the Defendant’s Ministry. Her statements are filed on behalf of the Defendant.

Legal Materials

[6]Extracts from the core legal materials are set out in the Appendix to this judgment. They are:(i) TFEU Articles 162 – 164, 174 – 178(ii) The 2006 Regulation Recital (17), Articles 3, 5, 6, 8(1), 8(2), 8(3) and 8(4), Annex II paragraphs 4, 6, 13 and 17.(iii) The 2013 Regulation Recital (1), (3), (13), (14), (28) and (77); Articles 7, 9, 89, 90(1) and (2), 93 and Annex VII paragraph 2, para 15.(iv) CFR Articles 21, 51(1).(v) Equality Act 2010, section 149.

Broad EU Framework

[7]Articles 174 – 178 TFEU require the EU to promote its overall harmonious development and strengthen its economic, social and territorial cohesion by reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions. The achievement of these objectives is via the Structural Funds (Article 175). The largest Structural Fund is the ERDF (Article 176). Its purpose is “to help redress the main regional imbalances in the Union through participation in the development and structural adjustment of regions whose development is lagging behind and in the conversion of declining industrial regions.” The ESF (TFEU Articles 162 – 164) aims to facilitate the employment, and adaptation to industrial changes, etc., of workers. Via these means the Cohesion Policy is sought to be implemented. The practical implementation has, since 2000, been effected through a seven year funding programme.[8]The European Parliament and the Council define the tasks, priority objectives and organisation of the Structural Funds by EU regulation. Prior to legislating, they consult with the Economic and Social Committee and the Committee of the Regions (TFEU Article 177).[9]The Structural Funds are part of the EU budget. How they are spent depends on a system of shared responsibility between the EU and the authorities of the Member States. The EU budget determines the amount of structural funding for each Member State. The Commission’s calculations refer to the regions of each Member State. Those regions are to be found in NUTS 2006/EU – 27. The NUTS 2 regions are second tier regions which broadly correspond to large counties in the UK. The UK has 37 NUTS 2 regions. Of these, four are in Scotland, two in Wales, and Northern Ireland is a single NUTS 2 region.[10]Regulations provide for the classification by the EU Commission of the regions of each Member State by reference to their development needs. Both the form and the basis of the classification have changed in the three 7 year periods commencing in the year 2000.[11]In this funding period three categories of priority region were identified. These were: Objective 1, Objective 2 and Objective 3 regions. The Objective 1 programme operated within areas of most need, determined according to whether GDP per capita was less than 75% of the community average. Merseyside and South Yorkshire were Objective 1 regions.[12]The 2006 regulation introduced a new categorisation of regions. Allocations in this period were to:(i) Convergence regions. These were the most deprived/poorest regions. They had a GDP of less than 75% of the EU average (Article 5(1) of the 2006 Regulation). In the UK, Cornwall and West Wales were Convergence regions.(ii) Phasing-in regions. These were regions that had been Objective 1 regions, but whose GDP was no longer below 75% of the average of the 15 Member States comprising the EU in the year 2000. They were regions who were Phasing-in to Competitiveness and Employment. Merseyside and South Yorkshire were the only two UK Phasing-in regions. Under Article 8(2) of the Regulation they were “…eligible, on a transitional and specific basis, for financing by the Structural Funds under the Regional Competitiveness and Employment Objective.” The allocation of funds to the Phasing-in regions was governed by paragraph 6(b) of Annex II to the 2006 Regulation.(iii) Phasing-out regions. These were also regions that had been Objective 1 regions. The difference between them and Phasing-in regions was that their GDP only exceeded the threshold for Convergence by reference to average GDP because of the statistical effects of the enlargement of the EU, by reason of admission of poorer central and Eastern European States as Member States. By reference to the average GDP of the 15 Member States as at 2000, Phasing-out regions would still have qualified as Convergence regions. In the UK, the Highlands and Islands was the only Phasing-out region. Article 8(1) of the 2006 Regulation provided for their (different) transitional and specific financing by the Structural Funds. Their allocation under the transitional support referred to in Article 8 was governed by paragraph 6(a) of Annex II to the 2006 Regulation.(iv) Competitiveness regions. These comprised all other regions in the UK. They were relatively wealthy compared to regions in the other categories and had GDP levels around or above EU average.[13]For Convergence, Phasing-in and Phasing-out regions, the European Commission determined the level of funding for each individual region using the 2006 Regulation methodology. The allocation for each NUTS 2 region was communicated to Member States by the Commission. A Member State had no material flexibility to further determine the allocation between the regions. However, in relation to Competitiveness regions each Member State was free to determine how the funds could be allocated among those regions, though this was subject to approval by the Commission.[14]The 2013 Regulation was in draft form when the decisions challenged were taken. It was subsequently adopted.[15]Yet again, the Regulation introduced three new categories of NUTS 2 to regions. These were: “(a) Less Developed regions, whose GDP per capita is less than 75% of the average GDP of the EU – 27; (b) Transition regions, whose GDP per capita is between 75% and 90% of the average GDP of the EU – 27; (c) More Developed regions, whose GDP per capita is above 90% of the average GDP of the EU – 27.” (Article 90) (Article 90)[16]The methodology of categorising a region was thus altered such that it is now based on the “average GDP of the EU – 27.”[17]By reference to this classification the UK has:(a) Two Less Developed regions (Cornwall and the Isles of Scilly, and West Wales and the Valleys).(b) 11 Transition regions. These are Northern Ireland, Highlands and Islands and 9 English regions, including South Yorkshire and Merseyside.[18]Whereas in the 2007 – 2013 period Member States were not allowed to transfer resources between categories of regions (Article 22 of the 2006 Regulation), Article 93 of the 2013 Regulation permitted some reallocation. Paragraph 1 of Article 93 permitted a transfer up to 3% of the total allocation for a category of regions to other categories of regions. Subject to this there is therefore a ring fenced pot of funds for each of the three categories. The Defendant reallocated 3% from each of the Transition and More Developed categories to the Less Developed category. The Claimants do not challenge this decision.[19]Member States have greater discretion in the allocation of funds between the regions in each category. It is the exercise of that discretion by the Defendant which the Claimants seek to challenge.

The First Decision: 26 March 2013

[20]In a press release the Minister announced in relation to “allocation of EU Structural Funding across the UK”:
“… 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:

[21]Under the decision Northern Ireland was allocated €457 million, Scotland €795 million and England and Wales €6.174 million. As a result of the Second Decision (see attached), so far as England is concerned, after the 3% transfer to the only Less Developed region, Cornwall, the allocation fixed by EU law (2013 Regulation, Article 93) is:(i) €559 million to the Less Developed regions(ii) €1,628 million to the 9 Transition regions(iii) €3,988 million to the More Developed regions.

The Second Decision: 27 June 2013

[22]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.” It continued:
“… 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.”
[23]The LCR and SCR LEPs were allocated €221.9 million and €203.4 respectively for the 7 year period. As the LEPs do not precisely equate to the counties of Merseyside and South Yorkshire, these sums are equivalent to an allocation of €202 million for Merseyside and €178 million for South Yorkshire. The Annex, i.e. the LEP Allocation Table produced by the Minister, totals €6.54 billion, not €6.2 billion. The announcement was at 2011 prices but the allocation was at 2013 prices. The footnote to the Table that “Figures are nominal and so not adjusted for inflation” was a (related) error.

Methodology for the Allocation of Funds for the 2014 – 2020 Period

[24]The Claimants say that they were in the dark as to the methodology. They had not been consulted. Lack of consultation is not a separate ground of challenge. The Claimants merely submit that the Defendant may not have made the decisions which they allege are unlawful, had he consulted; also that it was a factor serving to narrow the discretion. I do not accept the latter point. They received the methodology document pursuant to a Freedom of Information Act application. The Government decided not to consult on the Second Decision, though it did consult with the Devolved Administrations on the First Decision. The non-consultation was because the Government felt that there would be no useful feedback, as the decision concerned the allocation of money to individual regions. The Government was aware of the issues that arise in the Claimant Regions.[25]The methodology under the heading “2014 – 2020 Allocations Methodology”:(i) Records the (unchallenged) transfer of 3% of the budget for the More Developed regions and Transition regions to the Less Developed region – paragraph 3.(ii) Records the fact that allocations for England, Scotland, Wales and Northern Ireland were then set, such that each administration’s overall allocation was equalised at a 5% reduction in relation to their 2007 – 2013 allocation – paragraph 4.(iii) States:
“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…” – paragraph 5. (iv) Specifically deals with South Yorkshire and Merseyside in paragraphs 9 – 12 as follows: “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. The Defendant says that the reference to “UK” (the second and third time) in para 9, but not the first time was an error. It should have said “England” and “English”. 10. As Phasing-in regions, South Yorkshire and Merseyside have been subject to a downward taper of Structured 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.”

The 2013 Allocation Baseline

[26]A central complaint of the Claimants is that the Defendant’s methodology in relation to the Second Decision was using the 2013 allocation as the baseline for the 2014 – 2020 allocation. In the 2007 – 2013 period, the effect of Merseyside and South Yorkshire being categorised as Phasing-in regions meant that their allocation was determined pursuant to paragraph 6(b) of Annex II to the 2006 Regulations. In the first year of the period (2007), an allocation of 75% per capita of what had been paid in 2006 ensured that there would be no sudden drop in funding for regions which had previously been Objective 1 categorised. However there was then a linear reduction in 2008, 2009, 2010 and 2011 such that, by 2011, Phasing-in regions received only the national average aid per capita for Competitiveness regions. The 2011, 2012 and 2013 allocation was therefore much lower than earlier, since the Competitiveness regions were the most prosperous and received the least aid. Thus the full funding for Merseyside and South Yorkshire (taken together) comprised of the following yearly percentages: 2007 – 31.37% 2008 – 25.04% 2009 – 18.45% 2010 – 11.58% 2011 – 4.43% 2012 – 4.52% 2013 – 4.61% This funding profile was very different from that of a Competitiveness region which received a roughly equal amount of money during each year 2007 – 2013. Further, as paragraph 5 of the 2014 – 2020 methodology document shows, the government provided its own weightings and indicators of economic development in the 2007 – 2013 period, so as to direct higher levels of funding per capita to more deprived areas of the North of England which were nonetheless Competitiveness regions.[27]In the 2006 Regulation paragraph 6(b) to Annex II provided:
“6. The allocations under the transitional support referred to in Article 8 will result from the application of the following parameters: …. (b) …75% of their individual 2006 per capita aid intensity level in 2007 and a linear reduction thereafter to reach the national average per capita aid intensity level for the Regional competitiveness and employment objective by 2011…”
[28]The Defendant submits:(i) Phasing-in regions would, on the basis of their per capita GDP alone, have been classified as Competitiveness regions.(ii) Because a sudden jump to Competitiveness status would have resulted in a significant and sudden reduction in EU funding, the EU introduced the Phasing-in category.(iii) This funding basis, by reason of the Phasing-in status, was well known in the regions. The North West Regional Development Agency published a summary and, in relation to Merseyside, said that it was “a “Phasing-in” region which allows the area to adjust gradually to the reduction in funding available.” Similarly, the Yorkshire and Humber Regional Competitiveness and Employment Programme, Operational Programme 2007 – 2013 stated that South Yorkshire would “receive transitional support as a Phasing-in region that qualified for Objective 1 funding in 2000 – 2006 …” and “because of its Phasing-in status South Yorkshire’s profile is heavily weighted towards the first four years and tapers towards the end of the programming period…the higher level of resources in South Yorkshire in the short term will not lend itself well to longer term support programmes but to one off capital projects, one off revenue funded support and building on the current Objective 1 programme.”(iv) Therefore it was to be expected that there would be a significant drop in funding in the 2014 – 2020 period because the transitional funding would no longer be provided.[29]The Claimants take issue with the Defendant’s submission that it was the funding between 2007 – 2010 which was transitional. They submit that this is a serious matter and that the Defendant misdirected himself in relation to Article 8(2) and paragraph 6(b) to Annex II. The misdirection alleged is that in fact the transitional and specific basis of funding was throughout the whole of the period 2007 – 2013. In support of this the Claimants submit:(i) That the wording of Article 8(2) has this effect. In particular the last paragraph of Article 8(2) in relation to Cyprus says “Cyprus shall benefit in 2007 – 2013 from the transitional financing applicable to the regions referred to in the first sub-paragraph.” Cyprus was a particular case because it had only acceded the EU in 2003. The Claimants also submit that the wording of Article 8(3) supports their submission. See also Annex II paragraph 17.(ii) On the Defendant’s logic, Phasing-out regions which were covered by Article 8(1) would have lost their transitional support after 2012, yet Recital (17) says of Phasing-out regions they “are to benefit …from substantial transitional aid …This aid is to end in 2013 and is not to be followed by a further transitional period.”(iii) The Minister of State at the Defendant Department (Michael Fallon MP) said in the House of Commons on 1 July 2013, “As such, it is the current EU budget period – 2007 – 2013 that is the transitional period for South Yorkshire, and the EU Funds have been on a declining taper for the entire seven year period, in order for partners in that area to adjust to a lower level of EU receipts.”[30]I do not accept the Claimants’ submission because: (i) The purpose of “Phasing-in” and the tapering provisions of paragraph 6(b) seem to me to be clear. It was as the Defendant contends. This is specifically supported by the words in the sub paragraph “a linear reduction thereafter to reach the national average per capita aid intensity level for the regional competitive and employment objective by 2011”. By this, the 2011 level was the cessation of the transition. Thereafter the funding level remained flat, as it had done throughout the period in the Competitiveness regions. Note the different wording in Paragraph 6(a) re Phasing-out regions and Recital (17) which deals with the Convergence Objective and says:
“This aid is to end in 2013…”. (ii) The fact that there was transitional and specific financing in the 2007-2013 period does not mean that such transitional financing lasted throughout the duration of that period.

(b) to Annex II refer to “transitional support”

. It is difficult to see how there could be “transitional support” after 2010, when a Phasing-out region received only the national average per capita aid intensity level for a Competitiveness region after that date. (iii) The period as a whole (both for Phasing-in and Phasing-out regions) might possibly be described as “transitional”, but the transitional support and funding ceased after 2010 for the Phasing-in regions. (iv) The words of Ministers to Parliament should not be regarded as determinative of the construction of a legal document. That said, I find no problem with the Minister having described the period 2007 – 2013 as “the transitional period”.[31]The Claimants have obtained from the Defendant, pursuant to a disclosure request, the data for the Competitiveness regions in 2007 – 2013. Mr Eyres has carried out calculations by adding data for Merseyside and South Yorkshire. On his ranking, Merseyside is ranked third and South Yorkshire sixth most deprived out of the total of 34 Competitiveness regions. The Claimants submit that their allocation for 2013 was artificially low as a result of their special treatment as Phasing-in regions. They say that pursuant to paragraph 6(b) of Annex II to the 2006 Regulations, their 2013 allocation was a national average aid figure unrelated to their particular needs and characteristics. It did not take account of the uplift provided to Competitiveness regions in the North and Midlands that the Government considered to be in need of additional support. However:(i) This ignores the fact that the Claimants had received very substantially more than other Competitiveness regions in 2007 – 2010. Nine other Competitiveness regions are Transition regions under the 2014 – 2020 allocation and they did not benefit from additional funding.(ii) The Defendant does not accept the Claimants’ hypothesis which gives rise to the argument that they would have received significantly more in 2011 – 2013 had they been Competitiveness regions. Dr Baxter accepts that, had they been Competitiveness regions, the methodology would have been different, but says in her first statement “it cannot be determined with any certainty what the allocations of those two regions would have been”. She says in her second statement (paragraph 14) that it is just as likely that the methodology would have been adjusted to be less favourable to the Claimants. This is because Mr Eyres’ calculations are based on some speculation by reference to other Competitiveness regions or other NUTS 1 regions which are not appropriate objects of comparison. Had the Claimants been Competitiveness regions, a number of other parameters of the 2007 –2013 allocation would have been different. This gave rise to a substantial factual dispute. It was not possible for me clearly to get to the bottom of this. I consider I must proceed on the basis of Dr Baxter’s evidence. Mr Swift Q.C. took specific instruction from Dr Baxter that the last sentence of paragraph 67 of her first statement meant that the €880.5 million in fact allocated to the Claimants (at 2004 prices) for 2007 – 2013 would not have increased the €5.33 billion budget for the Competitiveness regions had the Claimants been such in that period. This is just the type of factual dispute which was not clearly right/wrong and so is not capable of being subjected to the judicial process. See the Sinclair Collis case at paras 141 and 205.(iii) The fundamental point here is that there was a logical and consistent thread in the Claimants being Phasing-in regions. The Secretary of State was in no way obliged, in my judgment, to carry out a retrospective hypothetical analysis.(iv) The Defendant nevertheless carried out such an analysis as a result of receiving the Amended Grounds of Claim. The conclusions are that the North West NUTS 1 region might have seen an increase of €25 million and Yorkshire and Humberside NUTS 1 region an increase of €82 million. Dividing the increases up by NUTS 2 regions which would have been constituent parts of the NUTS 1 regions would have resulted in 2013 allocations for Merseyside increased by about €0.5 million and for South Yorkshire €2.2 million. This would have led to increased funding for 2014 – 2020. The knock-on effect of the higher baseline would have been a fall below the 15% increase in funding for the Transition regions as a whole. The guestimate is that the theoretical increase in funding for Merseyside and South Yorkshire would have been 5% and 15% respectively above those actually determined. However these calculations were made by the Defendant on what Leading Counsel described as “contested and uncertain assumptions”. See also Dr Baxter’s 2nd statement para 14. I do not feel I should place any reliance on these calculations. The Claimants criticise the Defendant’s calculations as being based on 2011 prices and not on what a region would have actually received in 2013. They said that this was in order to present the lowest possible figures. I reject this complaint. Dr Baxter (second statement paragraph 8) makes it clear that the negotiation of the 2014 – 2020 EU budget was conducted entirely in 2011 prices and therefore the Defendant Ministry’s calculations were undertaken in 2011 prices. In order to provide clarity on actual cash amounts available, the Government presented the allocations to the LEPs in their individual allocation letters in current prices.[32]I shall deal further with arguments based on the 2013 baseline later in this judgment, when I rule on the individual grounds of challenge to the Defendant’s discussions.

EU Notional “Allocations” to NUTS 2 Regions (2014 – 2020)

[33]The Claimants made reference to what they described as the Commission’s allocation of funding to each of the UK regions. They complained that this had never been published. Counsel’s Skeleton Argument stated (paragraph 26) “However, recently, and following repeated requests, the Secretary of State’s estimate of that allocation has been disclosed by the Secretary of State. The disclosure confirms that EU allocation was €318 million for Merseyside (€116 million more than the Secretary of State proposes to pass on to Merseyside) and €236 million for South Yorkshire (€58 million more than the Secretary of State has allocated).”[34]The European Council’s agreement on the 2014 – 2020 EU budget was reached on 8 February 2013. At 2011 prices (not taking into account indexation) there was an overall reduction in the Structural Funds Allocation to the UK of some 5% compared to the 2007 – 2013 period. After the exclusion of funding for European Territorial Cooperation projects, €9.6 billion remained to be allocated in the UK.[35]This approach of the Claimants is misplaced for the following reasons:(i) The Commission made no allocation (whether notional or otherwise) to individual regions. As Dr Baxter makes clear in paragraph 10 of her second witness statement, this is a decision for the Member State. She goes further and says “The European Commission has indicated in meetings with government officials that these allocations (where Member States have been able to estimate what these would have been) should not be used to determine the actual allocations to NUTS 2 regions.”(ii) The Commission has not disclosed to any Member State the notional “allocations” that are used, and has said that it does not intend to do so in the future.(iii) The UK government has estimated what notional allocations the Commission might have used. They were not required to carry out such estimations.(iv) In short, these estimations are of themselves of no relevance in determining the issues before me. However, I shall examine them further in relation to the specific Grounds of Claim.

The First Decision: Rationale

[36]The rationale for the First Decision is set out in Dr Baxter’s 1st statement at paragraphs 37- 46.[37]After the permitted transfer of 3% of funds from the Transition and More Developed regions to the Less Developed regions, the Defendant first considered allocation as between the four countries comprising the United Kingdom. Ministers decided to apply the same level of Structural Funds reduction to each constituent part of the UK at the same level as applied to the UK’s Structural Funds allocation i.e. a reduction of some 5% in 2011 values.[38]Had the government followed the EU’s notional formula calculating allocations to categories of the UK regions then, compared to the 2007 – 2013 allocations, England would have had an increase of 7%, Wales, Scotland and Northern Ireland decreases of 22%, 32% and 43% respectively. Applying the overall 5% reduction in real terms funding to the UK as a whole (based on 2011 prices) to the devolved administrations had the consequences that(i) Northern Ireland, being a single NUTS 2 region, had the 5% reduction applied;(ii) the Scottish Government preferred the 5% cut to apply to both its more Developed regions and to its one Transition region. The UK Government accepted that this was an appropriate approach, as it would not be reasonable to require Scotland to increase spending for its wealthier regions at the expense of its poorest region.[39]The government was aware that this approach would reduce the amount of money available for the regions in England; further that it would limit the funding available for the Transition regions in England and that the allocation for Northern Ireland and Highlands and Islands would come out of the Transition budget. The 11 UK Transition regions comprised nine English Regions, Northern Ireland and Highlands and Islands. The context of this was an overall reduction in the funding for Northern Ireland and Scotland. The reasons for applying the cut equally as between the four countries included that the decision was easier for non-experts to understand (transparency), a single figure was applied to each country (simplicity), the same approach was taken to all four countries (consistency) and it took account of the status of the Devolved Administrations under the UK’s constitutional settlement (balance).[40]Although the government was aware that the approach would mean less for certain regions in England, they decided to concentrate on the “big picture within the UK” when trying to distribute the cut fairly as between the four UK nations.

The Second Decision: Rationale

[41]The rationale for the Second Decision is set out in Dr Baxter’s first statement at paragraphs 47 – 59. She also deals in paragraphs 60 – 62 with the allocation within Scotland.[42]In the circumstances of the reduction to the overall EU programme and the limitations imposed by the 2013 Regulation, it was inevitable that there would be funding reductions to some regions. These reductions were exacerbated by the government’s decision to transfer 3% of the More Developed and Transition regions budget to the two Less Developed regions and the government’s first decision in relation to the four UK nations. The government considered four principal allocation options:(i) Option A which was based on the EU Commission’s methodology. This would have brought a significant uplift in funding to the South of England compared to the North.(ii) Option B based the allocations on 2007 – 2013 levels, relying for purposes of the calculations on the 2013 allocation.(iii) Option C relied on 2007 – 2013 figures, but based South Yorkshire’s and Merseyside’s (along with all English Transition regions) allocations on their average allocation under the previous settlement. Dr Baxter says this would have resulted in a substantial cut to all Transition regions (including Merseyside and South Yorkshire) of 25% compared to 2007 – 2013, but significantly higher funding for Merseyside and South Yorkshire compared to 2013.(iv) 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 however, this had the same effect as Option A.[43]Option A (and Option D) had the attraction that, in the case of Transition regions, per capita Structural Funding allocations would be fully proportionate to GDP per capita. However Ministers felt that the resulting allocation would lead to unacceptably large changes for individual regions compared to the 2007 – 2013 allocations. Officials also spoke to the European Commission who indicated that it would be uncomfortable if the UK used their methodology, which was only to be used for determining the national “envelopes”, not the regional allocations. 44.1. Ministers’ awareness of the significant impact on Merseyside and South Yorkshire led them to consider whether to introduce a safety net. Ministers also saw a strong case for using a basket of indicators, based on latest economic data, to determine the allocations, applying also a suitable safety net. Having carefully considered this option they believed that this would result in an unacceptably large drop in funding in the North of England and an increase in funding in the South of England. Any safety net would have had to be set at a very high level. This would have dominated the methodology and rendered the baseline of indicators somewhat redundant. As a result, Ministers considered Option B to be preferable. 44.2. Dr Baxter’s evidence on this point was in paragraph 13 of her second statement. The Claimants did not accept it. At the end of the first day, I asked that Dr Baxter and Mr Eyres to meet so as to try to reach common ground. Although some common ground was reached, the meeting appeared to throw up more questions than it solved. Again I regard this as the type of factual dispute which was not clearly right/wrong, and so not capable of being subjected to the judicial process. See footnote number 8 above.[45]Option B, in the opinion of Ministers:(i) By equalising the changes from the previous period, followed the same approach as that taken to the allocations made to the four UK countries in the First Decision.(ii) Largely avoided significant shifts in funding between the 2007 – 2013 and 2014 – 2020 periods, thereby minimising the number of areas that would lose out from the new allocations.(iii) Increased the funding for the North of England relative to the South compared to the EU formula for allocating funds to the UK. Ministers were of the opinion that there had been no fundamental change in the economic landscape to justify a significant shift in the allocations.[46]In deciding on Option B rather than Option C, Ministers considered whether to use a formula based on a 2007 – 2013 average or to use the 2013 allocation as the baseline. They decided on Option B, in summary, for these reasons:(i) Using the 2007 – 2013 average would result in all Transition regions receiving a 22% cut in funding compared to 2007 – 2013 (25% after the national “top slice” to cover core administration costs in England). This result was primarily because of the high baseline for South Yorkshire and Merseyside that would have resulted from taking into account average allocations for the 2007 – 2013 period. Such a reduction, imposed on the regions as a whole, would have been considerable, particularly as they were expecting to enjoy increased funding as a result of the production of the new Transition category of regions. This category had been specifically introduced to provide enhanced levels of funding for regions at an intermediate stage of development. Indeed Dr Baxter says that imposing across the board cuts of this nature would also have been likely to have created difficulties in agreeing the allocations with the European Commission. The Defendant states that South Yorkshire and Merseyside regions received between them €1.01 billion in the 2007 – 2013 period (2011 prices). The total ring fenced funds for all eleven UK Transitional regions for 2014 – 2020 was €2.32 billion. Had South Yorkshire and Merseyside received in 2014 – 2020 [an allocation similar to that in the previous period] then these two regions would have been allocated something between ⅓ and ½ of all the UK’s Structural Funding for the eleven Transitional regions.(ii) Merseyside and South Yorkshire were specifically considered. Although they would sustain a large drop in funding levels compared to the 2007 – 2013 average, they, and all other Transition regions, avoided large drops in funding levels as between 2013 and 2014. A key aspect of the Second Decision was the status of Merseyside and South Yorkshire as Phasing-in regions in the previous period. Ministers considered that basing allocations for the new period on the previous period’s average would have unduly advantaged Merseyside and South Yorkshire in relation to the other English Transition regions, since the increased allocations in the period 2007 – 2010 were expressly intended to be “transitional and specific”. The Claimants do not submit that they should have received funding based on the 2007 – 2013 average. Nor do they offer any submission to the court as to the specific amounts that they say they should have been allocated. Their case is that the present decision was legally flawed and should be reconsidered by the Secretary of State.[47]The Defendant also states that using Option C (average funding over the 2007 – 2013 period) would have resulted in Merseyside and South Yorkshire receiving uplifted funding some 10 years after their transitional period from Objective 1 status was supposed to have ended. It would have resulted in Transition regions with an equal or lower per capita GDP compared to Merseyside and South Yorkshire receiving far lower levels of funding.[48]Merseyside and South Yorkshire do not have the lowest GDP per capita among the nine English Transition regions. South Yorkshire has the fifth lowest and Merseyside has the third lowest. The Second Decision resulted in a 15% real terms increase in funding to all English Transition regions compared to the 2013 baseline. The Defendant recognised that, using the 2007 – 2013 period as an average, Merseyside and South Yorkshire would see a 65% cut in funding.[49]Dr Baxter said that at the time of the Second Decision Ministers also agreed the split of funding within Scotland. There were discussions between UK Ministers and the Scottish Government. The latter proposed that a further Scottish methodology would neither add clarity nor produce a more equitable settlement within Scotland, and that its preference was to adopt the 5% reduction across Scotland. Ministers were aware of the effect of this on the Highlands and Islands region. It had been a Phasing-out region but was now the only Scottish Transition region. Such an allocation within Scotland would mean that the Highlands and Islands region received a larger uplift in funding (compared to 2013) than the two English former Phasing-in regions (the Claimants).[50]According to Dr Baxter, the previous status of Highlands and Islands as a Phasing-out region means that it is not possible to compare it with the English Phasing-in regions because:(a) Phasing-out regions had been funded under the Convergence Objective in recognition of their greater challenges.(b) The rate of reduction in allocations in the 2007 – 2013 period was slower in the Phasing-out regions than the Phasing-in regions.(c) Phasing-out status provided additional recognition in other ways such as a higher co-financing rate of 75%. The co-financing rate of the Phasing-in regions was 50%. [All the EU structural funds need to be co-financed or “matched” by domestic investments. In Highlands and Islands a 75% rate meant £3 of EU funding had to be matched with £1 domestic funds. In Merseyside and South Yorkshire £1 of EU funding had to be matched with £1 of domestic funding.][51]Ministers recognised that the Highlands and Islands region allocation of structural funding was declining over time, albeit at a slower rate than in Merseyside and South Yorkshire. Nevertheless Ministers decided to accept the Scottish Government’s proposal. The overall budget “envelope” had already been set for Scotland and it appeared to Ministers to be perverse to require Scotland to increase funding for its wealthiest regions at the expense of its poorest region.

Effects of the 2014 – 2020 Allocation: Analysis

[52]Numerous figures have been placed before the court so as to demonstrate the effects on the Claimants of the 2014 – 2020 allocation to them as Transitional regions. Before embarking upon a discussion of the legal challenges, some analysis of and comment on these submissions is required.[53]The “striking features” of the allocation of which the Claimants complained in their Skeleton Argument (paragraph 5) were five in number. I shall briefly deal with these. 54.1. The allocation represents a reduction of 61% on the funds awarded to the Claimants in the previous funding period not withstanding that they remain amongst the most deprived in England. This is factually accurate. The Defendant’s figure was 65%. See para 48 of this judgment. The difference was not explored. It may be explained by the use of 2011 and 2013 figures. The difference is, however, irrelevant to my decision. However the 61% figure is not a matter of legitimate complaint since the funds awarded to the Claimants during the previous period was not an appropriate baseline. See paragraphs 26 – 30 and paragraph 46 – 47 of this judgment. 54.2. The allocation is far below the amounts which the EU Commission “awarded to the UK in respect of those regions” This is based on a false premise. The EU Commission did not “award” any funding in respect of the individual NUTS 2 regions, that being a decision for the Member State. See paragraphs 30 – 35 of this judgment. 54.3. Every other English Transition region is to receive a significant 15% increase during 2014 – 2020 on the funding they received in 2007 – 2013. This compares with the 61% cut to Merseyside and South Yorkshire compared to 2007 – 2013. The answer to this is in effect the same as in paragraph 54.1 above. Further, using the 2013 baseline, all English Transition regions received a real terms increase in funding. 55.4.1. The Claimants are to receive markedly less funding per head of population than other Transition regions with comparable development needs and markedly less than regions with much less severe development needs. 55.4.2. The statistics for this point are taken from paragraph 79 of Dr Baxter’s first statement in which there is a table dealing with the nine English Transition regions. That table shows: Transition region % EU average GDP per capita Allocations per capita 2014 – 20 Cumbria 89.49% 166 Devon 88.18% 67 East Yorkshire and Northern Lincolnshire 85.81% 158 Lancashire 84.86% 166 South Yorkshire 84.46% 123 Shropshire & Staffordshire 83.91% 167 Merseyside 80.14% 135 Lincolnshire 79.79% 137 Tees Valley & Durham 78.52% 280 55.4.3. The Claimants point in particular to the GDP per capita and allocation per capita of Cumbria and Tees Valley & Durham. The Defendant did not use the per capita GDP as the criterion for determining 2014 – 2020 Transition regions’ allocations. He allocated on the basis of the funding pattern in 2011 – 2013 determined by the Commission, applying the methodology set out in paragraph 6(b) of Annex II of the 2006 Regulation. That was the funding approach the EU had determined as appropriate to the economic circumstances and needs of the Claimants as Phasing-in regions. By reference to paragraph 6(b) the 2013 allocation (and that for 2011 and 2012) was based on the average per capita aid to Competitiveness regions. It is to be recalled that the Claimants would have been Competitiveness regions in 2007 – 2013, had it not been for their former Objective 1 status. That was why the specific Phasing-in status was applied to them. The tapered funds operated so that by 2011 they had been Phased-in so as to receive the average per capita aid to Competitiveness regions. 55.4.4. Although the Defendant did not use the percentage EU average GDP per capita as the basis of allocation in 2014 – 2020, the table shows that, very broadly, the allocation for the Claimants is not out of kilter with all other Transition regions. 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 second highest in terms of average GDP per capita. 55.5. The effect of the First Decision is that the Transition regions in Scotland and Northern Ireland receive a far higher per capita allocation. Highlands and Islands have a GDP of 84.1% of EU average and will receive €478 per capita; Northern Ireland with an average EU GDP of 86.4% will received €252 per capita. [Note: the figure of €478 per capita for Highlands & Islands was provided by the Claimants. The figure is not accepted by the Defendant who consider the correct figure to be €387 per capita. Likewise, the Defendant considers that the correct figure for Northern Ireland is €259. The basis of challenge was not explained.] If the challenge to the First Decision is unfounded then this point has no significance. In any event, the question is to what extent if at all the average EU GDP should have been used as the basis of 2014 – 2020 allocation. The fact that it was not used is clear from the fact that, even as between the Highlands and Islands and Northern Ireland, the average EU GDP being roughly comparable, results, nevertheless, in the Highlands and Islands receiving almost twice as much by way of per capita allocation, on the Claimants’ figures.

Legal Principles

[56]The Claimant submits, and the Defendant does not dispute the following:(i) Wherever a Member State acts within the scope of EU law, the general principles of EU law apply. They apply here because the Member State is implementing EU rules. E.g. C – 442/00 Rodrigues Caballero [2002] ECR I–11915, paragraphs 30 – 32.(ii) Comparable situations must not, without justification, be treated differently and different situations must be treated alike. In the common law treating like cases alike and unlike cases differently is a general axiom of rational behaviour Matadeen v Pointu [1999] 1AC 98, 109 C – D. . A decision will be irrational where it is based upon “an error of reasoning which robs the decision of logic”. Sedley J in R v Parliamentary Commissioner for Administration ex parte Balchin [1998] 1PLR 1. In Council for the Civil Service Unions v Minister for the Civil Service [1985] AC 374 at 410G – H Lord Diplock said of irrationality: “It applies to a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it.”(iii) A decision must take into account all relevant considerations.[57]The Claimants submit that the principle of equality is a general principle of EU law and a right conferred by Article 21 CFR. The Defendant accepts the general principle.[58]As far as Article 21 is concerned, discrimination is prohibited if “based on any ground such as sex” etc. The list which follows is not exclusive because of the governing words “such as”. Nevertheless it gives a strong indication of the categories of grounds in respect of which discrimination is prohibited. My attention was not drawn to any previous case in which a public authority was a Claimant basing its claim on Article 21. Even adopting a purposive of construction of Article 21, I find it difficult to see how it is intended to protect public authorities. Even if I am wrong about that, I find it difficult to see how it is aimed at protecting public authorities in a case such as the present, where the decisions taken involved the allocation of funds between regions of a Member State. My ruling on Article 21 does not really affect the outcome since the Claimants accept that if they do not succeed on the general principle of equality, Article 21 will not assist them further.[59]My attention was drawn by the Claimants to authorities in which the EU principle of the equality can be said to be analogous to the form of discrimination recognised in the Thlimmenos v Greece [2001] 31 EHRR 15. See also AM (Somalia) v Entry Clearance Officer [2009] EWCA Civ. 634 paragraphs 44, 50 – 51; R (MA and others) v Secretary of State for Work and Pensions [2013] EWHC 2213 (QB) paragraph 38.[60]The Claimants submit that in situations where similar cases are treated differently or different cases in the same way, then such decisions have to be objectively justified. This is made out if the inequality of treatment pursues a legitimate aim and is proportionate to the aim pursued. The Claimants rely heavily on the guidance in Bank Mellat v HM Treasury (No 2) [2013] 3WLR 179 at 229H – 230D. Lord Sumption said as regards the objective justification of unequal treatment and the principle of proportionality:
“…The requirements of rationality and proportionality, as applied to decisions engaging the human rights of applicants, My underlining. inevitably overlap…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. …”
[61]Although the Defendant does not dispute that the general principles of equality and proportionality apply, he submits that in the present case they add little if anything to the irrationality challenge. I shall take the principle of proportionality first.[62]Bank Mellat is a good example of the framework within which a proportionality challenge may add significantly to a rationality challenge. That framework is that there is a specific legal standard and a decision by a public body which derogates from that standard. The court then has to address the question as to whether there is a legally justifiable basis for so derogating. See also the Sinclair Collis case para 18 and the Caballero case paras 5, 7, 28, 35 – 37.[63]Although the Claimants do not accept this analysis, it seems to me to be correct. If so, the question is whether the Defendant’s decisions fit that particular mould. This depends on whether there is a specific legal standard imposed on the Defendant from which the Defendant’s decisions derogate. This is in issue. The Claimants say that the specific legal standard is that the EU funding must be used so as to reduce disparities between the levels of development of various regions. See for example TFEU Article 174, the 2013 Regulation Recital (1), (3), (77), Article 9(9), Article 89. What this argument fails to recognise is that, save for Article 93, there is no legal standard imposed by EU law on the Defendant in his decisions as to how to allocate funds within the categories, including the Transition region categories. There is no suggestion here that there is any breach by the Defendants of Article 93. In fact TFEU provides the general aim and the 2013 Regulation, so far as material to this case, is addressed to the Commission in the decision it makes in the classification of regions. I do not accept that the Defendant is required, because of provisions in TFEU and the 2013 Regulation upon which the Claimants rely, either to follow or take into account as a material consideration the reduction of disparity between regions. For this reason the principle of proportionality does not add anything to a rationality challenge. There is nothing which requires the Defendant to use or take into account, in his allocation of funds amongst the regions in a particular classification, any overarching principle, and in particular any criterion based on EU average GDP. As a separate point it is to be noted that, apart from the aim of reduction of regional disparity, there are many other aims contained in Regulation 13: see for example Recitals (3), (14), (28) and Articles 9 and 89.[64]As regards equal treatment, the Claimant’s submissions are based on the principle that like cases should not be treated differently and that different cases should not be treated in the same way. I shall deal in the next section of this judgment with the margin of discretion, and conclude that it is a wide margin. If, as I adjudge, the Defendant has to be afforded a wide margin of discretion in deciding whether cases are alike or not, then the equal treatment principle essentially stands or falls with the rationality challenge.[65]The Claimants rely on O’Brien v Ministry of Justice [2013] 1WLR 522; [2013] UKSC 6 (paragraph 69) for the principle that financial considerations can never amount to a sufficient justification for unequal treatment. They submit that a given cake must be shared out equally without discrimination; giving too much to some beneficiaries cannot be a defence that insufficient funds remain to enable equal treatment for others. The Supreme Court in O’Brien said in paragraph 69 “a discriminatory rule or practice can only be justified by reference to a legitimate aim other than the simple saving of cost.” That the issue was the saving of costs in O’Brien is also clear from paras 43, 47, 63 – 65, 67, 69 and 74 of the judgment. In the present case the issue is not “saving of cost”; it is the allocation and distribution of fixed funds allocated to the UK by the EU. If the Defendant’s decision is a rational one and takes account of the principle that like cases should be treated alike and unlike cases differently, then the O’Brien case does not apply. The O’Brien situation that a Minister cannot discriminate if he/she chooses not to spend more money is not the present case.

Margin of Discretion

[66]There has been substantial dispute as to the appropriate intensity of review of the Defendant’s decisions. A useful starting point is the case of R (Sinclair Collis Limited) v Secretary of State for Health [2012] QB 394. At paragraph 181 Arden LJ said:
“Lord Neuberger MR has come to the same conclusion as I have, but, while there is much common ground, we have to some extent arrived there by a different route. Thus, where as I would, in the circumstances of this case, apply the same level of intensity to the decision of the Secretary of State as to that of Parliament relative to the issue of the compatibility of a ban on TVMs with Article 34 FEU, Lord Neuberger MR would apply a narrower margin of appreciation to the decision of the Secretary of State than to a Community institution or Parliament… Lord Neuberger MR has derived considerable assistance from the judgment of Lord Bingham CJ in Ex p Eastside Cheese Co…rather than directly from the jurisprudence of the Court of Justice on which Mr Paines relies. However, as Lord Neuberger observes at paragraph196 of his judgment, Lord Bingham's judgment is based on the jurisprudence of the Court of Justice and it is not therefore surprising that we should both apply a low level of scrutiny. For my part, I have utilised the "manifestly inappropriate" test, rather than the margin of appreciation. I have preferred to use the terminology of the Court of Justice in order to avoid any suggestion of applying a lower test than that applied by the Court of Justice and so that my reasoning can be tracked into the Court's jurisprudence…”

Lord Neuberger of Abbotsbury MR said:

[67]199. …in Ex p Eastside Cheese Co [1999] 3CMLR 123, para 46 Lord Bingham CJ said:
“It is clear that the National Legislature has a considerable margin of appreciation, especially in legislating on matters which raise complex economic issues connected with the community’s fundamental policies.”
It is worth noting that this observation related to the Legislature, but it must also apply to the Executive, albeit with less force, in the light of what he had said at para 48. 200. The breadth of the margin of appreciation in relation to any decision thus depends on the circumstances of the case and, in particular, on the identity of the decision-maker, the nature of the decision, the reasons for the decision, and the effect of the decision. Further, because the extent of the breadth cannot be expressed in arithmetical terms, it is not easy to describe in words which have the same meaning to everybody, the precise test to be applied to determine whether, in a particular case, a decision is outside the margin. It is therefore unsurprising that in different judgments, the same expression is sometimes used to describe different things, and that sometimes different expressions are used to mean the same thing.[68]The decisions in the present case were taken by the Executive and not by the Legislature. Therefore the observations of Lord Bingham CJ in Ex parte Eastside Cheese Co are relevant. However they do not, in my judgment, justify a narrow margin of appreciation in the circumstances of the present case because:(i) Article 90 of 2013 Regulations sets out for the EU Commission the goal of the Structural Funds i.e. to “support the investment for growth and jobs” in all regions which are NUTS 2 regions. Article 90(2) then delineates the three categories of NUTS Level 2 regions. That said, the subsequent allocation decisions are left to the Government of Member States. The funds for the Transition regions are fixed. The fact that the funds are fixed does not, in my judgment, have any influence on the margin of discretion. Therefore any methodology which increased the funds to the Claimants would result in reduced funds to the other English Transition regions.(ii) As I have already made clear, there was no obligation on the UK Government to adopt the methodology used by the Commission when determining the three categories of region for the purpose of allocation of funds within those categories. Nor was there any specific legal standard imposed, in accordance with which the funds had to be allocated by the Defendant.(iii) Therefore I accept the Defendant’s submission that these decisions do involve political policy and macroeconomic judgment concerning the allocation of funding at the highest level. They were decisions that involved economic and policy judgment whereby the Government had to decide political policy and macroeconomic judgment concerning the choice between different potential methodologies of allocation. Overwhelmingly this was a political judgment for the Government and the court should be very loath to interfere with such a judgment. A wide margin of discretion is afforded to the Government in relation to such decisions; the court should only interfere if a very high threshold of unreasonableness is met. cf R v Secretary of State for the Environment ex parte London Borough of Hammersmith andFulham [1991] 1AC 521 at 597 E – G; LordBridge.[69]The reasoning and the policy of the Defendant are set out in the press release of 26 March 2013 and the written ministerial statement of 27 June 2013. The Claimants fastened on the words “the fairest deal for England, Northern Ireland, Scotland and Wales” (26 March 2013), “allocations that deliver the fairest split of funding across England” (27 June 2013) and, in the methodology that was provided subsequently, the statements that the Claimants “will receive a proportionate share of (England’s) budget for Transition regions but they will not enjoy special status over and above other (English) Transition regions” (paragraph 9). Building on that, the Claimants submitted that the Defendant did not achieve fairness or proportionality. However, the use of this terminology is not readily transferable into a strictly legal test, as the Claimants would contend. The Defendant had made political decisions with a view to pursuing social and economic objectives. In the political context he described his decisions as fair and proportionate. These words do not, as a matter of law, constitute a petard upon which he should be hoist.[70]Under this ground the Claimants criticise the Defendant’s methodology in not protecting the Claimants from the effects of “sudden and significant cut backs”. It is said that similarly placed based regions in Scotland and Northern Ireland were so protected compared to their 2007 – 2013 allocations. It is factually correct that in 2014 – 202 Highlands and Islands and Northern Ireland will receive a 5% cut on their 2077 – 2013 allocation based on 2011 prices. [Based on the figures originally advanced by the Defendant the percentage figures can be calculated as less than 5%.] This is as a result of the First Decision. Using the EU average GDP per capita measure, those two Regions do much better than the other English Transition regions.[71]The Defendant submits that(i) the EU average GDP per capita measure is only one of a range of approaches which the Defendant would have been entitled to adopt and(ii) there were material differences between the Claimants and these two regions and that he was entitled to adopt the approach that he did. Those are the issues for me to determine.[72]I accept that the Defendant was entitled to adopt a two stage approach. It is correct that, so far as the EU is concerned, the four constituent countries in the United Kingdom have no independent status as far as funding is concerned. The Defendant was here making a socio-economic decision which, given the margin of discretion, was rational and permissible. I have set out earlier in this judgment a summary of the justification under the heading “The First Decision: Rationale”. The rationale was clearly not based on EU average GDP per capita. However, for the reasons given, in my judgment the Defendant was entitled not to use or take into account, that measure and to adopt the approach he did. As between Northern Ireland and Highlands and Islands, using the EU average GDP capita measure, Highlands and Islands fared very substantially better than Northern Ireland.[73]If, as I have found, the Defendant was entitled not to take into account the EU average GDP per capita measure, then the criticism falls at first base. I will however briefly consider some other points of detail in relation to Scotland and Northern Ireland.[74]Northern Ireland was not a Phasing-in region in 2007 – 2013. It therefore had a flat funding profile in these years. There is no merit in comparing Northern Ireland with the Claimants since the Claimants were a Phasing-in region. One way of looking at the First Decision is that Northern Ireland, in 2011 prices, received 5% less than it had received in the 2007 – 2013 period when, as a Competitiveness region its funding had been flat (save for indexation). On the contrary, using a 2013 baseline, the English Transition regions received a 15% increase. Therefore, on this measure, comparing the Northern Ireland Transition region and the English Transition regions as a whole, Northern Ireland fared worse. The fact that different measures yield different results demonstrates the need for the Defendant to have a wide margin of appreciation in these policy areas.[75]As to the Highlands and Islands:(i) This region did have a different status in 2007 – 2013, being a Phasing-out region. The Claimants were funded under the Competitiveness objective. Highlands and Islands was funded under the Convergence Objective; it did not qualify as a Convergence region only because of the EU enlargement from 15 to 25 states which lowered the level of average GDP. As a Phasing-out region there was a more gradual Transitional period (paragraph 6(a) of Annex II to the 2006 Regulation).(ii) It is correct that by 2013 the Highlands and Islands (as a Phasing-out region) received the national average allocation of a Competitiveness region, as did the Phasing-in regions. Therefore, if this basis had been the main reasoning for the decision, it would not have been sustainable. However, it was not the main reasoning.[76]The Claimants accuse the Defendant of applying the same rule to different situations. I will now examine in summary their arguments supporting this contention.[77]In 2007 – 2013 the Claimants were Phasing-in regions. The other English transition regions for the period 2014 – 2020 had been Competitiveness regions. Given this background, what was the effect of taking the 2013 baseline for all nine English Transition regions for the period 2014 – 2020? 77.1. The Claimants had received additional Transitional funding in the years 2007 – 2010. Because of the tapering positions the Claimants say that the Competitiveness regions received substantially greater allocations in absolute terms (notwithstanding their greater prosperity) in 2013. However, the evidence upon which I have to work shows that, had the Claimants been Competitiveness regions, it cannot be said that their 2013 allocations would have been higher than they were. See paragraph 31 of this judgment. 77.2. It is correct that for the Competitiveness regions the 2013 allocation represented a substantially greater proportion of their 2007 – 2013 allocation (approximately 15%) than was the case for the Claimants. However, this was merely a result of the tapering provision and the fact that the Claimants had benefited from a much higher allocation throughout the period. 77.3. 2013 was the highest allocation for the Competitiveness regions. However, their allocations in the 2007 – 2013 period were the same, except for indexation to take account of inflation. 77.4. The 2007 – 2013 allocation to the Competitiveness regions was not based on the individual economic characteristic of each region. It was based on the NUTS 1 region as a whole in which a Competitiveness region was located. The funding for the Claimants, as Phasing-in regions, was determined by the EU Commission. Their methodology was based on historical receipts and the downward taper.[78]I do not accept that there was any irrationality or breach of the principle because there was no material difference of treatment. The following points are worthy of summary statement:(i) The Defendant did not base, and was not required to base, the 2014 – 2020 allocation on percentage EU average GDP per capita.(ii) All Transition regions will receive a 15% real term uplift in funding compared to the 2013 baseline.(iii) The fact that the Claimants will experience greater cuts than other Transition regions compared to the average funding in 2007 – 2013 is irrelevant. Using that basis would have unduly advantaged the Claimants in relation to the other English Transition regions. The Defendant’s decision to treat the Claimants and the other Transition regions the same in 2014 –2020, despite the fact that their 2013 funding allocations had been arrived at via a different route, was in my judgment entirely justified. This is particularly so given (a) the wide margin of appreciation and (b) the fact that the court should be slow to interfere in such a political judgment. Further,• It was an entirely proper decision to avoid entrenching the temporary situation of the Claimants’ status as Phasing-in regions.• It is not the case that the Claimants’ 2013 funding was far below the levels of all comparators.• The Defendant considered four allocation methodologies and also a methodology based on a basket of indicators and applying a safety net. The rationale for adopting Option B was entirely rational and justified.(iv) Any single rule would work to the advantage of some and the disadvantage of others. The logic of the Claimants’ case is that the Defendant could not adopt a single rule. In my judgment the Defendant was entitled to do so. The fact that hard cases result does not mean that a single criterion is impermissible. This is particularly the case given that the EU had identified Transition regions as a single category because they all fell within a broad single band of average EU GDP per capita. In this case a basket of indicators and safety net methodology were also considered, but the Defendant deemed this to be inappropriate for the reasons I have set out in paragraph 44 of this judgment. He was entitled to make that decision.[79]Finally I deal with a factual matter. The Claimants sought to argue that allocating more money to the Claimants would not mean taking money away from the English Transition regions. They had carried out a calculation to support this. Dr Baxter addressed this point head on in paragraphs 15 – 20 of her Second statement, which I accept. She says that all the funds provided to the UK by the EU for the 2014 – 2020 period have been allocated. In fact €10,787 million have been allocated. The EU allocation was €11,638 million. If one deducts €865 million allocated to territorial cooperation, €10,772 million were left. Thus not only is there no unallocated budget available, but final allocations will need to be adjusted downwards slightly.

Lack of Proportionality

[80]I have set out my ruling on the approach to the proportionality challenge in the Legal Principles section of this judgment.[81]The Defendants concede that the Claimants were hard cases. However they submit, and I accept, that the Defendant’s decisions were not unlawful. Both the First and Second Decisions were rational and therefore, in the context of this case, the decisions were proportionate. OR Also whatever the criteria had been adopted, this would have produced some hard cases.

Failure to Take Account of Relevant Considerations

[82]Where, as here, there is no legal framework of any significance instructing the exercise of the Defendant’s discretion, the court has to exercise caution on this particular ground.[83]The Defendant had a wide discretion as to the allocation to the Transition regions. I reject the submission that the Defendant failed to take into account relevant considerations. He had no duty to consider the GDP of the Transition regions relative to the EU average when carrying out his analysis. Nor did the Defendant have any duty to consider the hypothesis of the Claimants having been Competitiveness regions in 2007 – 2013. Even if the Defendants had been under a duty to consider the latter, it would, for the reasons already given in this judgment, have not assisted the Claimants. Using a basket of economic indicators was considered but rejected.

Failure to Comply with the PSED

[84]The PSED requires a public authority to have “due regard” to the need to: “(a) Eliminate discrimination, harassment, victimisation and any other conduct that is prohibited by or under this Act; (b) Advance equality of opportunity between persons who share a relevant protected characteristic and persons who do not share it…”.[85]The Defendant accepts that there was no consideration of the PSED prior to making either of the two decisions challenged. The authorities relied upon by the parties were under the legislation which preceded the Equality Act 2010. Neither suggested that this was material in the circumstances of the present case.[86]In R (Brown) the Secretary of State for Work and Pensions and another [2008] EWHC 3158 (Admin); [2009] PTSR 1506 (paragraph 89) the Divisional Court said that there was no statutory duty on a public authority requiring it to carry out a formal Equality Impact Assessment (EIA) when carrying out their function. At most it imposes a duty on the authority to consider undertaking an assessment, along with other means of gathering information, and to consider, whether it is appropriate to have one in relation to the function or policy at issue, when it will or might have an impact on disabled persons and disability.[87]The Defendant’s case is that the requirement under the PSED is to have “due regard” to the objectives set out in section 149(1) and that is the regard that is appropriate in all the circumstances Baker and others v Secretary of State for Communities and Local Government [2008] EWCA Civ. 141, [2009] PTSR 809 at paragraph 31. . This I accept.[88]The next stage of the Defendant’s argument is that where high level decisions are being taken as to budget levels or a spending envelope, detailed assessment of Equality Impact may be neither appropriate nor possible. For this proposition they rely upon two decisions, namely R (Fawcett Society) v Chancellor of theExchequer and others [2010] EWHC 3522 (Admin) and R (JG & MB) v Lancashire County Council [2011] EWHC 2295 (Admin).[89]It is true that in both these cases the decisions being taken were in relation to large budgets. However, in both cases it was an essential part of the judicial reasoning that the public authority’s decision was not a final one, and that the PSED could be carried out further down the line. See in particular paragraphs 8 and 9 of the Fawcett Society case; paragraph 50 of the JG case.[90]The Defendant further submits in relation to the argument that he did not have to have due regard to the Section 149(1) objectives in the circumstances of this case in that:(i) It would tend to be the consequences of decisions taken by the Claimants themselves which would have an impact on particular protected characteristics.(ii) The funds available for the Transition regions were fixed. The Defendant’s decisions therefore affected regions which were all relatively socially disadvantaged, some more so disadvantaged than the Claimants. He says there is no contention or any evidence that the Claimants’ distribution of those with protected characteristics are in any material sense different from other Transition regions.[91]I reject these contentions by the Defendant. The Defendant’s decisions fixed the individual allocation for each region. Those allocations are in no sense preliminary or provisional. The fact that the individual regions would themselves have to consider the PSED when deciding how to use the funds allocated to them cannot absolve the Defendant from the PSED.[92]The Defendant has, after the event, carried out an Equality Impact Assessment. This cannot save the decision making. R (Brown) v Secretary of State for Work and Pensions [2009] PTSR 1506, [2008] EWHC 3158 (Admin) at paragraphs 90 – 96. This analysis shows a correlation between funding per capita and disability. Given that the Claimants are, according to the Defendant “hard cases” in terms of the allocation given to them for 2014 – 2020, it seems clear to me that the Defendant should have had “due regard” to the s149(1)(a) and (b) objectives.[93]I therefore find that the Defendant breached the PSED.[94]For the above reasons the Claimants’ challenge to both decisions fails on all grounds, except that it succeeds on breach of the PSED. As to the consequences of this ruling and the appropriate Order, I will determine these after hearing further from Counsel for both parties.

Cited in 1 later judgment