R v Secretary of State for the Environment ex p. Nottinghamshire CC [1985] UKHL 8

House of Lords
Between
RAppellantSecretary of State for the Environment ex p. Nottinghamshire CCRespondent
Before
Lord ScarmanDate 3 October 1985
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the Appeal be Allowed, and the said Order of Her Majesty's Court of Appeal of the 3rd October 1985 complained of in the said Appeal be, and the same is hereby, Set Aside: And it is further Ordered, That the Order as to Costs of Mr. Justice Kennedy of 15th March 1985 be, and the same is hereby, Restored: And it is further Ordered, That the Respondent Councils do each pay or cause to be paid to the said Appellant one half of the Costs incurred by him in the Court of Appeal and also of the Costs incurred by him in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments if not agreed between the parties: And it is also further Ordered, That the Cause be, and the same is hereby, remitted back to the Queen's Bench Division of the High Court of Justice to do therein as shall be just and consistent with this Judgment.Cler: Parliamentor:

HOUSE OF LORDS

NOTTINGHAMSHIRE COUNTY COUNCIL (RESPONDENTS)

v.

SECRETARY OF STATE FOR THE ENVIRONMENT

(APPELLANT)

CITY OF BRADFORD METROPOLITAN COUNCIL

(RESPONDENTS)

v.

SECRETARY OF STATE FOR THE ENVIRONMENT

(APPELLANT)

Lord Scarman Lord Roskill Lord Bridge of Harwich Lord Templeman Lord Griffiths

LORD SCARMAN

My Lords,In December 1984 the Secretary of State for the Environment laid before the House of Commons the Rate Support Grant Report (England) for the year 1985-86. In due course the report was approved by resolution of the House. The Secretary of State included in the report (additionally to the matters which he was required by law to specify therein) expenditure guidance to local authorities for that year.He was empowered to issue guidance by section 59 of the Local Government, Planning and Land Act 1980 ("the Act") as amended by the Local Government Finance Act 1982 and he would have power to enforce the guidance by the mechanism of a multiplier if he reported to and obtained the approval of the House of Commons: section 59(1)(4)(5)(6) and section 60(6)(7)(8). It is this guidance which the respondent authorities, the Nottinghamshire County Council ("Nottingham") and the City of Bradford Metropolitan Council ("Bradford"), challenge as unlawful. They make two submissions.First, they submit that the guidance does not comply with subsection (11A) of section 59 of the Act in that it was not "framed by reference to principles applicable to all local authorities." This submission was rejected by the trial judge (Kennedy J.) but accepted on appeal by the Court of Appeal (Lawton, Slade and Dillon L.JJ.). In his speech to your Lordships my noble and learned friend, Lord Bridge of Harwich, considers the Act as amended, and advances his reasons for holding that on the true construction of the subsection the Secretary of State's guidance was framed by reference to principles applicable to all authorities. I agree with him. Accordingly, I confine my speech to the respondents' second submission to which I now turn.Their second submission is that, even if the guidance complies with the words of the statute, it offends a principle of public law in that the burden which the guidance imposes on some authorities, including Nottingham and Bradford, is so disproportionately disadvantageous when compared with its effect upon others that it is a perversely unreasonable exercise of the power conferred by the statute upon the Secretary of State. The respondents rely on what has become known to lawyers as the "Wednesbury principles" - by which is meant the judgment of Lord Greene M.R. in Associated Provincial Picture Houses Ltd, v. Wednesbury Corporation [1948] 1 KB 223 , 229.Neither the trial judge nor the Court of Appeal accepted the second submission. But much has been made of it in the courts below and in your Lordships' House. The respondents' case is that the guidance is grossly unfair, some authorities doing disproportionately well and others being hit undeservedly hard. Your Lordships have been taken through the detail and have been invited to hold that no reasonable Secretary of State could have intended consequences so disproportionate in their impact as between different local authorities. The House is invited in its judicial capacity to infer from these consequences that the Secretary of State must have abused the power conferred upon him by the Act.The submission raises an important question as to the limits of judicial review. We are in the field of public financial administration and we are being asked to review the exercise by the Secretary of State of an administrative discretion which inevitably requires a political judgment on his part and which cannot lead to action by him against a local authority unless that action is first approved by the House of Commons.The Secretary of State's guidance which is challenged was included in the Rate Support Grant Report for 1985-86 which was laid before and approved by the House of Commons: no payment of grant, and no reduction in the amount of grant by the Secretary applying a multiplier pursuant to section 59 of the Act, can be made unless covered by the report or by a supplementary report and approved by the House of Commons. I am not surprised that the trial judge and Court of Appeal declined to intervene.My Lords,I think that the courts below were absolutely right to decline the invitation to intervene. I can understand that there may well arise a justiciable issue as to the true construction of the words of the statute and that, if the Secretary of State has issued guidance which fails to comply with the requirement of subsection (11A) of section 59 the Act of 1980 the guidance can be quashed. But I cannot accept that it is constitutionally- appropriate, save in very exceptional circumstances, for the courts to intervene on the ground of "unreasonableness" to quash guidance framed by the Secretary of State and by necessary implication approved by the House of Commons, the guidance being concerned with the limits of public expenditure by local authorities and the incidence of the tax burden as between taxpayers and ratepayers. Unless and until a statute provides otherwise, or it is established that the Secretary of State has abused his power, these are matters of political judgment for him and for the House of

- 2 -

Commons. They are not for the judges or your Lordships' House in its judicial capacity.For myself, I refuse in this case to examine the detail of the guidance or its consequences. My reasons are these. Such an examination by a court would be justified only if a prima facie case were to be shown for holding that the Secretary of State had acted in bad faith, or for an improper motive, or that the consequences of his guidance were so absurd that he must have taken leave of his senses. The evidence comes nowhere near establishing any of these propositions. Nobody in the case has ever suggested bad faith on the part of the Secretary of State. Nobody suggests, nor could it be suggested in the light of the evidence as to the matters he considered before reaching his decision, that he had acted for an improper motive. Nobody now suggests that the Secretary of State failed to consult local authorities in the manner required by statute. It is plain that the timetable, to which the Secretary of State in the preparation of the guidance was required by statute and compelled by circumstance to adhere, involved him necessarily in framing guidance on the basis of the past spending record of authorities. It is recognised that the Secretary of State and his advisers were well aware that there would be inequalities in the distribution of the burden between local authorities but believed that the guidance upon which he decided would by discouraging the high spending and encouraging the low spending authorities be the best course of action in the circumstances. And, as my noble and learned friend Lord Bridge of Harwich demonstrates, it was guidance which complied with the terms of the statute. This view of the language of the statute has inevitably a significant bearing upon the conclusion of "unreasonableness" in the Wednesbury sense. If, as your Lordships are holding, the guidance was based on principles applicable to all authorities, the principles would have to be either a pattern of perversity or an absurdity of such proportions that the guidance could not have been framed by a bona fide exercise of political judgment on the part of the Secretary of State. And it would be necessary to find as a fact that the House of Commons had been misled: for their approval was necessary and was obtained to the action that he proposed to take to implement the guidance.In my judgment, therefore, the courts below acted with constitutional propriety in rejecting the so-called "Wednesbury unreasonableness" argument in this case. The trial judge, Kennedy J., rightly reminded himself of an observation made by Lord Diplock in Secretary of State for Education and Science v. Tameside Metropolitan Borough Council [1977] AC 1014 , 1064:
"The very concept of administrative discretion involves a right to choose between more than one possible course of action upon which there is room for reasonable people to hold differing opinions as to which is to be preferred."
And he concluded, after giving more attention to the detailed arguments as to the financial consequences of the guidance than they were strictly entitled to receive:
"In my judgment, although the Secretary of State could, of course, have set different guidance which would perhaps not

- 3 -

have caused the applicant authorities to complain, it cannot be said that the approach which he has adopted was unreasonable in the Wednesbury sense."The Court of Appeal adopted the same approach. After referring to section 59(6)( cc ) of the Act of 1980 which requires the Secretary of State, when deciding what guidance to issue, to do what he thinks necessary having regard to general economic conditions, Lawton L.J. observed with constitutional propriety:
" Parliament has left him to decide what he thinks necessary. He has to make a political and economic judgment. He may make a sound one or a bad one. This court might have been able to make a better one than he made; but we must remind ourselves that Parliament, no doubt for good reason, has not entrusted guidance to us."
The other members of the court had no doubt that no case was made out that the [Secretary of State] had acted with Wednesbury unreasonableness or perversity."Wednesbury principles" is a convenient legal "shorthand" used by lawyers to refer to the classical review by Lord Greene M.R. in the Wednesbury case of the circumstances in which the courts will intervene to quash as being illegal the exercise of an administrative discretion. No question of constitutional propriety arose in the case, and the Master of the Rolls was not concerned with the constitutional limits to the exercise of judicial power in our parliamentary democracy. There is a risk, however, that the judgment of the Master of the Rolls may be treated as a complete, exhaustive, definitive statement of the law.The law has developed beyond the limits understood to apply to judicial review as practised by the courts in 1948. The ground upon which the courts will review the exercise of an administrative discretion by a public officer is abuse of power. Power can be abused in a number of ways: by a mistake of law in misconstruing the limits imposed by statute (or by common law in the case of a common law power) upon the scope of the power; by procedural irregularity; by unreasonableness in the Wednesbury sense; or by bad faith or an improper motive in its exercise. A valuable, and already "classical," but certainly not exhaustive analysis of the grounds upon which courts will embark on the judicial review of an administrative power exercised by a public officer is now to be found in Lord Diplock's speech in Council of Civil Service Unions v. Minister for the Civil Service [1985] A.C. 374.In an earlier case, in which this House ruled that the Inland Revenue Commissioners were "not immune" from judicial review, Lord Diplock made the comment that they were accountable to Parliament"so far as regards efficiency and policy, and of that Parliament is the only judge; they are responsible to a court of justice for the lawfulness of what they do, and of that the court is the only judge": Reg, v. Inland Revenue Commissioners, Ex parte National Federation of Self- Employed and Small Businesses Ltd. [1982] AC 617 , 644.

- 4 -

In the same case I indicated, at p. 650 , that the judges had consistently recognised that they could provide a remedy for abuse of power on the principle that the improper or capricious exercise of a power is was unlawful. And I went on, at pp. 652-653, to stress the existence in the case of the commissioners of a legal duty of fairness owed to the general body of taxpayers.This approach with its distinction between accountability to Parliament and review by the courts of the lawfulness of the exercise of administrative power was further developed and confirmed by the House in two recent decisions: Reg, v. Inland Revenue Commissioners, Ex parte Preston [1985] 2 W.L.R. 836 and Wheeler v. Leicester City Council [1985] 3 W.L.R. 335. In Preston's case my noble and learned friend, Lord Templeman, delivered the leading speech with which their other Lordships agreed. He declared the principle of law to be that the courts may intervene to review a power conferred by statute on the ground of unfairness but only if the unfairness in the purported exercise of the power be such as to amount to an abuse of the power. Wheeler v. Leicester City Council is a striking illustration on its facts of circumstances in which the courts may intervene on the ground of abuse of power arising from an improper motive in its exercise.The present case raises in acute form the constitutional problem of the separation of powers between Parliament, the executive, and the courts. In this case, Parliament has enacted that an executive power is not to be exercised save with the consent and approval of one of its Houses. It is true that the framing of the guidance is for the Secretary of State alone after consultation with local authorities: but he cannot act on the guidance so as to discriminate between local authorities without reporting to, and obtaining the approval of, the House of Commons. That House has, therefore, a role and a responsibility not only at the legislative stage when the Act was passed but in the action to be taken by the Secretary of State in the exercise of the power conferred upon him by the legislation.To sum it up, the levels of public expenditure and the incidence and distribution of taxation are matters for Parliament, and, within Parliament, especially for the House of Commons. If Parliament legislates, the courts have their interpretative role: they must, if called upon to do so, construe the statute. If a minister exercises a power conferred on him by the legislation, the courts can investigate whether he has abused his power. But if, as in this case, effect cannot be given to the Secretary of State's determination without the consent of the House of Commons and the House of Commons has consented, it is not open to the courts to intervene unless the minister and the House must have misconstrued the statute or the minister has - to put it bluntly - deceived the House. The courts can properly rule that a minister has acted unlawfully if he has erred in law as to the limits of his power even when his action has the approval of the House of Commons, itself acting not legislatively but within the limits set by a statute. But, if a statute, as in this case, requires the House of Commons to approve a minister's decision before he can lawfully enforce it, and if the action proposed complies with the terms of the statute (as your Lordships, I understand, are convinced that it does in the present case), it is not for the

- 5 -

judges to say that the action has such unreasonable consequences that the guidance upon which the action is based and of which the House of Commons had notice was perverse and must be set aside. For that is a question of policy for the minister and the Commons, unless there has been bad faith or misconduct by the Minister. Where Parliament has legislated that the action to be taken by the Secretary of State must, before it is taken, be approved by the House of Commons, it is no part of the judges' role to declare that the action proposed is unfair, unless it constitutes an abuse of power in the sense which I have explained; for Parliament has enacted that one of its Houses is responsible. Judicial review is a great weapon in the hands of the judges: but the judges must observe the constitutional limits set by our parliamentary system upon their exercise of this beneficent power.My Lords,for the reasons which I have developed coupled with the reasons developed in the speeches of my noble and learned friends, Lord Bridge of Harwich and Lord Templeman, I would allow the appeal of the Secretary of State. I would propose that the order for costs made by the trial judge should be restored and that the Secretary of State be granted an order that his costs in the Court of Appeal and in your Lordships' House be paid as to one half by Nottingham and as to the other half by Bradford. There should be a certificate for three counsel for the Secretary of State.

LORD ROSKILL

My Lords,I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Scarman and Lord Bridge of Harwich. The former speech deals with the issue of judicial review. In agreement with my noble and learned friend Lord Scarman and with both courts below I am of the opinion that guidance issued by the Secretary of State which the respondents seek to challenge is in no way susceptible of attack by this route for the reasons which my noble and learned friend gives.The latter speech deals with the construction of the relevant legislation. In agreement with my noble and learned friend Lord Bridge of Harwich and Kennedy J. but in respectful disagreement with the Court of Appeal, I am of the opinion that the submissions of the Secretary of State as to the true construction of the relevant legislation are correct for the reasons which my noble and learned friend Lord Bridge of Harwich gives in that speech. No useful purpose would therefore be served by adding any observations of my own upon on either issue. In my opinion the appeal should be allowed and the order of Kennedy J., dated 15 March 1985, refusing the relief sought by the respondents be restored.

- 6 -

LORD BRIDGE OF HARWICH

My Lords,These appeals raise questions of importance to central and local government under the Local Government, Planning and Land Act 1980 ("the Act of 1980") as amended by the Local Government Finance Act 1982 ("the Act of 1982").As required by section 60(2) of the Act of 1980 the appellant, on 20 December 1984, made for the financial year 1985/86 the Rate Support Grant Report (England) 1985/86 ("the 1985/86 Report") which was laid before, and in due course approved by resolution of, the House of Commons pursuant to section 60(7) and (8). Although not one of the matters formally required by the relevant statutory provisions to be included in the Rate Support Grant Report, the appellant in fact included in the 1985/86 Report, as he had in previous years, the guidance which he is empowered to issue under section 59(6)( cc ) of the Act of 1980 as amended by the Act of 1982, setting expenditure targets for all local authorities for the coming year which, as will be explained, they may only exceed at risk of suffering a reduction in the amount they will receive by way of grant from central government funds.Three local authorities, the Derbyshire County Council and the two present respondents, thought their expenditure targets had been set at unfairly low levels. All three made applications for judicial review, asking the court to make orders of certiorari or declarations condemning the guidance as ultra vires. The two broad grounds of attack were(1) that the guidance had not been "framed by reference to principles applicable to all local authorities" as required by section 59(11A) of the Act of 1980;(2) that the appellant had exercised his power unreasonably in what, in current legal jargon, is commonly called the "Wednesbury" sense (Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation [1948] 1 KB 223 ).The applications were heard together and dismissed by Kennedy J. The present respondents appealed to the Court of Appeal (Lawton, Slade and Dillon L.JJ.) who allowed both appeals on the first ground. The appellant now appeals in each case by leave of your Lordships' House.As is well known, it has been government policy since 1979 to reduce or restrain the level of public expenditure, which includes, of course, expenditure by local authorities. Local authorities' revenue expenditure is funded from three main sources, namely central government grants, rates, and fees and charges for services provided. Part VI of the Act of 1980 entitled "Rate Support Grant" and Part II of the Act of 1982 entitled "Block Grant" establish elaborate statutory mechanisms clearly designed to encourage efficiency and economy on the part of local authorities by providing, to put the matter in the broadest and necessarily over-simplified terms, for variations in the level of block grant to any local authority depending on the level of that authority's expenditure in relation to a given base-line. To over-simplify again, the result is that the proportion of a local authority's total expenditure which it must raise from the rates is higher if it is

- 7 -

extravagant, lower if it is economical. The block grant system thus contains elements of both the carrot and the stick, but stops short of giving central government any direct control over local authority finance. The further step of empowering the government to exercise such control was taken by the Rates Act 1984 which introduced the system commonly referred to as "rate-capping." I mention this at the outset only to make clear that your Lordships are not concerned in these appeals in any way with rate capping. True, it was argued for the appellant that we should look at certain provisions of the Act of 1984 as aids to the construction of the Acts of 1980 and 1982. Even assuming that to be permissible, which I doubt, I do not find it helpful and accordingly I dismiss the Act of 1984 from consideration as irrelevant.Before 1980 the government, save in relation to specific services supported by specific grants, could only influence local authority spending, otherwise than by exhortation, by varying the amount of rate support grant available to all local authorities. It suffices to say of the old statutory system that it contained no effective mechanism in relation to the distribution of the rate support grant for discriminating between high-spending and low- spending authorities. As already indicated, the Act of 1980 was designed to provide just such a mechanism and the Act of 1982 undoubtedly introduced an additional discriminating element which Parliament must have thought necessary to make the mechanism more effective.The statutory provisions under which the distribution of grants is regulated are highly complex and sophisticated. The manner in which the statutory powers have been exercised in successive Rate Support Grant Reports has been no less so. It is perhaps not surprising that there should have been a number of challenges to the Secretary of State in judicial review proceedings by local authorities aggrieved by the way in which his exercise of the powers has affected them. The earliest case, and so far as I know the only one to reach the law reports, was Reg, v. Secretary of State for the Environment, Ex parte Brent London Borough Council [1982] Q.6. 593. Since then there have been a number of unreported decisions of which your Lordships have been provided with transcripts. Nearly all the judges who have had to grapple with the subject have found it necessary for the purpose of deciding the particular point before them to attempt an exposition of the system at some length.Some introductory outline of the system is essential to any understanding of the subject. But in pursuit of the almost unattainable objective of reasonable brevity combined with intelligibility it may be legitimate once again to run the risk of an over-simplified sketch of the system's main features.The aggregate rate support grant for any year is the total amount estimated by the Secretary of State to be available from central government funds in support of local government expenditure apart from specific grants in support of certain specific services. Whatever is received by a local authority by way of rate support grant is allocated and expended at the discretion of that local authority as between the various services it provides. Rate support grant is divided into two elements, domestic rate relief grant and block grant. Domestic rate relief

- 8 -

grant is a direct subsidy to domestic ratepayers who pay at a lower rate poundage than others. No question arises in these appeals with respect to it.The critical provisions of the statutory system under consideration are those which govern the distribution of the block grant between local authorities. It is essential to appreciate at the outset that the aggregate amount available for distribution as block grant is a fixed sum determined by the Secretary of State, so that adjustments of grant to any one or more authorities must affect the grant to others.One key concept in the distribution system is that of grant- related expenditure (GRE). This is defined by section 56(8) of the Act of 1980 as meaning "in relation to each authority to whom block grant is payable for any year, . . . the aggregate for the year of their notional expenditure having regard to their functions." This "notional" expenditure has been used in successive Rate Support Grant Reports as an estimate of the expenditure which each authority would need to incur if all authorities provided the same standard of service with the same degree of efficiency at a level consistent with the government's aggregate spending plans for local government. Assessments of GRE relate spending need to the cost of providing services to each "client" in need of them or "unit" of service provided. To reflect differences, not only between authorities' functions and the size of populations for which they must provide relevant services, but also between all other identifiable factors which may affect the cost of their provision (e.g. the make-up of the population, the physical features of the area, local social and environmental problems), an elaborate table of "indicators" is used (see Appendix 1 to Annex K to the 1985/86 Report).The second key concept is grant-related poundage (GRP). The basic yardstick used is GRP at GRE. What this means is the rate poundage which a local authority in any given class (county councils, district councils, London borough councils, etc.) would need to levy, having regard to the aggregate rateable value of the properties in its area, to finance expenditure at GRE level. The actual GRP of each individual authority is then determined by a complicated formula which depends on the authority's total expenditure. If an authority spends at GRE level its GRP will be determined by the basic yardstick of GRP at GRE. But if an authority's expenditure is above or below GRE level, the formula will determine the appropriate increase or decrease in its GRP.GRP is the key determinant in fixing an authority's block grant, which is calculated by deducting from an authority's total expenditure the product of its GRP multiplied by the gross rateable value of the property in its area. The formula for determining GRP according to the relationship between an authority's total expenditure and its GRE is thus all-important in its effect on the distribution of block grant.The statutory definition of GRP in section 56(8) is:
"a poundage related - ( a ) to a given ratio between [a local authority's] total expenditure and their grant-related expenditure; or ( b ) to a given difference between their total

- 9 -

expenditure divided by their population and their grant- related expenditure so divided." This leaves the formula to be determined in the Rate Support Grant Report. But an important constraint is imposed by section 58(2) and (3) which provide as follows:
"(2) Where an authority's total expenditure is at a level equal to or less than their grant-related expenditure, a given decrease in their total expenditure must produce the same decrease in their grant-related poundage as would be produced by the same decrease in their total expenditure if it were at any other level which is less than their grant- related expenditure. "(3) Where an authority's total expenditure is at a level equal to or more than their grant- related expenditure, a given increase in their total expenditure must produce an increase in their grant-related poundage not less than the increase that would be produced by the same increase in their total expenditure if it were at any lower level."
The effect of these provisions is accurately and lucidly stated in an affirmation of Peter Francis Owen, an Under Secretary in the Department of the Environment, as follows:
"(a) so long as an authority is spending at less than its GRE the cost to the ratepayer of each unit of increase in expenditure must be the same; (b) if an authority is spending more than its GRE, the principles for determination of [GRP] may provide that the cost to the ratepayer of each unit of increase in expenditure shall be higher, and must provide that it shall not be less, than would have been the case had the authority been spending at any lower level; (c) it is possible for the principles to specify a threshold at which the tapering mechanism that I have described above begins to take effect."
This tapering mechanism provides the primary means under the Act of 1980, as originally enacted, of applying a disincentive to extravagant spending by local authorities and has been used in successive Rate Support Grant Reports to set a threshold at 10 per cent. above GRE, beyond which the formula for calculation of GRP results in a lower proportion of excess expenditure being centrally funded and consequently a higher proportion failing on the ratepayers.The Act of 1982 added the important new power of abatement of block grants to high-spending authorities with which these appeals are concerned. It empowered the Secretary of State to set expenditure targets for local authorities and to adjust the amounts of their block grants in the light of their performance by reference to those targets.It will be convenient at this point to set out the essential provisions of the legislation on which the point of construction raised in the appeals principally depends. Section 59 of the Act of 1980 as amended by section 8 of the Act of 1982, so far as material, provides as follows:
"(1) Subject to the following provisions of this section, the Secretary of State may provide in a Rate Support Grant

- 10 -

Report that the amount of block grant payable to a local authority for a year shall be calculated by deducting from their total expenditure, instead of the product of their grant-related poundage and the gross rateable value of their area, the product of those sums multiplied by a multiplier determined by the Secretary of State. ...(4) The power conferred by subsection (1) above may be exercised so as to determine different multipliers for different authorities. (5) Except as provided by subsection (7) below, the power - ( a ) may only be exercised -(i) in accordance with principles to be applied to all local authorities; or(ii) in accordance with principles to be applied to all local authorities belonging to the appropriate class; and ( b ) may only be exercised for any such purpose as is specified in paragraphs ( a ) to ( d ) of subsection (6) below. (6) The purposes mentioned in subsection (5) above are - ( a ) limiting the change in the amount of block grant payable to an authority for the year from the amount payable in the previous year; ( b ) taking account of less than the gross rateable value of an authority or group of authorities in calculating the amount of block grant payable; ( c ) reducing, whether in whole or in part, disparities in the rates levied in different rating areas of Greater London other than the Temples; ( cc ) making, in the amount of block grant payable to an authority, adjustments by reference to guidance issued by the Secretary of State and designed to achieve any reduction in the level of local authority expenditure (or any restriction on increases in that level) which he thinks necessary having regard to general economic conditions; and ( d ) any such other purpose as the Secretary of State may determine. . . . (11A) Any guidance issued for the purpose of subsection (6)( cc ) above shall be framed by reference to principles applicable to all local authorities; and before issuing any guidance for those purposes the Secretary of State shall consult such associations of local authorities as appear to him to be concerned and any local authority with whom consultation appears to him to be desirable."The amendments introduced into this section by section 8 of the Act of 1982 are subsection (6)( cc ) and subsection (11A). Section S of the Act of 1982, so far as material, provides as follows:
"(3) The powers conferred by ... section 59 [of the Act of [1980] - . . . ( c ) shall be exercisable for the purpose specified in paragraph ( cc ) of [subsection (6)] so as to increase or decrease the amount of block grant payable to a local authority according to whether or the extent to which they have or have not complied (or have or have not taken steps to comply) with the guidance referred to in that paragraph. (4) If representations in that behalf are made to him by any association of local authorities or by any local authority the Secretary of State may - ( a ) in the Rate Support Grant Report made for any year under section 60 of the said Act of 1980; or ( b ) in a supplementary report made for any year under section 61 of that Act, provide that expenditure of any description or amount shall be disregarded for the purposes of paragraph ( cc ) of subsection (6) of the said section 59 and in determining under subsection (3)( c ) above whether or the extent to which local

- 11 -

authorities have or have not complied (or have or have not taken steps to comply) with the guidance referred to in that paragraph. ... (6) The powers conferred by the said section 59 ... shall not be exercised for the purpose specified in subsection (6)( cc ) of that section except in accordance with principles to be applied to all local authorities; and accordingly [subsection] (5)( a )(ii) ... of that section . . . shall not apply to any exercise of those powers for that purpose. (7) A supplementary report made for any year under section 61 of the said Act of 1980 may specify a determination under the said section 59 ... in relation to a local authority notwithstanding that no such determination was specified in relation to that authority in the Rate Support Grant Report made for that year under section 60 of that Act. (8) No determination made for the purpose specified in subsection (6)( cc ) of the said section 59 and specified by virtue of subsection (7) above in a supplementary report shall be such as to decrease the amount of block grant payable to a local authority in any year to any greater extent than is permissible in accordance with principles specified in that behalf in the Rate Support Grant Report made for that year. . . . (10) This section has effect in relation to block grant for any year beginning on or after 1 April 1981 . . . . (11) In relation to the year beginning on 1 April 1981 or 1 April 1982 references in this section to guidance issued by the Secretary of State include references to guidance issued by him before the passing of this Act . . . ."The guidance issued under section 59(6)( cc ) of the Act of 1980 in the 1985/86 Report, so far as relevant for present purposes, is found in paragraphs 11 and 12 of the main text of the Report and in paragraphs 2 and 3 of Annex D. These paragraphs read as follows:
"11. The Government remains concerned about the level of spending by local authorities, and believes that present economic circumstances necessitate further restraint. As for 1984/35, the Secretary of State has therefore decided to issue guidance to each local authority about its level of expenditure in 1985/86. He circulated provisional guidance figures to all authorities on 24 July 1984. He has considered all the representations made to him since then by local authorities and their associations, and has now issued expenditure guidance, or targets, for 1985/86 to all local authorities. Some changes have been made to the provisional targets proposed earlier, affecting a number of low-spending authorities. No authority's target is lower than its provisional target. 12. Compliance with the guidance requires most restraint from authorities budgeting in 1984/85 to spend above both their grant-related expenditure assessment and guidance for the year and least restraint from those budgeting in 1984/85 to spend at target and at or below GRE. The effect of the guidance is to allow most low-spending authorities an increase in spending in line with the Government's best estimate of inflation. An explanation of the principles on which the guidance has been framed is at Annex D. The sum of the guidance is equal to estimated total expenditure, as defined for block grant purposes (see

- 12 -

Annex A). ... ANNEX D ... 2. The guidance is as follows: if an authority's budgeted total expenditure for 1984/85 is less than or equal to that authority's grant- related expenditure (GRE) for 1984/85, the guidance is 3.75 per cent. above its 1984/85 adjusted GRE; otherwise the guidance is 3.75 per cent. above its adjusted expenditure guidance for 1984/85; in either case it is subject to the constraints described in paragraph 3, and in all cases further adjusted as described in paragraph 4. 3. The constraints mentioned in paragraph 2 are as follows: ( a ) the maximum percentage increase from an authority's 1984/85 adjusted budget is 4.5 per cent., unless:(i) that gives a figure less than is given by a 4.625 per cent. increase on the authority's 1984/85 adjusted expenditure guidance, and(ii) the authority's budgeted total expenditure for 1984/85 is less than or equal to its GRE for 1984/85, in which case the constraint is a 4.625 per cent. increase on whichever is the lower of the authority's 1984/85 adjusted budget and its 1984/85 adjusted expenditure guidance, and ( b ) the maximum percentage reduction from an authority's 1984/85 adjusted budget is 1.5 per cent."To summarise the effect of this, local authorities are given targets for expenditure in 1985/86 based either on their 1984/85 targets or on their 1984/85 GRE, subject to maximum limits on the percentage by which the application of the formula in paragraph 2 of Annex D may increase or reduce their expenditure targets for 1985/86 above or below their budgeted expenditure in 1984/85.It is important to realise, and it is, I think, now common ground, that the exigencies of the timetable, having regard both to the various requirements of consultation and to the need to allow local authorities sufficient time to prepare their budgets for the coming year, constrained the Secretary of State, when he issued his guidance in December 1984, setting targets for expenditure in 1985/86, to look to 1984/85 budgets as the latest indication of authorities' spending levels, and so far as he wished to take GRE levels into account, to base himself on GRE levels in 1984/85. It is also common ground that, while GRE is designed to provide a theoretical norm to which ideally it would be appropriate for local authority expenditure to conform, in practice levels of expenditure have in the past varied widely in relation to GRE, some authorities spending well above it, others well below it. The consequence of this is that any part played by the notional GRE level of expenditure in determining expenditure targets must be subordinate to historical levels of actual expenditure by different authorities in recognition of the reality that to require a large and sudden down-turn in a local authority's expenditure would be impracticable, while conversely to permit a large and sudden up- turn in a local authority's expenditure would be unnecessary.I hope this introduction sets the scene sufficiently to enable me now to turn to the respondents' primary attack on the guidance. The submission, which found favour with the Court of Appeal, is that paragraph 2 of Annex D, in that it distinguishes between local authorities who budgeted in 1984/85 to spend below and those who budgeted to spend above GRE and sets their 1985/86 targets at a percentage increase above different base-lines

- 13 -

(1984/85 GRE and 1984/85 targets respectively), is not "framed by reference to principles applicable to all local authorities" and therefore contravenes section 59(11A) of the Act of 1980.The submission for the respondents is that section 59(11A), on its true construction, requires that each and every principle by reference to which the guidance is framed must be capable of being applied equally to all local authorities. The submission for the appellant is that one set of principles must be applied to all local authorities, but that those principles may, where different circumstances affect different authorities, identify and reflect those differences accordingly.The new machinery introduced by the Act of 1982 for adjusting block grants operates at two stages. At the first stage, the Secretary of State gives guidance, or in other words sets expenditure targets, for all local authorities. This has no immediate effect on grants. At the second stage, the power to determine a multiplier under section 59(1) of the Act of 1980 is exercisable under section S(3)( c ) of the Act of 1982 to increase or decrease block grants by reference to authorities' expenditure performance in relation to their targets. This second stage power would, I apprehend, normally only be exercised after the end of the relevant financial year when authorities' actual expenditure is known. The power must be exercised by a supplementary report made under section 61 of the Act of 1980 and subject to the limitation on decreases in grant imposed by section 8(S) of the Act of 1982. It must also, be it noted, be exercised, as required by section 8(6), "in accordance with principles to be applied to all local authorities."The Court of Appeal placed great emphasis on this contrast between the two stages. They recognised inevitably that at the second stage there is express power to discriminate between authorities by reference to their spending record. They reached the conclusion, expressly in the judgments of Lawton and Slade L.JJ, and I think by necessary implication in the judgment of Dillon L.J., that there was no power to take account of, or at all events to discriminate by reference to, local authorities' past expenditure records at the stage of giving the statutory guidance. The point is dealt with most comprehensively in the judgment of Slade L.J. who said:
"Provided that it is linked to the future conduct of the respective authorities' affairs and not to their past conduct, a set of principles specified in a Rate Support Grant Report in relation to expenditure guidance and hold back of block grant can properly be said to be 'applicable to all local authorities,' even though these principles may or will in the subsequent event have different effects on different authorities. Nevertheless, totally different considerations from those relevant to the determination of the multipliers, in my opinion, govern the framing of expenditure guidance in the Rate Support Grant Report itself. If, in so doing, the Secretary of State adopts a number of principles which vary according to the past conduct of the respective authorities' affairs, inevitably some principles will fall to be applied to some authorities, others will fall to be applied to others, but all cannot fall to be applied to all."

- 14 -

This was a central theme of the reasoning of the Court of Appeal leading them to construe section 59(11A) in the manner for which the respondents contended and as designed precisely to safeguard authorities against any discrimination based on past expenditure records.This approach, if it is correct, involves two consequences which are, to my mind, very startling in the context of this legislation and in the light of its evident purpose. The guidance issued by the Secretary of State must be "designed to achieve any reduction in the level of local authority expenditure (or any restriction on increases in that level) which he thinks necessary having regard to general economic conditions": section 59(6)( cc ) The first startling consequence of the Court of Appeal's view is that, as I understand it, it would only permit guidance to be issued requiring an overall reduction or restricting the overall increase of local government expenditure across the board by a given percentage. It must be obvious that the scope for reduction varies greatly between different local authorities and it is to be remembered both that the Secretary of State already controls the overall amount of the rate support grant and that the Act of 1980 itself, with its built-in discriminatory taper mechanism, was designed to replace a system under which central government's only effective influence over local government expenditure was by reducing or limiting the aggregate rate support grant with an effect across the board on local authorities.Mr. Schiemann, in arguing the point of construction for the City of Bradford Metropolitan Council, was, I think, conscious of the difficulty of maintaining the position that the guidance could not reflect local authorities' previous expenditure records in any differential way. If, for example, paragraph 2 of Annex D had set expenditure targets exclusively by reference to GRE, this would certainly have applied a single principle to all local authorities, but it would at the same time have discriminated severely between high spending and low spending authorities. The second startling consequence of the Court of Appeal's view is that it would then have been illegitimate to mitigate the severity of that discrimination by applying such constraints as are in fact applied by paragraph 3 of Annex D, limiting the increase or decrease in any local authority's expenditure in 1985/86 as compared with 1984/85 to 4.5 per cent (exceptionally 4.625 per cent) and 1.5 per cent respectively. Constraints of that character are only capable of applying to those local authorities whose target expenditure, calculated by reference to whatever basic formula is used, would, apart from the constraints, rise above or fall below the limits set by the constraints. Accordingly on the construction of section 59(11A) urged for the respondents and accepted by the Court of Appeal, the constraints themselves cannot have been "framed by reference to principles applicable to all local authorities."The recognition of this second consequence of adopting the respondents' construction is of central importance to the argument. It means if the respondents are right, either that the guidance must be based on a flat reduction or limited increase in existing expenditure levels across the board or that it must set a new notional expenditure level for all which cannot be adjusted to take any account of existing expenditure levels at all.

- 15 -

I recognise that, if the statutory language leads inescapably to these consequences, they must be accepted. But it would be wrong to construe the words "principles applicable to all local authorities" in section 59(11A) without regard either to the apparent scheme of the legislation or to the use elsewhere in the Act of the same phrase or of the very similar phrase "principles to be applied to all local authorities."The first example of the latter is found in section 56 of the Act of 1980. Section 56(8) contains a definition of "total expenditure" as embracing certain categories of expenditure "adjusted by the addition or subtraction of such descriptions of expenditure or receipts as the Secretary of State may direct, . . . " Section 56(11) then provides:
"Any such direction shall be given in accordance with principles to be applied to all local authorities."
The next example is in section 57(1) which provides:
"A local authority's grant-related poundage and grant-related expenditure shall be determined by the Secretary of State in accordance with principles to be applied to all local authorities."
Further examples are to be found in the provisions, which I have already set out earlier in this opinion, of section 59(5)( a ) of the Act of 1980 and section 8(6) of the Act of 1982. All these instances, I note in passing, relate to the exercise of a power by the Secretary of State to give a direction or make a determination "in accordance with principles to be applied to all local authorities." In all these instances it is perfectly clear from the context that the principles will not necessarily be equally capable of application to ail local authorities. This is not disputed by the respondents. The sense of the provision in each case is, as it seems to me, that the Secretary of State is required to exercise the relevant power in accordance with principles of general application, not on an ad hoc or case by case basis.It is contended for the respondents, however, that the phrase "principles applicable to all local authorities" conveys a crucially different meaning from the phrase "principles to be applied to all local authorities." The former, it is said, requires that every principle should be capable of universal application, the latter only that the same principles should be applied to authorities whose relevant circumstances are the same. As we listened to the argument, I could not help feeling, in common I believe with others of your Lordships, that we were back among the medieval schoolmen debating nice theological differences about angels dancing on the head of a pin. I should be extremely reluctant to accept that the draftsman of the legislation by so small a difference of language intended to achieve so fundamental a difference in legislative effect with consequences which, as I have already pointed out, seem to me out of accord with the scheme and underlying purpose of the two Acts.The argument for the respondents stressed the principle that a difference of language in two similar contexts in the same statute, a fortiori in the same section, is presumed to indicate a difference of legislative intent. I recognise the force of this. Sometimes, however, it may be that a slight difference in the context explains a merely grammatical difference in the form in

- 16 -

which a word is used. As I have pointed out, the provisions to which I have drawn attention which require the same principles "to be applied" to all local authorities relate to the exercise by the Secretary of State of a power to give a direction or make a determination. The operation of such a direction or determination in relation to block grants to those local authorities whom it affects will be immediate. In this context it may be thought grammatically correct to speak of the direction being given or the determination made "in accordance with principles to be applied to all local authorities." But when the Secretary of State issues guidance it must be framed, not "in accordance with principles to be applied to all local authorities" but "by reference to principles applicable to all local authorities." The guidance has no immediate effect on the amount of block grant to any local authority. The effect, if any, on grants will come at the second stage when the Secretary of State determines multipliers
"so as to increase or decrease the amount of block grant payable to a local authority according to whether or the extent to which they have or have not complied (or have or have not taken steps to comply) with the guidance"
under section 8(3)( c ) of the Act of 1982 and is once again required by section 8(6) to act "in accordance with principles to be applied to all local authorities." I think it is at least possible that this subtle difference in the context in which the phrase "principles applicable to all local authorities" is used in section 59(11A) as compared with the phrase "principles to be applied to all local authorities" which is used elsewhere, explains the difference in the language. A purist grammarian might say that the principles underlying the guidance are applicable to all local authorities, in the sense, not that they are capable of universal application, simply that they are potentially to be applied, but do not fall to be applied in fact to any local authority so as to affect the amount of its grant until it is known whether or the extent to which that authority will not comply with the guidance.I have to recognise, however, that this theory is quite irreconcilable with section 61(5) of the Act of 1980. But that subsection likewise, if it is to be given any significance at all, is wholly destructive of the respondents' argument that the draftsman uses the word "applicable" to signify a different intent from the phrase "to be applied."Section 61 empowers the Secretary of State, after a Rate Support Grant Report has been made for any year, to make one or more supplementary reports for that year. Subsections (3) and (5) provide as follows:
"(3) Subject to subsections (4) and (5) below, a supplementary report may specify fresh determinations in place of all or any of those specified by the Rate Support Grant Report.
(5) The power conferred by subsection (3) above shall be exercisable only in accordance with principles applicable to all local authorities and specified in the supplementary report."

- 17 -

In this context I see no way to avoid the conclusion that the draftsman is using the phrases "in accordance with principles to be applied to all local authorities" and "in accordance with principles applicable to all local authorities" as completely interchangeable. A single example will, I hope, suffice to make this clear. In the original Rate Support Grant Report the Secretary of State determines GREs under section 57(1) "in accordance with principles to be applied to all local authorities." In a supplementary report the Secretary of State makes a fresh determination of GREs under section 61(3) and (5) "in accordance with principles applicable to all local authorities." It is surely inconceivable that one approach is called for when making the original determination but a different approach when making a fresh determination. It is, in any event, rightly and inevitably conceded by the respondents that their suggested construction of the phrase "principles applicable to all local authorities" in section 59(11A) would be wholly inapt in relation to the determination of GREs, which must necessarily distinguish between different classes of authority according to their different functions.I am led by this examination of section 59(11A) in its wider context and by a comparison of its language with the same or similar language used elsewhere to the conclusion that the subsection is capable of bearing either of the meanings which the parties urge your Lordships to put upon it. I am clearly of the opinion that a purposive approach and the avoidance of the consequences implicit in the respondents' construction to which I have earlier drawn attention point in favour of the appellant's construction.There is, however, one further consideration to throw in the scales, which, to my mind, would be sufficient to bring them down on the appellant's side even if they were more evenly balanced than I think they are. The effect of section 8(10) and (11) of the Act of 1982, the relevant parts of which I have set out earlier, is to enable the Secretary of State to exercise the power to adjust block grants under section S(3)( c ) retrospectively with reference to guidance issued for the financial years 1981/82 and 1982/83. The Act of 1982 received the royal assent on 13 July 1982. The Rate Support Grant Report for the year 1982/83 had been submitted to the House of Commons on 5 February 1982 and in due course approved by resolution of the House. That Report referred to the anticipated enactment of section 8 of the Act of 1982, then embodied in a Bill before Parliament (see paragraph 9). It contained the guidance for 1982/83 in paragraph 8 of Annex G, which, so far as material, reads:
"The expenditure guidance given to each authority will be in the form of a target expenditure derived from authorities' budgeted expenditure for 1981/82 .... These figures are scaled up to the levels of expenditure applying to 1982/83. They are then adjusted in the following way: (i) For each 1 per cent by which an authority's rescaled 1981/82 planned expenditure is below (or exceeds) its 1982/83 grant-related expenditure, the figure is increased (or reduced) by 0.2 percentage points; (ii) For each 1 per cent by which an authority's volume of planned current expenditure in 1981/82 is below (or exceeds) the expenditure target set for that year the figure is increased (or reduced) by 0.2. percentage

- 18 -

points; (iii) The resulting figure is subject to the following limitations:(a) the difference between the resulting figure and the 1982/83 budgeted figure (expressed in estimated 1982/83 outturn prices) must not be less than 0 per cent nor greater than 7 per cent.;(b) any authority whose expenditure at (i) is less than its grant-related expenditure for 1982/83 and whose expenditure at (ii) is less than its target for current expenditure for 1981/82 must not have a difference in expenditure as described at (iii)(a) greater than 1 per cent.; (iv) . . .The limitations imposed at (iii) by this guidance are, if the respondents are right, open to precisely the same objections as the guidance under attack in the 1985/86 Report.Now I recognise that if the Act of 1982 when it reached the statute book purported to give retrospective statutory force to guidance contained in a report already approved by the House of Commons which, on the true construction of the Act, it was not within the power of the Secretary of State to issue, the prior approval of the report in which the guidance was contained could not save it. But it is another thing to say, as the respondents do, that, even if the statute be ambiguous, the guidance contained in the prior report cannot be looked at to help resolve any ambiguity in the provisions to which retrospective force is given.The point is a novel one and must, therefore, be determined by resort to principle. There is no question here of looking at travaux preparatoires. The reality is that the Rate Support Grant Report for 1982/83, which contained the relevant guidance and secured the approval of the House of Commons, was submitted to the House by the Secretary of State whose department was concurrently promoting the money Bill which became the Act of 1982. Is there any principle which requires us to put on blinkers and ignore this reality? I know of none. If we can regard the reality, then it seems to me that, to the extent that the meaning of provisions given retrospective force is open to doubt, the nature of the guidance by reference to which those provisions will operate, having been set out in a report submitted to and approved by the House of Commons before the enactment of the statute, is available as a contemporanea expositio of the drafstman's purpose.For all these reasons I have reached the conclusion on the issue of the construction of section 59(11A) of the Act of 1980 that the appellant is entitled to succeed.On the other issue raised in the appeals I have had the advantage of reading in draft the speech of my noble and learned friend Lord Scarman and I entirely agree with it.I would accordingly allow the appeals. I concur in the orders proposed by my noble and learned friend Lord Scarman with respect to costs.

- 19 -

LORD TEMPLEMAN

My Lords,Local authorities are too small to be self-financing and too large to be managed by central government. More than 50 per cent. of local government revenue expenditure has in recent years been met by central government grants. Local authorities' current and capital expenditure amount to about one-quarter of all public expenditure and comprise a significant part of the national economy. Increases in local government expenditure either increase the total tax burden on the economy or contribute to the public sector borrowing requirement. Rates levied by local government are a significant factor in the costs faced by industry and commerce which in turn have implications for inflation and employment. No government can, therefore, ignore localgovernment expenditure in framing either its general economic strategy or its more detailed policies for public expenditure and the consequences for taxation and borrowing.This situation is fraught with differences of opinion and conflicts of interest as between central and local authorities generally, between central government and individual local authorities, between taxpayers and ratepayers, between different classes of ratepayers, between the supporters of direct taxation and the supporters of indirect taxation and between politicians who disagree about the relevant roles of public enterprise and private enterprise. The inevitable differences of opinion between central government and local authorities are exacerbated when the political persuasion of the elected majority of the House of Commons differs from the political persuasion of the elected majority of a local authority, but any government of whatever political complexion will be concerned to ensure some control over the volume of Local authority expenditure.These conflicts are resolved by policy enactments by Parliament exercising the supremacy of power conferred on Parliament by the unwritten constitution of the United Kingdom, subject to quinquennial democratic control and to the daily force of public opinion. The policy decisions of Parliament in relation to local government expenditure are implemented by advice delivered by central government to local authorities and by the method of distributing central government grants which take into account the success or failure of each local authority in following the advice of central government.The House of Commons retains some supervisory control over the advice and over the distribution of central government grant by requiring an annual Rate Support Grant Report to be laid before and approved by the House.By the provisions of the Act of 1980, as amended by the Act of 1982, considered in detail by my noble and learned friend, Lord Bridge of Harwich, Parliament authorised the Secretary of State to issue to each local authority every year guidance as to

- 20 -

the aggregate amount of expenditure which that local authority ought not to exceed. If the local authority exceeds the guidance expenditure then the Secretary of State is empowered to reduce the amount of the central government grant made to the local authority. A reduction in the amount of central government grant automatically increases the amount of rates which must be levied by a local authority. Thus the elected representatives of a local authority are encouraged to keep expenditure within the guidance target set by the Secretary of State in order to obtain the maximum proportion of central government grant and to avoid placing increased burdens on their ratepayer electorate. A separate guidance target of a fixed amount is issued by the Secretary of State to each local authority annually. The statute under which guidance targets are set requires that any guidance "shall be framed by reference to principles applicable to all local authorities" (Section 59(11A)).For the purpose of determining the amount of the guidance target appropriate to be issued to a particular local authority, the Secretary of State has three measuring rods. First, there is the estimate known as "GRE" of the expenditure which each authority would need to incur if all authorities provided the same standard of service with the same degree of efficiency at a level consistent with the government's aggregate spending plans for local government. GRE is only a rough guide because it embraces a number of imponderables. Every local authority differs from every other local authority in its expenditure needs which depend on matters of history and geography and on its resources which depend on the value of the rateable properties within the area of the local authority. Secondly, some guide to future expenditure can be obtained by considering past expenditure. This also is only a rough guide because high expenditure in one year does not necessarily justify an increase or decrease in the next. Thirdly, the Secretary of State can take into account the guidance which he has set in past years and the success or failure of the authority in following that guidance. But this also is only a rough guide because an excess of expenditure over guidance might be due to imperfections in the guidance.For the year 1985/36 the Secretary of State took into account GRE, past expenditure as evidenced by the local authority's budgeted expenditure for 1984/85 and success or failure in complying with guidance in 1984/85. He formed the view that if in 1984/85 a local authority budgeted to spend less not more than GRE it was in the current jargon "a low spender" and could be set guidance for 1985/86 at GRE plus an inflation factor of 3.75 per cent. If on the other hand a local authority budgeted in 1984/85 to spend more than GRE it was a "high spender" and should be set guidance for 1985/86 at 1984/85 guidance plus 3.75 per cent. At the same time the Secretary of State recognised that these general formulas might result in a reduction in the amount of central government grant of a magnitude which in some cases it would not be reasonable to impose on the ratepayers of a particular authority. He therefore provided that the guidance for 1985/86 should not in any event be less than the 1984/85 budgeted expenditure by the local authority less 1.5 per cent. The general principles to be deduced from the expenditure guidance made by the Secretary of State for 1985/86 are that the aggregate of local authority expenditure should be contained, that the guidance for

- 21 -

each local authority should be set at a level which would encourage that local authority to contain expenditure, that high spending authorities needed more encouragement and possessed more scope for economy than low spending authorities, and that high spending authorities can be identified by reference to their 1984/85 budget, the 1984/85 GRE, and the 1984/85 guidance. These principles are applicable to all authorities although the effect of the principles will differ as between different local authorities. But no one contends that the Secretary of State could only issue guidance which produced for 1985/86 the same percentage increase on 1984/85 GRE or 1984/85 guidance. It is recognised that such a principle which would apply to all authorities equally in percentage terms would be most unfair and inequitable. Once this is conceded it seems to me that the Secretary of State was entitled to formulate a set of principles which were fair to all local authorities and gave encouragement to those authorities who could properly be identified by the principles as possessing scope for economies. Of course the Secretary of State must not pick and choose and did not pick and choose between authorities. He laid down a set of principles which are applicable to all local authorities, but which produce consequences which differ according to the different spending patterns of different local authorities.

The minister gave guidance based on the principle that to

each local authority there should be given a grant according to Its

needs and from each local authority there should be exacted an economy according to its abilities.The relevant statutory provisions are analysed in detail in the speech of my noble and learned friend, Lord Bridge of Harwich. I gratefully accept his analysis, his reasoning and his conclusions.The speech of my noble and learned friend, Lord Scarman, deals with the alternative contention by the respondent councils that the guidance issued to each of them was "unreasonable." The speech of my noble and learned friend contains a timely reminder and perceptive analysis of the principles applicable to judicial review and of the role of the courts in administrative law. The courts will not be slow to exercise the powers of judicial review in order to strike down illegality or abuse of power. The accusation of illegal conduct fails for the reasons given by my noble and learned friend, Lord Bridge of Harwich. No objective reader of the evidence filed on behalf of the department for which the Secretary of State is responsible could convict the minister of abuse of power. The principles inspiring the 1985/86 guidance were carefully considered and evolved in the light of experience and with the obvious desire to carry out in an even handed and equitable manner fair to all local authorities the task imposed on the minister in the national interest of securing overall economies. Nottingham's guidance increased from £263,897,000 in 1981/82, to £311,234,000 in 1982/83, to £345,240,000 in 1983/84, to £350,332,000 in 1984/85, and, finally, to £362,390,000 in 1985/86. Nottingham's GRE for 1984/85 was £356,883,000 and its budget for that year was £357,569,000. In the two preceding years Nottingham had exceeded both GRE and guidance. Nottingham's budget for 1985/86 exceeded their guidance for 1984/85 by £7,200,000. And Nottingham had overspent their guidance in the

- 22 -

two preceding years. Out of 413 local authorities there were only 10, including Nottingham and Bradford, whose 1984/85 budgeted expenditure exceeded GRE where GRE itself was above target. Nottingham's complaint is devoted solely to the 1985/86 guidance and amounts to a retrospective regret that they did not budget below GRE. In that event, they say, their 1985/86 guidance would have been £6,752,000 higher. But the Secretary of State had decided as a matter of principle applicable to all authorities that those authorities which budgeted below GRE should not be discouraged from incurring expenditure, subject to limitations, up to GRE, and he also decided that authorities which budgeted above GRE should be discouraged, subject again to limitations, from incurring expenditure in excess of their 1984/85 guidance. The courts have no authority to interfere with the principles enunciated by the Secretary of State by awarding Nottingham a consolation prize for only budgeting to exceed GRE by a modest sum, ignoring the fact that Nottingham had, not for the first time, budgeted to exceed their guidance. Judicial review is not just a move in an interminable chess tournament. Although I do not blame Nottingham or Bradford for instituting these proceedings, I hope that in future local authorities will bite on the bullet and not seek to persuade the courts to absolve them from compliance with the Secretary of State's guidance. If for any particular city or for any group of cities guidance is set too low, having regard to their peculiar needs, then persuasion should be offered not to the judges, who are not qualified to listen, but to the department, the minister, all members of parliament and ultimately to the electorate.For these reasons and for the reasons given by my noble and learned friends, I would allow these appeals.

LORD GRIFFITHS

My Lords,I agree that these appeals should be allowed for the reasons appearing in the speeches of my noble and learned friends Lord Scarman and Lord Bridge of Harwich.

- 23 -