Hilary Term [2015] UKSC 6 On appeal from: [2014] EWCA Civ 1080

JUDGMENT
R (on the application of Rotherham Metropolitan
Borough Council and others) (Appellants) v
Secretary of State for Business, Innovation and
Skills (Respondent)
before
Lord Neuberger, President
Lady Hale, Deputy President
Lord Mance
Lord Clarke
Lord Sumption
Lord Carnwath
Lord Hodge
JUDGMENT GIVEN ON
25 February 2015
Heard on 22 and 23 October 2014
Appellants Respondent
Jason Coppel QC Jonathan Swift QC
Joanne Clement James Cornwell
(Instructed by Rotherham
Metropolitan Borough
Council Legal Services
)
(Instructed by the Treasury
Solicitor
)
Page 2
LORD SUMPTION: (with whom Lord Hodge agrees)
Introduction
1. This appeal is about the distribution of European Structural Funds among the
regions of the United Kingdom. It arises out of the complaint of a number of
local authorities in Merseyside and South Yorkshire about the way in which
it is proposed to distribute funds allocated to the United Kingdom for the
years 2014 to 2020. The appellants say that they should receive more and
other regions correspondingly less.
2. Article 174 of the Treaty on the Functioning of the European Union requires
the European Union to “aim at reducing disparities between the levels of
development of the various regions and the backwardness of the least
favoured regions”. Article 175 requires Member States to conduct their
economic policy in such a way as to further this objective and the Union to
support it by distributions from the “European Structural and Investment
Funds” (or “ESI Funds”). These funds are the European Regional
Development Fund, the European Social Fund, the Cohesion Fund, the
European Agricultural Fund for Rural Development and the European
Maritime and Fisheries Fund. For present purposes the most significant of
them are the Social Fund and the Regional Development Fund.
3. The Social Fund was established under article 162 of the Treaty, whose terms
identify its purpose:
“In order to improve employment opportunities for workers in
the internal market and to contribute thereby to raising the
standard of living, a European Social Fund is hereby
established in accordance with the provisions set out below; it
shall aim to render the employment of workers easier and to
increase their geographical and occupational mobility within
the Union, and to facilitate their adaptation to industrial
changes and to changes in production systems, in particular
through vocational training and retraining.”
Article 176 established the Regional Development Fund. This fund, which is
much the largest of the Structural Funds, is
Page 3
“intended to help to 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.”
4. The distribution of money from the EU Structural Funds is a shared
responsibility of the Commission and the authorities of the Member States.
The Commission is solely responsible for the allocation of funds to each
Member State. The money is then used to co-finance programmes, the Union
contribution currently varying between 50% and 85% and the rest being met
from national budgets. The expenditure of sums allocated by the Commission
within a Member State is jointly determined by the Commission and the
Member State. In the United Kingdom this is the responsibility of the
Secretary of State for Business, Innovation and Skills.
Regulation (EU) 1303/2013
5. Funds are allocated from the EU budget to programmes co-financed by the
European Structural Funds for successive seven-year funding periods. The
transition to a new funding period will commonly involve a measure of
disruption. Funding budgets rise and fall. Strategic priorities both at Union
and at national level change. The number and definition of the various
categories of region entitled to funding support also change. Statistical tests
for funding support, which commonly depend on the relationship between
indices of regional development and the corresponding EU averages, may be
significantly affected by the accession of new Member States. There may or
may not be transitional provisions to ease the passage from one funding
period to the next.
6. The allocation of funds for programmes co-financed by the European
Structural Funds for 2014-2020 is governed by Regulation (EU) 1303/2013,
which I shall call the 2013 Regulation. The legal base of the 2013 Regulation
is article 177 of the Treaty on the Functioning of the European Union, which
requires the European Parliament and the Council to make regulations to
“define the tasks, priority objectives and the organisation of the Structural
Funds”. So far as the current period is concerned, these objectives are
summarised in the recitals to the 2013 Regulation. The overall objective is
succinctly expressed in Recital (3). It is to provide a framework within which
the “Union and Member States should implement the delivery of smart,
sustainable and inclusive growth, while promoting harmonious development
of the Union and reducing regional disparities”. This recital reflects one of
the main features of the scheme, which is that it has been designed on the
footing that there is a close interaction between the reduction of regional
imbalances and the promotion of growth generally.
Page 4
7. This is reflected in the drafting of the 2013 Regulation, which is directed not
just to the reduction of regional disparities but to economic development in
its broadest sense. Under article 89(1) of the 2013 Regulation, the Structural
Funds are required to contribute to two “missions”. One is the “actions of the
Union leading to strengthening of its economic, social and territorial
cohesion” in the broad sense envisaged in article 174 of the Treaty. The other
is the “delivery of the Union strategy for smart, sustainable and inclusive
growth”. Both missions are to be fulfilled by pursuing two “goals” identified
in article 89(2), namely “investment for growth and jobs in Member States
and regions”, and European territorial co-operation. Of the two goals, the first
is much the most important. Article 91 provides for an overall budget of (in
round figures) EUR 322 billion, representing the global resources allocated
for the years 2014-2020 to the Social Fund and the Regional Development
Fund (together with the Cohesion Fund from which the United Kingdom does
not benefit). Under article 92, 96.33% of this global amount is allocated to
the “Investment for growth and jobs goal” and of this, specified proportions
are allocated to three categories of region: less developed, transition and more
developed. The regions in question are standard geographical units used for
statistical purposes by the Commission and known as “NUTS2” regions
(Nomenclature of Territorial Units for Statistics, Level 2). The categorisation
of regions depends on the ratio of their average GDP per capita to that of the
Union as a whole: see article 90 of the 2013 Regulation. Less developed
regions have a GDP per capita below 75% of the EU average; transition
regions have a GDP per capita between 75% and 90% of the EU average; and
more developed regions have a GDP per capita over 90% of the EU average.
8. To calculate a Member State’s allocation from the Structural Funds, the
Commission notionally allocates an annual amount of funding to each region
within that state in accordance with a methodology prescribed for each of the
three categories of region by Annex VII of the 2013 Regulation. In each
category, the calculation is based mainly on the region’s GDP per capita
relative to the EU average. The Commission uses the resulting figures to
calculate an aggregate amount for each of the three categories of region in
that Member State. The sum of the three categories is then allocated to the
Member State, plus a sum from the Cohesion Fund in the case of those
Member States (not including the United Kingdom) which are supported by
that fund.
9. In contrast to the allocation of Structural Funds among Member States, which
is prescribed by the 2013 Regulation in detail, there is no formula for the
allocation of funds among regions within Member States. Instead, what is
prescribed is a detailed administrative procedure for arriving at the internal
regional allocations under a scheme of shared management involving the
Commission, the Member States, and local entities. The initiative, or right of
proposal, belongs to the Member State. Article 4.4 provides:
Page 5
“Member States, at the appropriate territorial level, in
accordance with their institutional, legal and financial
framework, and the bodies designated by them for that purpose
shall be responsible for preparing and implementing
programmes and carrying out their tasks, in partnership with
the relevant partners referred to in Article 5, in compliance with
this Regulation and the Fund-specific rules.”
The critical instrument is the Partnership Agreement, which determines the
allocation of resources between regions and programmes to be co-financed.
It is defined by article 2.20 as
“a document prepared by a Member State with the involvement
of partners in line with the multi-level governance approach,
which sets out that Member State’s strategy, priorities and
arrangements for using the ESI Funds in an effective and
efficient way so as to pursue the Union strategy for smart,
sustainable and inclusive growth, and which is approved by the
Commission following assessment and dialogue with the
Member State concerned.”
The function of the Partnership Agreement is described by Recital (20). It is
to
“translate the elements set out in the [Common Strategic
Framework] into the national context and set out firm
commitments to the achievement of Union objectives through
the programming of the ESI Funds. The Partnership Agreement
should set out arrangements to ensure alignment with the Union
strategy for smart, sustainable and inclusive growth as well as
with the Fund-specific missions pursuant to their Treaty-based
objectives, arrangements to ensure effective and efficient
implementation of the ESI Funds and arrangements for the
partnership principle and an integrated approach to territorial
development. A distinction should be made between the
essential elements of the Partnership Agreement which are
subject to a Commission decision and other elements which are
not subject to the Commission decision and can be amended by
the Member State.”
10. The preparation of the Partnership Agreement is governed by article 14. The
agreement “shall cover all support from the ESI funds in the Member State
concerned”. It is to be prepared by Member States “in dialogue with the
Page 6
Commission” and “in accordance with their institutional and legal
framework”, and then submitted to the Commission in draft by 22 April 2014.
The Commission’s functions in relation to the draft are to be found in article
16. The Commission is required to “assess the consistency of the Partnership
Agreement with this Regulation” and with other Union instruments, and to
make “observations” within three months of submission. The Member State
is required to provide any additional information required of it and to make
such revisions as are required in the light of the Commission’s observations.
Finally, the Commission must within four months of submission “adopt a
decision by means of implementing acts”, approving all the elements of the
Partnership Agreement which are required by the 2013 Regulation to be
included. A similar process governs the Commission’s approval of any
amendments that may subsequently be proposed by a Member State. In the
absence of specified criteria for the internal allocation of strategic funding, it
is clear that the role of the Commission, as a party to the dialogue leading to
the submission of the draft Partnership Agreement and the body charged with
commenting on and approving it, is not simply to rubber-stamp the proposals
of Member States. It calls for a scrutiny of the proposals which is at once
expert and exacting. It constitutes the main machinery of compliance
envisaged by the legislator.
11. It is an important feature of the 2013 Regulation that the criteria to be applied
by both the Commission and the Member States in finalising the Partnership
Agreement are not based on the amounts calculated by the Commission for
each region when arriving at their national allocations. Indeed, these amounts
are not even published, although they can be estimated from the methodology
described in Annex VII of the 2013 Regulation. Nor are allocations within a
Member State based, as the Commission’s calculations are, on GDP per
capita or other measures of deprivation. Instead, the proposals in the
Partnership Agreement are governed by broadly based criteria that are purely
qualitative. Recital (21) declares that
“Member States should concentrate support to ensure a
significant contribution to the achievement of Union objectives
in line with their specific national and regional development
needs.”
The “Union objectives” are identified by article 9. The overall objective is to
support the Union strategy for “smart, sustainable and inclusive growth”.
This is defined by article 2.1 as meaning the “targets and shared objectives
guiding the action of Member States and the Union” identified in three
documents adopted by the European Council. The first is the “Strategy for
Jobs and Growth” at Annex I of the Conclusions of the European Council of
17 June 2010. This identifies a number of “Headline Targets”, which can be
Page 7
summarised as an increase in the rate of employment, an improvement in the
conditions for research and development, a reduction in greenhouse gas
emissions, the improvement of educational levels and the promotion of social
inclusion. The second is the Council Recommendation of 13 July 2010 on
guidelines for the economic policies of Member States. These deal with the
quality and sustainability of public finances, macroeconomic imbalances,
research and development, resource efficiency and the reduction of
greenhouse gas emissions, and the business and consumer environment. The
third document is Council Decision 2010/707/EU on guidelines for the
employment policies of Member States. These deal with labour market
participation, skills, education and social inclusion.
12. The “thematic objectives” mentioned in article 9 are set out in the article
itself, which provides as follows:
“Thematic objectives
In order to contribute to the Union strategy for smart,
sustainable and inclusive growth as well as the Fund-specific
missions pursuant to their Treaty-based objectives, including
economic, social and territorial cohesion, each ESI Fund shall
support the following thematic objectives:
(1) strengthening research, technological development and
innovation;
(2) enhancing access to, and use and quality of, ICT;
(3) enhancing the competitiveness of SMEs, of the agricultural
sector (for the EAFRD) and of the fishery and aquaculture
sector (for the EMFF);
(4) supporting the shift towards a low-carbon economy in all
sectors;
(5) promoting climate change adaptation, risk prevention and
management;
(6) preserving and protecting the environment and promoting
resource efficiency;
Page 8
(7) promoting sustainable transport and removing bottlenecks
in key network infrastructures;
(8) promoting sustainable and quality employment and
supporting labour mobility;
(9) promoting social inclusion, combating poverty and any
discrimination;
(10) investing in education, training and vocational training
for skills and lifelong learning;
(11) enhancing institutional capacity of public authorities
and stakeholders and efficient public administration.
Thematic objectives shall be translated into priorities that are
specific to each of the ESI Funds and are set out in the Fundspecific rules.”
The thematic objectives are complemented by “strategic guiding principles”
contained in a Common Strategic Framework at Annex I, which provide
guidance as to how they are to be achieved, and by certain conditions (“ex
ante conditionalities”) to be satisfied by Member States in relation to each
thematic objective, which are identified in articles 18 and 19 and Annex XI.
13. It will be apparent that, as foreshadowed by Recital (3), not all of the thematic
objectives are directly concerned with reducing regional disparities. A few of
these criteria are directed to traditional indices of deprivation such as
employment and skill levels. Most are directed to specific developmental
needs such as technical research capacity, training, information technology,
business start-ups or transport infrastructure, the need for which will vary
even among regions with comparable levels of poverty or deprivation. Some
are directed to more general policy objectives with no necessary connection
to either deprivation or developmental needs, such as climate change
adaptation. Articles 14 and 15, which lay down the required contents of the
Partnership Agreement, closely reflect the objectives identified in article 9
and its incorporated instruments.
Page 9
The treatment of the United Kingdom NUTS2 regions
14. There are 37 NUTS2 regions in the United Kingdom. Thirty are in England,
four in Scotland, two in Wales and one in Northern Ireland, which constitutes
a region in itself.
15. In order to understand the way that Merseyside and South Yorkshire have
been treated in the current Partnership Agreement, it is necessary to refer to
the way that they had been treated in the two previous periods, 2000-2006
and 2007-2013. In 2000-2006, there were three categories of region called
Objective 1, Objective 2 and Objective 3 regions. Objective 1 corresponded
to the current less developed category, comprising regions with a GDP per
capita less than 75% of the EU average. Regions in this category received the
most generous funding. Merseyside and South Yorkshire were both
Objective 1 regions in 2000-2006.
16. The allocations for the next period, 2007-2013, were fixed shortly after the
enlargement of the European Union by the admission of ten new members,
mostly in Eastern Europe. The new members had lower levels of GDP per
capita, which depressed the EU average and meant that a number of regions
which had previously been in the bottom category of development and
received the most generous treatment were now in a higher category. The
Regulation for 2007-2013 ((EC) 1083/2006), which I shall call the 2006
Regulation, provided for two main categories of region: “convergence
regions”, which broadly corresponded to the current less developed regions
with a GDP per capita less than 75% of the EU average, and “competitiveness
regions” which were above the 75% threshold and broadly corresponded to
the current transition and more developed categories. Article 8 of the 2006
Regulation carved out of the competitiveness category two intermediate
categories of region which had previously had a GDP per capita below 75%
and would have been particularly badly affected by the move into a higher
category. These came to be known as “phasing-in” regions and “phasing-out”
regions, although the terms themselves are not used in the 2013 Regulation.
Phasing-out regions were regions which would have been convergence
regions in 2007-2013 (the least developed category) but for the expansion of
the EU, but moved above the 75% threshold because of the statistical impact
of enlargement: see article 8.1. Phasing-in regions were regions which had
moved from less than 75% to more than 75% of the EU average GDP per
capita and would have done so even without enlargement. That is their
development status had improved. To ease their passage into the
competitiveness category, phasing-in and phasing-out regions were both
eligible for additional financial support on what was described as a
“transitional and specific basis”, over and above the support that they would
have received as competitiveness regions.
Page 10
17. In the United Kingdom, the only phasing-in regions in 2007-2013 were
Merseyside and South Yorkshire. They were entitled under Annex II, para
6(b) of the 2006 Regulation to an allocation of 75% of the 2006 level in 2007,
tapering down to the national average level for competitiveness regions by
2011. The only phasing-out region was Highlands & Islands. It was entitled
under Annex II, para. 6(a) to an allocation of 80% of the 2006 level in 2007,
tapering down to the national average level of funding support for
competitiveness regions in 2013.
18. The new categorisation for 2014-2020 had three categories, as we have seen.
In effect, the old competitiveness category for regions with a GDP per capita
over 75% of the EU average was divided into two new categories, transition
and more developed. According to the Secretary of State’s evidence, the
transition category was devised against the background of tight budgetary
constraints to provide an increased level of funding notwithstanding the
reduction of the overall budget for the Structural Funds. But in the course of
negotiations in the European Council, the budget for transition regions
originally proposed by the Commission was cut, thus reducing the value of
the new category to those whom it was intended to benefit. In the current
categorisation, the United Kingdom has two less developed regions, West
Wales and Cornwall. There are 11 transition regions: Northern Ireland;
Highlands & Islands in Scotland; and nine English regions including
Merseyside and South Yorkshire. The other 24 regions are all classified as
more developed.
19. The Commission’s allocation to the United Kingdom for 2014-2020
represented a 5% reduction at 2011 prices on the allocation for the previous
funding period. The Secretary of State’s proposals for its allocation were
formulated in two stages. The first covered the distribution of the United
Kingdom’s national allocation between its four component countries and the
second covered allocations to regions within each country. At each stage the
Secretary of State’s approach was to assess the allocation of each country or
region by reference to its allocation for the previous funding period. This
approach was adopted so as to limit as far as possible the scope for disruptive
change in the new period. It was possible because the government’s regional
allocations for the previous period had been carried out using a basket of
economic and social indicators, and the Secretary of State considered that
there had been no significant change of the economic and social geography
of the country in the interval. The Secretary of State’s first decision, which
was announced on 26 March 2013, was that each of the four countries
comprising the United Kingdom would have its overall allocation reduced by
the same proportion, about 5%. The second decision, which was announced
on 27 June 2013, distributed the allocations of each country among its
NUTS2 regions. In the case of Northern Ireland, the allocation automatically
followed from the first decision, because it was a region in itself. For present
Page 11
purposes, the critical points decided on the second occasion were that the nine
English transition regions should receive an allocation per year for the current
funding period representing an increase of 15.7% (at 2011 prices) on its
allocation for 2013, the last year of the previous funding period, while
Highlands & Islands (the only Scottish transition region) should receive an
allocation per year of 95% of its average annual allocation over the whole of
the previous funding period.
20. The applicants have two fundamental complaints about this way of doing
things. The first complaint is that although the allocation for Merseyside and
South Yorkshire had risen by 15.7% from the base year of 2013, this
represented a 61% reduction (at 2011 prices) on its allocation for the previous
funding period as a whole. This was because in the previous funding period,
although they would otherwise have ranked as competitiveness regions, they
had received the special “transitional and specific” support provided for by
article 8 of the 2006 Regulation. Under the terms of the 2006 Regulation it
had tapered down to nil by 2011. In 2007-2013 as a whole, Merseyside and
South Yorkshire had received substantially more than competitiveness
regions because of the article 8 funding. But by taking 2013 as the base year
for the uplift of 15.7%, the Secretary of State chose the year in which
Merseyside and South Yorkshire had been entitled to no special transitional
funding and had received no more than the national average for
competitiveness regions. By comparison, the other English transition regions
had received no special article 8 funding in the previous period and their
allocations profile in that period had been flat in real terms. The second
complaint is that Merseyside and South Yorkshire have done badly by
comparison with Highlands & Islands and Northern Ireland. This, it is said,
is because the first decision had protected the allocations to Scotland and
Northern Ireland by guaranteeing them 95% of their allocations in the
previous funding period. Highlands & Islands had then been allowed by the
second decision to base the calculation of the 95% on its average annual
allocation in the previous period, notwithstanding that, as a phasing-out
region in the previous period, part of its allocations in 2007-2013 had also
represented transitional additional funding tapering down to zero over the
period. In other words, Highlands & Islands was not limited to the relevant
proportion of its last and lowest year in 2007-2013. The net result, the
appellants say, was that their regions fared worse than other transition regions
in spite of having higher levels of deprivation than most of them. What they
want is a principle of allocation more closely related to levels of relative
deprivation.
Preliminary observations
21. Three points should be made at the outset.
Page 12
22. The first is that the Secretary of State’s allocation is a discretionary decision
of a kind which the courts have traditionally been particularly reluctant to
disturb. There is no “right” answer prescribed by the EU Treaty or the 2013
Regulation to the question how EU Structural Funds should be distributed
within a Member State. There is not even any clear principle on which this
should be done. Instead, the Secretary of State was required to make a
complex evaluation of a wide range of overlapping criteria, all of which
involved difficult and sometimes technical judgments about matters of social
and economic policy.
23. Secondly, it was a judgment of a particularly delicate kind, involving the
distribution of finite resources, including domestic taxpayers’ funds as well
as EU funds, between the four countries and the distinctive regions of the
United Kingdom. In such cases, the Secretary of State is in reality arbitrating
between different public interests affecting different parts of our community.
It is an exercise in which the legitimacy of the decision-making process
depends to a high degree on the fact that ministers are answerable politically
to Parliament. As Lord Hoffmann observed in a lecture given in 2001,
“Separation of Powers”, 7 JR 137 (2002)), at paras 19-20:
“… there are certain areas in which, although the decision is
formally justiciable because it involves the interpretation of
statute or the common law, the outcome is likely to have an
important impact upon public expenditure. The allocation of
public expenditure – whether we should spend more or less on
defence, health, education, police and so forth, whether at a
national or local level – is very much a matter for democratic
decision. Furthermore, a court deciding a case which will affect
one form of public expenditure – for example, impose a burden
of expenditure upon education authorities – has no way of being
able to decide whether such expenditure should or should not
have a prior claim over other forms of expenditure. It may
consider that, viewed in isolation, it is fair and reasonable that
children in schools should receive certain benefits or financial
compensation for not having received other benefits. But
because it can only view the matter in isolation, it has no way
of knowing whether this means that other people dependent
upon social security, police protection and so on will have to
make sacrifices because there is less money for them. The only
people who can make such decisions are the democratically
elected bodies who are in charge of the budget as a whole. This
means that even when a case appears to involve no more than
the construction of a statute or interpretation of a common law
rule, the courts are very circumspect about giving an answer
Page 13
which would materially affect the distribution of public
expenditure.”
24. The third preliminary observation is that the disputed allocations are not a
matter for the sole decision of the United Kingdom or the Secretary of State
as its representative. Under the 2013 Regulation, the United Kingdom has the
right of proposal, but its proposals must be embodied in a Partnership
Agreement before they can be adopted. The Partnership Agreement is made
with the Commission, acting as the relevant organ of the European Union.
Once approved by the Commission it is implemented by a Commission
decision. It then takes effect as an instrument of the Union. At the time when
the present proceedings were brought, there was no Partnership Agreement
in existence. There were only proposals which had been announced by the
Secretary of State. At a number of stages (I shall return to this point) these
had been prepared in consultation with the Commission’s officials.
Ultimately, they were embodied in a draft Partnership Agreement which was
submitted by the Secretary of State to the Commission on 22 April 2014. It
is a long, elaborate and highly technical document. We were referred to it in
the form published on the United Kingdom government’s website. The
Commission was certainly aware of these proceedings and in general terms
of the nature of the appellants’ complaints, not least because according to Mr
Eyres’ evidence they lobbied the relevant commissioner about them. The
Commission made a number of “observations” on the draft, which have not
been disclosed because the Commission regards them as confidential. Finally
the document was agreed by a Commission decision notified on 29 October
2014, shortly after this appeal was argued. I make these points not in order to
suggest that the present issues are beyond the scope of judicial review in the
English courts. The Secretary of State’s proposals are amenable to judicial
review like any other decision of the executive. If his proposals were
unlawful, he may be obliged to reconsider them and if necessary to propose
an amendment. I am prepared to assume that the Commission would adopt
the amendment, as it has indicated that it is in principle willing to do if it is
consistent with the objectives of the Funds. However, the Commission’s
involvement has a broader significance. It is, as I have pointed out, the main
mechanism of compliance envisaged in the 2013 Regulation. The
Commission is an expert administrative body at arms’ length from the
Secretary of State, with considerable experience of the economic and social
issues involved. It is able to review the economic merits of the Secretary of
State’s judgments and if necessary substitute its own evaluation in a way that
is beyond the institutional competence of any court, let alone a national court.
The Commission is evidently satisfied that the Partnership Agreement
complies with the 2013 Regulation. That does not rule out the possibility that
it may be equally satisfied with some alternative proposal. But a national
court should be extremely cautious before accepting that a proposal is
inconsistent with the 2013 Regulation which the Commission charged with
applying it has found to be consistent with it.
Page 14
Grounds of review
25. The appellants’ case is that taking the Secretary of State’s two decisions
together, the allocation to Merseyside and South Yorkshire which resulted
was unlawful. Mr Coppel QC, who appeared for them, submitted that the
Secretary of State treated Merseyside and South Yorkshire differently from
Northern Ireland and Highlands & Islands when they were for practical
purposes in the same position, and in the same way as other English transition
regions when they were in a materially different position. This, he said, was
contrary to the general principle of equality in EU law as well as ordinary
principles of English public law which require a decision-maker to have
regard only to legally relevant considerations. He submits that to make his
case good, it is enough to demonstrate that Merseyside and South Yorkshire
were comparable to Highlands & Islands or different from the other English
transition regions. The Secretary of State had no discretion or margin of
judgment on that question. His discretion or margin of judgment related only
to the question whether the discrimination was objectively justifiable, and
according to Mr Coppel QC the Secretary of State has never set out to satisfy
that test.
26. Before turning to the Secretary of State’s decisions, I should make it clear
that I do not accept the rigid scheme of analysis by which Mr Coppel QC
seeks to confine us. The general principle of equality in EU law is that
comparable situations are not to be treated differently or different situations
comparably without objective justification. This is not a principle special to
the jurisprudence of the European Union. It is fundamental to any rational
system of law, and has been part of English public law since at least the end
of the nineteenth century. As Lord Hoffmann pointed out when delivering
the advice of the Privy Council in Matadeen v Pointu [1999] 1 AC 98, para
109:
“Is it of the essence of democracy that there should be a general
justiciable principle of equality? … Their Lordships do not
doubt that such a principle is one of the building blocks of
democracy and necessarily permeates any democratic
constitution. Indeed, their Lordships would go further and say
that treating like cases alike and unlike cases differently is a
general axiom of rational behaviour. It is, for example,
frequently invoked by the courts in proceedings for judicial
review as a ground for holding some administrative act to have
been irrational.”
Unequal treatment, Baroness Hale explained in Ghaidan v Godin-Mendoza
[2004] 2 AC 557, para 132,
Page 15
“is the reverse of the rational behaviour we now expect of
government and the state. Power must not be exercised
arbitrarily. If distinctions are to be drawn, particularly upon a
group basis, it is an important discipline to look for a rational
basis for those distinctions.”
27. The two-stage process by which courts in discrimination cases distinguish
between comparability and objective justification is a useful tool of analysis
and probably indispensable in dealing with allegations of discrimination on
ground of gender, race or other personal characteristics. More generally, a
rigid distinction between the two stages was implicit in the four-stage test
proposed by Brooke LJ in Wandsworth London Borough Council v Michalak
[2003] 1 WLR 617, para 20, for cases arising under article 14 of the European
Convention on Human Rights. But a tool of analysis should not be
transformed into a rule of law. As Lord Hoffmann pointed out in R (Carson)
v Secretary of State for Work and Pensions [2006] 1 AC 173, paras 29-31,
the question whether two situations are comparable will often overlap with
the question whether the distinction is objectively justifiable:
“If an ‘analogous situation’… means that the two cases are not
relevantly different (no two cases will ever be exactly the same)
then a relevant difference may be the justification for the
difference in treatment … [T]his division of the reasoning into
two stages is artificial. People don’t think that way. There is a
single question: is there enough of a relevant difference
between X and Y to justify different treatment? … [T]he
invocation of the ‘rational and fair-minded person’ (who is, of
course, the judge) suggests that the decision as to whether the
differences are sufficient to justify a difference in treatment
will always be a matter for the judge.”
Baroness Hale, making a very similar point in Ghaidan v Godin-Mendoza at
para 134, deprecated a formulaic approach for precisely this reason.
28. The problem about Mr Coppel QC’s scheme of analysis as applied to the
allocation within a Member State of EU Structural Funds is that there is no
clear measure of comparability, whether between different regions or
between different ways of treating them. The appellants say that Merseyside,
South Yorkshire, Highlands & Islands and Northern Ireland are comparable
by virtue of being transition regions under the classification, and that they
have been treated differently by virtue of receiving an allocation for 2014-
2020 which represents a smaller proportion of what they received in 2007-
2013 than the rest. But neither proposition is coherent in the context of this
particular scheme. The four regions are transition regions only because they
Page 16
all have an average GDP per capita between 75% and 90% of the EU average.
But that only means that they are all eligible to participate in the pool of
money allocated by the Commission for United Kingdom transition regions.
The mere classification by GDP per capita is consistent with significant
differences in other respects which are relevant to the allocation of EU
Structural Funding. The criterion for the allocation is not GDP per capita but
contribution to the EU’s policy objectives as set out in article 9 and its
incorporated instruments. To paraphrase Lord Hoffmann, there is only one
question: is there enough of a relevant difference between Merseyside and
South Yorkshire on the one hand and the remaining transition regions on the
other to justify any difference in their treatment? The answer to that question
may ultimately be for the court, but the nature of the question requires a
particularly wide margin of judgment to be allowed to the decision-maker.
That is partly because the questions posed by the 2013 Regulation, whether
they come under the heading of comparability or justification, call for a
complex policy judgment based on a broad range of economic and social
factors which the court is not competent to carry out and could not
legitimately carry out. And it is partly because the discretion allowed to
Member States and the Commission by the 2013 Regulation is itself very
wide, and the courts cannot confine it more narrowly. There are many
solutions consistent with the Regulation, none of which is any more “right”
than the next.
29. It follows, in my opinion, that the appellants cannot succeed on this appeal
simply by pointing to the classification of Merseyside and South Yorkshire
as transition regions, and denouncing the outcome of the Secretary of State’s
two decisions as more burdensome to them than to others in the same
category. They must show that there was something unlawful about the
process or reasoning by which that outcome was arrived at. Against that
background, I turn to the Secretary of State’s two decisions.
The first decision
30. The first decision was to allocate to each of the four countries comprising the
United Kingdom 95% of what they had received from the Structural Funds
in the previous funding period (at 2011 prices). Instead of applying the 5%
reduction in the United Kingdom’s national allocation to the United Kingdom
as a whole, he applied it separately to each component country.
31. The Secretary of State’s reasons for this decision are explained in a witness
statement of Dr Susan Baxter, a senior official in his department. It is clear
from her evidence that Ministers’ chief concern was that the radical
reclassification of European regions in the current Regulation should not lead
to an excessively abrupt change in the funding allocated to the United
Page 17
Kingdom’s regions. Although the Commission had not disclosed how much
it had allowed for each region when calculating its allocations to Member
States, the department was able to estimate the Commission’s regional
figures from the formula in the 2013 Regulation. This revealed that if the
Secretary of State were to allocate funds to regions according to the same
GDP-based methodology as the Commission had used to allocate funds to
the United Kingdom, England would have received an increase of 7% on its
allocation for 2007-2013 (at 2011 prices), with the largest increases going to
the south of England. The three other countries comprising the United
Kingdom would have received substantially less than their allocation for
2007-2013: -22% in the case of Wales, -32% in the case of Scotland and –
43% in the case of Northern Ireland. The Secretary of State considered
allocating funds within the United Kingdom on this basis, but rejected the
idea in order to protect the devolved administrations from “sudden and
significant cutbacks to funding”. His reasons were described by Dr Baxter as
follows:
“41. Ministers were aware that the decision to equalise the cuts
meant that there was proportionately less for England than the
EU’s notional calculation methodology would have rendered.
Accordingly Ministers were fully aware that both (a) that this
approach to the allocation of funds (rather than allocation on
the basis of the EU Commission’s approach) would reduce the
amount of money available for regions in England; and (b) that
it would limit the funding available for distribution for the
Transition regions in England and the allocation for Northern
Ireland and Highlands & Islands regions would come out of the
transition budget. However, this was seen in the context of an
overall cut in the funding for Northern Ireland and Scotland.
42. There were a number of reasons for applying the cut equally
as between the nations, including:
• Transparency – a decision that was easy for non-experts to
understand;
• Simplicity – a single number applied to each Devolved
Administration;
• Consistency – the same approach was taken to all four
Devolved Administrations; and
Page 18
• Balanced – it took account of the status of the Devolved
Administrations under the UK’s constitutional settlement.
43. The Government was not, at this stage, looking at the
detailed effects at NUTS 2 level. Ministers were aware that
increasing the funding for the Devolved Administrations would
mean less for certain regions in England, as allocations had be
[sic] made from a set budget category for each category of
region. However, it was decided that this would be dealt with
at the next stage of the allocation process and that only the big
picture within the UK would be looked at when trying to
distribute the cut fairly as between the UK nations.”
In these passages, references to the English regions getting “less” mean less
than they would have got if the Secretary of State had replicated the notional
regional allocations which it was estimated that the Commission had made.
32. In my opinion the Secretary of State was entitled to adopt this approach. The
EU Structural Funds are primarily concerned with economic development,
which is a devolved responsibility. It is true that the relevant entity in
international law is the United Kingdom, and that, as regards the institutions
of the European Union, the United Kingdom is the Member State. England
and the devolved administrations of Scotland, Wales and Northern Ireland
have no formal status in the EU legal order. But it does not follow that their
status within the United Kingdom is irrelevant. EU law is not insensitive to
the relationship between Member States and their internal federal or regional
units of government and will not necessarily treat regional variations arising
from the distribution of constitutional responsibility within a Member State
as discriminatory. In (Case C-428/07) R (Horvath) v Secretary of State for
the Environment, Food and Rural Affairs [2009] ECR I-6355, the Court of
Justice was concerned with the Memorandum of Understanding between the
United Kingdom government and the Scottish Government which assigned
to the devolved administration of Scotland responsibility for the
implementation of Community law concerning the common agricultural
policy. The relevant EC Regulation empowered Member States to set
minimum standards of compliance at national or regional level. Mr Horvath
complained that regulations requiring the maintenance by landowners of
public rights of way over agricultural land infringed the Community law
principle of equality because equivalent obligations had not been imposed by
the devolved administration in Scotland. The Advocate-General, in her
Opinion, had advised that differences in the way that Community obligations
were implemented by different devolved administrations could not be
regarded as discriminatory because they “cannot be attributed to the conduct
of the same public authority” (para 112). The Grand Chamber reached the
Page 19
same conclusion, but on a broader basis, namely that such differences were
inherent in the distribution of responsibility for implementing Community
law among distinct territorial units of government within a Member State.
They were therefore no more discriminatory than differences in the way that
EU law was implemented by different Member States:
“48. As a preliminary point, it should be pointed out that, in
conferring on Member States the responsibility of defining
minimum GAEC requirements, the Community legislature
gives them the possibility of taking into account the regional
differences which exist on their territory.
49. It should be recalled that, when provisions of the Treaty or
of regulations confer power or impose obligations upon the
States for the purposes of the implementation of Community
law, the question of how the exercise of such powers and the
fulfilment of such obligations may be entrusted by Member
States to specific national bodies is solely a matter for the
constitutional system of each State (Joined Cases 51/71 to
54/71 International Fruit Co and Others [1971] ECR 1107,
para 4).
50. Thus, it is settled case-law that each Member State is free
to allocate powers internally and to implement Community acts
which are not directly applicable by means of measures
adopted by regional or local authorities, provided that that
allocation of powers enables the Community legal measures in
question to be implemented correctly (Case C-156/91 Hansa
Fleisch Ernst Mundt [1992] ECR I-5567, para 23).
51. The Court has, in addition, held that, where a regulation
empowers a Member State to take implementing measures, the
detailed rules for the exercise of that power are governed by the
public law of the Member State in question (see (Case 230/78)
Eridania-Zuccherifici nazionali and Società italiana per
l’industria degli zuccheri [1979] ECR 2749, para 34, and Case
C-313/99 Mulligan and Others [2002] ECR I-5719, para 48).

54. It must nevertheless be examined whether, in those
circumstances, the mere fact that the rules establishing GAEC
Page 20
laid down by the regional authorities of the same Member State
differ constitutes discrimination contrary to Community law.

57. Where, as in the main proceedings, it is the devolved
administrations of a Member State which have the power to
define the GAEC minimum requirements within the meaning
of article 5 of and Annex IV to Regulation No 1782/2003,
divergences between the measures provided for by the various
administrations cannot, alone, constitute discrimination. Those
measures must, as is clear from para 50 of this judgment, be
compatible with the obligations on the Member State in
question which stem from that regulation.
58. In the light of the foregoing, the answer to the second
question is that, where the constitutional system of a Member
State provides that devolved administrations are to have
legislative competence, the mere adoption by those
administrations of different GAEC standards under article 5 of
and Annex IV to Regulation No 1782/2003 does not constitute
discrimination contrary to Community law.”
The decision is significant not just for the answer that was given to the
particular question posed by the High Court, but because it necessarily
followed from the reasoning that the mere fact that the United Kingdom was
a unitary state in international law did not mean that regional differences in
the way that Community law was applied called for objective justification.
33. The present case differs from Horvath. The sole decision-maker was the
Secretary of State. It was not the devolved administrations. However, this
seems to me to be a largely formal distinction which avoids the substance of
the matter. The 2013 Regulation requires a Partnership Agreement to be
agreed between the Commission and the United Kingdom. Proposals for
inclusion in that agreement are therefore necessarily prepared for submission
to the Commission on behalf of the United Kingdom. But internally, the
Secretary of State was entitled to give effect to the wishes of the devolved
administrations in areas such as these where they would be constitutionally
responsible for implementation, notwithstanding that that might introduce
differences between the different countries of the United Kingdom. Article
5(1) of the 2013 Regulation provides that a Member State must “in
accordance with its institutional and legal framework organise a partnership
with the competent regional and local authorities”. Article 5(2) provides:
Page 21
“In accordance with the multi-level governance approach, the
partners referred to in para 1 shall be involved by Member
States in the preparation of Partnership Agreements and
progress reports and throughout the preparation and
implementation of programmes …”
34. What the Secretary of State did when making his first decision was to treat
the four countries comprising the United Kingdom as if they were separate
entities for the purpose of implementation of the 2013 Regulation, and to
divide the United Kingdom’s allocation from the Structural Funds between
them on a consistent basis, pro rata to their allocations in the previous funding
period. In my opinion, he was entitled to have regard in this way to the
constitutional settlement of the United Kingdom, provided (i) that the basis
on which he did so did not unjustifiably discriminate between the four
countries, and (ii) that the financial implications for the individual regions of
the United Kingdom were consistent with the 2013 Regulation.
35. The Secretary of State’s first decision was in my opinion within his margin
of judgment in both of these respects. There is no material before us to
suggest that the relative positions of England, Wales, Scotland and Northern
Ireland had changed so radically since the last funding period that a
distribution between them proportionate to their previous allocations could
be regarded as in itself discriminatory. The argument of Merseyside and
South Yorkshire is directed entirely to the financial impact of the decision on
individual regions within the four countries, in other words to the second of
the two provisos which I have mentioned. But the first decision did not mean
that English transition regions such as Merseyside and South Yorkshire
would necessarily fare worse than Highlands & Islands or Northern Ireland.
The appellants do not suggest that the first decision necessarily meant that
Highlands & Islands and Northern Ireland would get a larger proportion of
the United Kingdom’s transition region “pot” than they would have done if
the 5% reduction, instead of being applied to the four countries separately,
had been applied to the United Kingdom as a whole. That would depend on
how the allocations to individual regions were dealt with in the second
decision, both in Scotland and in England. Indeed, Mr Eyres, whose witness
statements constitute the appellants’ evidence, says that Merseyside and
South Yorkshire assumed in the light of the first decision that they would
receive a similar degree of protection to that received by the devolved regions
when it came to allocating funds among the regions of England at the second
stage.
36. The appellants’ evidence is not that the first decision reduced the total amount
available for allocation to English transition regions below what it would
have been if the 5% reduction had been applied across the United Kingdom
Page 22
as a single entity. It is that it reduced the total amount below what it would
have been if the Secretary of State had simply allocated funds between the
regions in accordance with the notional regional allocations made by the
Commission when calculating the allocation of the United Kingdom. But that
could not possibly make the first decision unlawful. This is because under the
2013 Regulation the calculation of national allocations by the Commission
depended on a precise formula based primarily on regional GDP per capita,
whereas the allocation of the funds within a Member State are based on
criteria that are qualitative and altogether wider. Developmental needs in the
respects covered by the “thematic objectives” cannot be measured simply by
reference to general measures of poverty such as GDP per capita. The
Secretary of State cannot therefore have been obliged to replicate the
methodology of the Commission or to employ some other GDP-based
formula in his decision about how to allocate the funds among the regions of
the United Kingdom, provided that he respected the thematic objectives and
that his proposals were agreed by the Commission in the Partnership
Agreement. It is not suggested that he failed to respect the thematic
objectives, and the Partnership Agreement has been agreed by the
Commission.
The second decision
37. The appellants, as I have pointed out, recognised that the first decision did
not prevent the Secretary of State from protecting them against a “sudden and
significant cutback”. Their real target is the Secretary of State’s second
decision in which he failed to do so. Their complaint is that it did not protect
them against a “sudden and significant cutback” by comparison with the
2007-2013 allocations, because the selection of 2013 as the base year meant
that their uplift was based on the year in which their funding in the previous
funding period had been lowest. This was because under article 8.1 and
Annex II, para 6(b), their funding had been tapered down by 2013 to the
national average level for competitiveness regions. Moreover, the national
average for competitiveness regions was exactly that, an average. It did not
take account of the special needs of those competitiveness regions in the
north and midlands of England which were below the average and had
relatively low GDP per capita and high levels of deprivation. The appellants
argue that in order to avoid unjustifiable discrimination the Secretary of State
should, when making his second decision, have based the uplift of the English
transition regions for 2014-2020 on their average allocations over the whole
of the previous funding period. As it was, his decision to use 2013 as the base
year discriminated against them, (i) by comparison with other English
transition regions, which had had a flat annual allocations profile in the
previous period, and (ii) by comparison with Highlands & Islands whose
annual allocations for the new period were calculated by reference to the
average of its annual allocations in 2007-2013 instead of just 2013.
Page 23
38. The Secretary of State did not overlook these factors. He considered that
Merseyside and South Yorkshire were not comparable to other English
transition regions or to Highlands & Islands. I shall deal first with the
question of comparability to the other English transition regions.
39. In her witness statement (at paras 47-55), Dr Baxter says that ministers
considered four main options:
Option A was to replicate the notional regional allocations made by the
Commission in arriving at the national allocation of the United Kingdom.
This would have resulted in allocations which were proportionate to regional
GDP per capita, but would have resulted in a significant shift of funding from
the north of England to the south. They considered that there had been no
fundamental change in the economic landscape in the last few years such as
to justify a shift of allocations of this kind, which would have reduced the
funding available for the poorest parts of England. Officials consulted the
Commission. The Commission said that it would be uncomfortable about the
use of their methodology, which had been designed for the calculation of
national, not regional allocations.
Option B was to apply a standard uplift to each region’s allocations for 2013.
Option C was the same as Option B, but with the allocations of Merseyside
and South Yorkshire being based on their average allocations over the whole
of the period 2007-2013. (This was already the case for the other English
transition regions, whose allocations profile had been flat over the previous
funding period). Option C would have resulted in Merseyside and South
Yorkshire receiving a higher allocation than under Option B, but it would
have involved a reduction of 22% in the allocations of all English transition
regions, including Merseyside and South Yorkshire, compared to 2007-2013.
This was because the high cost of funding Merseyside and South Yorkshire
on the basis of their allocations over the whole of the previous funding period
would have had to come out of the pot available to transition regions
generally. It was considered that for this reason Option C would be
inconsistent with the thinking which lay behind the creation of the transition
category for 2014-2020, and would have caused difficulty in agreeing the
allocations with the Commission. This was because the transition category
had been specifically introduced to provide enhanced levels of funding for
regions at an intermediate stage of development notwithstanding the
reduction of the total budget.
Option D was a hybrid scheme using the Commission’s notional allocations
for all transition regions combined with what is described as a “UK-specific”
Page 24
formula for more developed regions. For transition regions this would have
been the same as Option A.
Ministers also considered a fifth method, which involved using a basket of
economic indicators together with a suitable safety net. They thought that
there was a “strong case” for this, but rejected it because, like Option A, it
would have produced a large drop in funding for the midlands and north of
England, in favour of the south.
40. As Dr Baxter points out, no solution was wholly satisfactory from every point
of view:
“48. Given the funding reductions to the overall programme,
and the limitations imposed by the EU Regulations, there was
no outcome possible which would not have resulted in funding
reductions to some regions. The advantages and disadvantages
of a range of options had to be considered and Ministers had to
take a range of considerations into account in determining their
preferred solution.”
Ministers, she notes, “had to make difficult decisions”:
“87. … Officials presented them with a range of options after
undertaking very detailed and comprehensive analysis and
Ministers chose those options which they felt in sum were
fairest to all. The available budget was set by the EU and so it
was always unlikely that a single option would satisfy all
regions. Giving Merseyside and South Yorkshire a larger
allocation would have meant reducing the allocations to the
other UK Transition regions. Decisions over the Transition
allocations were particularly problematic as the negotiations in
the European Council had resulted in significant cuts to the
budget for Transition regions compared to the European
Commission proposal. This level of reduced funding at EU
meant that any decision was going to come as a disappointment
for some.”
41. The Secretary of State chose Option B, fixing the uplift at 15.7%. His reasons
are described as follows by Dr Baxter:
Page 25
“54. A key aspect of the decision, of course, was the status of
Merseyside and South Yorkshire as phasing-in regions for the
2007-2013 period, thus receiving additional payments in 2007,
2008, 2009, 2010 on a ‘specific and transitional basis’, as
explained above. Ministers decided to make the allocations
using 2013 allocations as a baseline because such a baseline:
• maintained higher levels of funding in the North of England,
where need is greatest;
• avoided large drops in funding levels as between 2013 and
2014 (even in relation to South Yorkshire and Merseyside);
• treated all English Transition regions in the same way, whilst
taking account of the ‘phased-in’ status of South Yorkshire and
Merseyside by basing allocations on the jumping off point from
the 2007-2013 allocation; and
• treated all More Developed regions in the same way.
55. Had allocations been calculated based on a 2007-2013
average or overall quantum, then Ministers felt that Merseyside
and South Yorkshire would have been unduly advantaged in
relation to other English Transition areas, in so far as their
boosted allocations in the period 2007-2010 were expressly
intended to be ‘transitional and specific’ rather than to be
enshrined into future allocations.”
42. In the light of this reasoning it is impossible to say that the Secretary of
State’s decision was outside the broad range of decisions that he could
lawfully make. Merseyside and South Yorkshire had already received
additional funding over and above that available to other regions with a GDP
per capita exceeding 75% of the EU average during the previous funding
period. Article 8.2 and Annex II, para 6(b) of the 2006 Regulation had
provided for the level of funding to taper down to the national average for
competitiveness regions by 2011. Mr Eyres, the appellants’ witness, says that
this had not been enough to lift Merseyside and South Yorkshire into the
category of competitiveness regions (in the 2007-2013 categorisation) or the
category of more developed regions (in the categorisation of 2014-2020).
That is so, but it misses the point, which is that it was of the essence of the
“transitional and specific” additional funding allowed by article 8 of the 2006
Regulation that it was temporary. Once it had expired, the 2006 Regulation
Page 26
envisaged in terms that the regions which had benefitted should be funded
only at the national average aid intensity level for competitiveness regions.
In the new categorisation for 2014-2020, these regions would be assisted by
being included in the intermediate category of transition regions created for
regions with a GDP per capita between 75% and 90% of the EU average.
However, the budget for transition regions was tight. If the Secretary of State
had based the uplift in 2014-2020 on the average allocations for the whole of
the previous period, the effect would have been to continue the impact of the
transitional additional funding provided for the years 2007-2011 into 2014-
2020. This represented a very significant difference between Merseyside and
South Yorkshire on the one hand and the other English transition regions on
the other.
43. In practice it is difficult to see what else the Secretary of State could have
done. Unlike pay discrimination cases, where it is possible to level up to
match the highest paid, the distribution of EU Structural Funds within each
category of regions is a zero-sum game. One region’s gain is another’s loss.
Since the fund available for transition regions is ring-fenced the additional
cost of providing Merseyside and South Yorkshire with allocations based on
the whole of the previous period would have had to come out of the
allocations of the other English transition regions and would have left all of
them with 22% less than they had had in 2007-2013 instead of 15.7% more.
The Secretary of State was entitled to take the view that this would be
contrary to the purpose for which this intermediate category had been created.
I do not find it in the least surprising that the Secretary of State anticipated
difficulty in getting the Commission’s agreement to such a scheme, and I can
see no basis on which his judgment of the Commission’s likely reaction can
be challenged.
44. Much of the evidence before the court is devoted to a technical and ultimately
inconclusive dispute arising from Mr Eyres’ assertion that if, hypothetically,
Merseyside and South Yorkshire had been competitiveness regions in 2007-
2013 rather than phasing-in regions, they would have received a higher
allocation in 2013, and therefore a higher allocation in 2014-2020 as well. Dr
Baxter challenges his methodology and produces alternative figures of her
own, based on rerunning the original calculations made for 2007-2013 on Mr
Eyres’ hypothesis. The value of this exercise is diminished by the fact that
both witnesses agree that if Merseyside and South Yorkshire had actually
been competitiveness regions in 2013, the methodology used to calculate
allocations in 2014-2020 would in fact have been different. They disagree
about what the differences would have been. It is neither necessary nor
possible for a court of review to resolve this issue. It is not in fact true that
Merseyside and South Yorkshire were at the bottom of the transition
category. At 80.14% of the EU average GDP per capita, Merseyside was the
third poorest of the nine English transition regions, according to the
Page 27
government’s figures, while South Yorkshire at 84.46% was somewhere in
the middle of the range. But it is unquestionably true that the result of the
allocations process was to inflict a very large reduction on two of the poorer
regions of the United Kingdom. However, the only way that that problem
could have been addressed on a common basis for all transition regions would
have been to use a formula based on GDP per capita, as the Commission had
done when calculating national allocations, or else some other formula more
closely related to measures of poverty and deprivation. It is impossible for
this court to say that the Secretary of State was bound in law to adopt some
such formula. In the first place, under the 2013 Regulation allocations within
Member States are not based on GDP per capita and are only to a limited
extent based on other measures of deprivation. Secondly, the evidence is that
the Commission when approached discouraged the use of their own
methodology as inappropriate to an internal allocation. And, third,
concentration on GDP per capita would have produced an overall shift of
funding towards the south which the Secretary of State was entitled to regard
as even more anomalous.
45. I turn to the argument that the appellants’ allocation was discriminatory by
comparison with Highlands & Islands.
46. It is correct that Highlands & Islands’ funding was reduced by 5% (at 2011
prices) by comparison with 2007-2013, as against a much larger reduction
for Merseyside and South Yorkshire, even though as a phasing-out region it
had also received transitional additional funding on a tapered basis in the
earlier period. Dr Baxter draws attention to three differences between former
phasing-in regions like Merseyside and South Yorkshire and a former
phasing-out region like Highlands & Islands. As a phasing-out region,
Highlands & Islands had previously been funded under the convergence
objective in recognition of its greater developmental challenges. Its tapering
profile had been more gradual in 2007-2013. And its co-financing rate had
been higher (75% against 50% for phasing in regions) so that allocations to
it represented better value for money for UK taxpayers. I doubt whether the
different tapering profile really differentiates Highlands & Islands from the
two English phasing-in regions. There may be more in the other two points.
So far as the Secretary of State attached weight to these factors, it was very
much a matter of judgment for him. In fact, however, the evidence suggests
that the treatment of Highlands & Islands was not due to these factors. It was
the combined result of the first decision, which treated Scotland as a separate
territorial unit with its own 5% reduction, and of wishes of the Scottish
Government, which naturally preferred to base Highlands & Islands’
allocations on the average of its annual allocations in the previous period than
to limit it to 95% of its 2013 allocation and spend the rest on its more
developed regions. So far as it arose from the treatment of Scotland as a
separate territorial unit, I have already explained why I regard that treatment
Page 28
as defensible. So far as the decision about Highlands & Islands arose from
the preferences of the Scottish Government, it seems to me to be the natural
and legitimate result of the decentralisation of the United Kingdom under its
current constitutional settlement. No doubt if the 5% reduction had been
applied to the United Kingdom as a whole, Highlands & Islands would have
got less than in the event they did, and the saving would have left a bit more
in the pot for the nine English transition regions. But there is nothing in the
evidence to suggest that the dilemmas affecting allocations to English
transitional regions, which I have already discussed, would have been any
less acute or that the outcome for Merseyside and South Yorkshire would
have been significantly better.
Proportionality
47. The appellants advance an alternative case based on proportionality, which I
can deal with quite shortly, for I agree with the Court of Appeal that it adds
nothing to the case based on alleged discrimination. The appellants say that
the effect of the Secretary of State’s decision was to impose upon them a
disproportionate burden. The problem about this submission is that it fails to
answer the question: disproportionate to what? Proportionality is a test for
assessing the lawfulness of a decision-maker’s choice between some legal
norm and a competing public interest. Baldly stated, the principle is that
where the act of a public authority derogates from some legal standard in
pursuit of a recognised but inconsistent public interest, the question arises
whether the derogation is worth it. In this case the only legal standard by
which the treatment of Merseyside and South Yorkshire can be regarded as
disproportionately onerous to them is provided by the terms of the 2013
Regulation and the principle of equality. The two regions have no entitlement
to support from the Structural Funds except what they can derive from these
two sources. If the Secretary of State’s decisions are consistent with both, as
I consider them to have been, their treatment cannot be regarded as
disproportionate.
Lord Mance’s judgment
48. I have naturally revisited my views in the light of the judgments of Lord
Mance and Lord Carnwath. To some extent, the differences between us relate
to the supposedly anomalous consequences of the first decision, in particular
on the different treatment of Merseyside and South Yorkshire on the one hand
and Highlands and Islands on the other. I do not feel that I can usefully add
anything to what I have already said about the first decision, which I regard
as justifiable. Two other differences do, however, call for further comment.
The first concerns the purpose of the structural funds, which is central to the
analysis of Lord Mance. The second is his analysis of the relationship
Page 29
between the allocations for 2014-2020 and those of the previous funding
period.
49. We may all agree that the distribution within the United Kingdom of EU
structural funds must be consistent with their purpose. Where I part company
with Lord Mance is that he appears to me to take too narrow a view of the
purposes of the funds and the means by which those purposes may
legitimately be achieved. The Social Fund is not directly concerned with the
reduction of regional imbalances, but with the promotion of employment and
geographical and occupational mobility. The Regional Development Fund is
concerned with the reduction of regional imbalances, but not only by the
direct improvement of GDP per capita and other measures of deprivation.
The purpose of both funds is to support the action of the Union in these areas.
The action of the Union is guided by the “targets and shared objectives”
referred to in the three Council policy documents of 2010 identified in article
2.1, and summed up generally in the concept of “smart, sustainable and
inclusive growth”. This concept runs through the whole of the 2013
Regulation, and the “thematic objectives” in article 9 are mainly directed to
promoting it. They involve a wide range of economic criteria, which will not
directly diminish regional divergences, even if they can be expected to do so
indirectly in the long term. Lord Mance and Lord Carnwath both consider
that the allocations to Merseyside and South Yorkshire were not based on
their “actual needs”. But that is a conclusion which they appear to have
reached solely by reference to standard measures of deprivation such as GDP
per capita. This assumes that there must necessarily be a close correlation
between these measures of relative deprivation and the distribution of EU
structural funds. But since the reduction of such differences is only one
purpose of the structural funds, and even that purpose may be achieved
indirectly by promoting growth through the thematic objectives, that
assumption is on the face of it unjustified.
50. The second major difference arises out of Lord Mance’s rejection of the view
of both the judge and the Court of Appeal about the justification for taking
allocations for 2013 as the reference point for the uplift applied in 2014-2020.
The same point appears to be implicit in the analysis of Lord Carnwath. In
the absence of any complaint about the distribution of allocations in the
previous funding period, and in the absence of any material change in the
economic geography of the United Kingdom since then, the mere fact that
allocations were made for 2014-2020 by reference to those in the previous
period is unobjectionable. The objection is specifically to the choice of 2013
as the reference year. It is in my opinion clear that it was this decision which
accounts for the differences between Merseyside and South Yorkshire on the
one hand, and the remaining transition regions in the current funding period
on the other. It was certainly not the decision to reduce the allocations to the
four countries comprising the United Kingdom by a flat 5%. This first
Page 30
decision did not in fact, as Lord Mance suggests, “diminish the pot available
for the nine English transition regions”. The government could have
distributed the overall allocation to the English transition regions in such a
way as to ensure that all of them received a flat 5% reduction on their total
allocations for the previous period. It could have distributed them in such a
way as to ensure that Merseyside and South Yorkshire received no more than
a 5% reduction even if the others did not. Some such solution is what the
appellants say that they hoped and expected would happen after the first
decision had been announced. Their real complaint is that it did not happen.
The reason why it did not is that the purpose of the 2013 Regulation in
dividing the former competitiveness category into a “transition” category and
a “more developed” category was to enable the former to receive an uplift.
The reason why Merseyside and South Yorkshire did worse than that was
that their uplift, although the same as that of the other transition regions, was
based on the 2013 funding allocation and ignored the fact that they had been
receiving tapered transitional funding between 2007 and 2011. The same
problem would have existed, and would have been equally acute, if the 5%
reduction in the total funds for distribution had been applied across the whole
of the United Kingdom, instead of to each of the four countries separately. I
have set out earlier in this judgment my reasons for agreeing with the courts
below that disregarding the tapered transitional funding was justifiable. Lord
Mance disagrees (i) because he considers that the tapered transitional funding
which they received under article 8 of the 2006 Regulation in that period
should be regarded as no different in character from the rest of their funding
in that period; and (ii) because the allocation for the previous period had
tapered down to the average for allocations for competitiveness regions, and
Merseyside and South Yorkshire were worse off than the average
competitiveness region. The problem about the first of these points is that but
for article 8 of the 2006 Regulation, they would have been competitiveness
regions in 2007-2013. The tapered funding was a temporary increase in their
allocations designed to ease their path from Objective 1 status in 2000-2006
to competitiveness status in 2007-2013. Its function could properly be treated
as spent by 2013. The problem about the second point is one that I have
already pointed out in another context, namely that it assumes a more precise
correlation between relative deprivation and allocations than anything
required by the 2013 Regulation.
Conclusion
51. I would dismiss the appeal.
Page 31
LORD NEUBERGER:
Introductory: the background and the issues
52. This appeal arises out of a challenge to the decision of the Secretary of State
relating to the distribution between various regions of the United Kingdom
of money allocated by the European Commission to the UK. The money in
question (“the UK allocated funds”) emanates from the European Structural
Funds, and is payable in respect of the years 2014-2020, pursuant to
Regulation (EU) 1303/2013 (“the 2013 Regulation”).
53. The background to the appeal is set out by Lord Sumption in paras 2-19, 30-
31 and 37-41, and by Lord Mance in paras 113-148 below, and it is
unnecessary to repeat much of what they have said. In particular, the relevant
provisions of the 2013 Regulation are explained by Lord Sumption in his
paras 5 to 13.
54. The Secretary of State for Business, Innovation and Skills decided to
distribute the UK allocated funds by reference to a two-stage process. First,
they were apportioned between each territory (for want of a better word) of
the United Kingdom. This apportionment was effected on the basis that, for
2014, Northern Ireland (which was one region), Wales (which was divided
into two regions), Scotland (which was divided into four regions) and
England (which was divided into 30 regions) would each receive an annual
sum which was 5% less than the they had received in the last year of the
previous period, 2013. This was because the UK allocated funds for 2014
were 5% less than they had been for 2013 (in 2011 prices). Secondly, the
distribution of the English portion between the 30 English regions involved
each of the nine English regions designated under the 2013 Regulations as
“transition” regions, (ie regions which have a GDP between 75% and 90% of
the average of the 27 EU member states) receiving a 15.7% increase in their
distribution over 2013. It is to be noted in this connection that, while there is
practically no freedom to distribute funds allocated by the Commission for
“transition” regions to other regions (and vice versa), there are no specific
provisions in the 2013 Regulations as to how the funds allocated for
“transition” regions of a member state should be distributed between those
regions.
55. The grounds upon which the decision of the Secretary of State is challenged
can be expressed in a number of ways. I have found the most helpful approach
to analyse the challenge as having four lines of attack, the first two of which
are aimed at the procedure whereby the UK allocated funds were distributed
amongst the 37 regions of the UK, and the third and fourth of which are aimed
Page 32
at the outcome. Each of the attacks has been advanced on the grounds of (i)
breach of the EU principles of equality or proportionality and/or (ii) breach
of domestic public law principles. However, the essence of each of the attacks
is that the process adopted by the Secretary of State and/or the outcome of
that process was unlawful on the grounds that it was (i) not in accordance
with the 2013 Regulation, and/or (ii) so unreasonable as to be unlawful. In
practice, these two grounds march together very closely, and it is hard to
envisage circumstances in which only one of them was satisfied (cf Kennedy
v The Charity Commission [2014] UKSC 20, [2014] 2 WLR 808, paras 51-
56 in relation to domestic law and Human Rights law).
56. The four attacks all effectively involve contending that the approach that the
Secretary of State adopted to the distribution of the UK allocated funds
wrongly failed to have proper regard to the relative economic stages of
development of the 37 regions of the UK, or the nine “transition” regions of
England. It may seem somewhat artificial to treat the attacks as having
separate procedural and substantive aspects, but I have found it helpful to
consider whether each of the two stages of the process was in accordance
with the law as a matter of principle, before addressing the question of
whether the outcome of those processes was in accordance with the law.
57. If the procedure is not in accordance with the law, then it would be very
difficult, but probably not inconceivable, for the outcome of the procedure to
stand. On the other hand, if the procedure was lawful, it would nonetheless
be quite possible for the outcome to be unlawful. After all, one could expect
a person responsible for the allocation of such funds to consider, where
appropriate, the outcome of the procedure which was proposed before finally
adopting it. Such an exercise of distribution may frequently involve a degree
of iteration in terms of determining a procedure, considering the outcome,
and then adjusting the procedure if appropriate.
58. The procedural attack on the first stage is based on the proposition that, in the
light of the terms of the 2013 Regulation, there can be no justification for
apportioning the UK allocated funds on the basis that the four territories,
England, Scotland, Wales and Northern Ireland, should each suffer the same
reduction in funding from 2013. Such a division, runs the argument, pays no
regard to the disparities in the stages of development between individual
regions, or groups of regions, and it is that with which the 2013 Regulation
is concerned.
59. The procedural attack on the second stage is based on the proposition that, by
adopting a 2013 baseline for all nine English transition regions, the Secretary
of State wrongly disregarded the status of Merseyside and South Yorkshire
(regions which for convenience I will call “the appellants”) as “phasing in”
Page 33
regions in the previous, 2007-2013, period. Because of the tapering
provisions applicable to such regions during that period, it is said that the
appellants are significantly and unjustifiably disadvantaged as against the
other seven “transition” English regions, as those other regions had not been
“phasing in” regions during the 2007-2013 period.
60. The two attacks on outcome are founded on what are said to be indefensible
discrepancies between the 2014-2020 payments to the appellants and those
made to a number of other “transition regions” in the UK. The first such
attack relies in particular on Highlands & Islands in Scotland (as well as on
Northern Ireland) and essentially arises from the first procedural stage. The
second attack on outcome focuses on the difference between the appellants
and most of the other seven “transition” regions in England, and arises only
from the second procedural stage.
The proper approach for the court to adopt
61. The courts have no more constitutionally important duty than to hold the
executive to account by ensuring that it makes decisions and takes actions in
accordance with the law. And that duty applies to decisions as to allocation
of resources just as it applies to any other decision. However, whether in the
context of a domestic judicial review, the Human Rights Act 1998, or EU
law, the duty has to be exercised bearing in mind that the executive is the
primary decision-maker, and that it normally has the information, the
contextual appreciation, the expertise and the experience which the court
lacks. The weight to be given to such factors will inevitably depend on all the
circumstances. That is clear from a number of cases, including the decisions
of this court in Bank Mellat v Her Majesty’s Treasury (No 2) [2013] UKSC
39, [2014] AC 700, paras 20-21 and 68-76, and in R (Lord Carlile of Berriew
QC) v Secretary of State for the Home Department [2014] UKSC 60, [2014]
3 WLR 1404, paras 19-22, 67-68, and 111, where the judicial review and
Human Rights aspects were considered. In the EU law context, the same sort
of point was made in R (Sinclair Collis Ltd) v Secretary of State for Health
[2011] EWCA Civ 437, [2012] QB 394, para 200.
62. The importance of according proper respect to the primary decision-making
function of the executive is particularly significant in relation to a high level
financial decision such as that under consideration in the present case. That
is because it is a decision which the executive is much better equipped to
assess than the judiciary, as (i) it involves an allocation of money, a vital and
relatively scarce resource, (ii) it could engage a number of different and
competing political, economic and social factors, and (iii) it could result in a
large number of possible outcomes, none of which would be safe from some
telling criticisms or complaints.
Page 34
63. Therefore, like Lord Carnwath, I agree with the Court of Appeal that the
Secretary of State’s decision under consideration in this case is in the “classic
territory” where the courts afford the decision-maker “a wide margin of
discretion” – [2014] EWCA Civ 1080, [2014] PTSR 1387, para 57. This is a
particularly forceful factor in the present case, which concerns a decision
which involves the distribution of funds between different parts of the United
Kingdom, in respect of which the relevant legislation is very imprecise as to
the criteria to be adopted. I am not so sure that I get much assistance from the
test of “manifestly wrong” (although I acknowledge that it is used by the
Court of Justice), unless the expression means that no reasonable government
could have taken the decision.
64. I agree with the thrust of what Lord Sumption says on this aspect in his paras
22-23, but, although there is obvious force in the passage which he quotes
from Lord Hoffmann’s speech, I think the issue is susceptible to somewhat
more subtle and discriminating analysis than might be inferred from reading
that passage. To say that the “allocation of public expenditure … is very
much a matter for democratic decision” takes matters very little further at
least in connection with a decision made by the executive. The fact that the
legislature assigns such a decision to the executive does not alter the fact that
it is the executive’s decision and not that of the legislature. In any event, the
legislature will obviously have intended the rule of law to apply, so that such
a decision, as with any executive decision, must be susceptible to judicial
oversight.
65. Nonetheless, a court should be very slow about interfering with a high level
decision as to how to distribute a large sum of money between regions of the
UK. But the degree of restraint which a court should show must depend on
the purpose of the allocation, the legal framework pursuant to which the
resources are allocated, and the grounds put forward to justify the allocation.
The line between judicial over-activism and judicial timidity is sometimes a
little hard to tread with confidence, but it is worth remembering that, while
judicial bravery and independence are essential, the rule of law is not served
by judges failing to accord appropriate respect to the primary policy-making
and decision-making powers of the executive.
Some other preliminary points
66. Particularly in the light of the differences of opinion in this court, I think it is
right to mention that the statutory purpose of the distribution of the UK
allocated funds does not appear to me to be by any means solely to reduce
imbalances or inequalities between different UK regions. The 2013
Regulation refers in article 2.1 to three documents adopted by the European
Council, which are identified by Lord Sumption in his para 11, and recital (3)
Page 35
states that the Structural Funds are intended to achieve economic growth,
promote “harmonious development”, and “reduc[e] regional disparities”,
which, according to article 89 are to be achieved through “strengthening [of
the EU’s] economic, social and territorial cohesion” and the “delivery [of]
smart, sustainable and inclusive growth”, by investing in “growth and jobs”
and working towards EU-wide co-operation. Accordingly, while the
reduction of inter-regional imbalances is an important factor when deciding
on distribution, a point which is underlined by article 176 of TFEU (which is
directed to cohesion), it is by no means the only factor – and it is a long term
one. The 2013 Regulation is concerned not only with articles 174-176, but
also article 162 (which is concerned with promoting employment), a point
underlined by the thematic objectives in article 9 of the 2013 Regulations,
which also demonstrate that economic convergence is simply one of the
purposes of the Funds.
67. Turning to the exercise of distributing the UK allocated funds for the 2014-
2020 period, each of the two stages of that exercise was based on the
distribution which had taken place in the previous, 2007-2013, period. This
approach was apparently adopted partly for reasons of transparency,
convenience and simplicity, but there were two further reasons. The first was
to minimise the risk of a disruptive change in any region or territory in 2014,
by ensuring that it did not receive a substantial reduction compared with the
payment it received for 2013. The second reason was that the distribution for
the 2007-2013 period had been effected by reference to a number of different
indicators, and the Secretary of State’s view was that there had not been any
significant change from 2006/2007 to 2013/2014 in the economic or other
relevant differentials between the regions of the UK. It is significant that there
has, rightly in my view, been no challenge to this approach as a matter of
broad principle (although, for the reasons discussed below, the two specific
stages, and their consequences, are challenged). To take the payments for the
previous period as the “baseline” may well not be the ideal basis for
distribution of funds for the current period, but I find it hard to see how it
could be said to be unreasonable, unless it can be shown to be so by reference
to specific facts or reasons.
68. Another point that should be mentioned is that, as Lord Sumption says, the
Commission appears to be content with the Secretary of State’s distribution
process, and has, we were told, adopted it. That is a point which has some
traction, particularly in the context of a regulation which envisages (in
articles 14-17) that a member state’s proposed distribution between its
regions will be submitted to the Commission for the purpose of its entering
into a “partnership agreement” with the member state, and that, before
“adopting” the proposed agreement the Commission will “assess [its]
consistency with this Regulation”. However, that does not alter the fact that
the courts of this country have a fundamental constitutional duty to apply
Page 36
their view of the law to a decision or action of the executive, when it is
challenged. In addition, of course, the attack made by the appellants is not
only based on EU law, but also on domestic common law.
69. Two other factors deserve comment. First, the absence of any prior
consultation between the Secretary of State and individual regions (as
opposed to the devolved governments). In my view, if such consultation had
occurred and the Secretary of State had taken what had been said into account
in a reasonable way (even if he had ultimately rejected it), that would have
assisted his case. However, the fact that there were no such consultations does
not undermine his case as a matter of principle, although it may, of course, in
practice have assisted him in avoiding errors. In that sense, it makes it easier
for the appellants to attack his decision, but in the end the decision has to be
assessed on its own merits. In some circumstances, a failure to consult can of
itself render a decision unlawful, but that will, at least normally, only be
where there is a specific obligation or commitment to consult (see for
instance R (Bhatt Murphy) v The Independent Assessor [2008] EWCA Civ
755). However, it has not been suggested that such an argument could be
advanced here.
70. Secondly, it is clear from the evidence that a fair amount of thought was
involved in the decision-making process and four options were considered in
relation to the second stage – see paras 30-31 and 39-41 of Lord Sumption’s
judgment. That is of some assistance to the Secretary of State, because (i) a
considered decision deserves more judicial respect than a relatively
unconsidered one, and (ii) it underlines the reasons why the court should be
very reluctant to overturn the decision. However, it is not very likely to be a
determinative point. The ultimate decision is either in accordance with the
law or it is not. Furthermore, the fact that the process adopted is better than
three others which were rejected merely shows that there are worse processes,
not that the adopted process is acceptable.
The procedural attack on the first stage: distribution between the four territories
71. The first stage of the Secretary of State’s decision involved distributing the
UK allocated funds between the four territories in precisely the proportions
which reflected their respective shares in 2013. Accordingly, as already
explained, because the UK’s allocation in 2014-2020 was reduced by 5%
from what it had been in 2007-2013, each territory’s share was reduced by
5%. This aspect of the decision is attacked by the appellants because (i) it
was not based on consideration of the relative economic and development
demands and needs of individual regions, or even of the four individual
territories, and (ii) it limited the Secretary of State’s freedom of manoeuvre
so far as distributions to individual regions were concerned.
Page 37
72. The concern of the appellants, as English regions, is easy to understand. It is
not really in dispute that, if the approach of the Commission to the assessment
of the UK allocated funds had simply been reflected by the Secretary of State
when effecting the distribution of those funds between the four territories in
2014-2020, England as a whole would have seen an overall increase of about
7% over 2007-2013, whereas Scotland, Wales and Northern Ireland would
respectively have seen decreases of around 32%, 22% and 43%. However,
these percentages have been arrived at by retrospective, informal analysis of
the sum allocated. The Commission has been anxious to emphasise that the
basis upon which each member state’s allocation was fixed should not be
disclosed and that any guesses as to how the allocations were fixed should be
avoided.
73. In my view, the appellants’ objection to the first stage adopted by the
Secretary of State should be rejected. In the first place, it is inappropriate to
equate the function of the Secretary of State, when deciding how to distribute
the UK allocated funds among the regions, with the function of the
Commission, when deciding how to allocate the funds among the member
states. The terms of the 2013 Regulation, and the documents to which it
refers, are obviously relevant when considering the Secretary of State’s
approach to distribution. However, in contrast to the position relating to the
assessment of the funds to be allocated to a member state, the 2013
Regulation includes no formula as to how those funds should be distributed
among the regions of a member state.
74. Thus, Annex VII to the 2013 Regulation sets out a detailed “Allocation
Methodology” governing the allocation of funds by the Commission among
member states. The allocation is assessed by aggregating a sum for each
region, which sum is assessed on a per capita basis, with the per capita
amount being greatest for regions with less than 75% of the EU average GDP
per capita and least for those with more than 90%, with the “transition”
regions being in the middle (see paragraphs 1-4 of the Annex). However, this
rather precise methodology does not apply to the distribution of those funds
within member states. And the fact that the Commission refuses to say how
a member state’s allocation was determined serves to show that no specific
approach by a member state to the distribution of its funds among its regions
is encouraged in practice.
75. There is no provision which expressly limits the freedom of a member state
when deciding how to distribute its allocated funds between regions. It is true
that article 176 TFEU refers to “redress[ing] the main regional imbalances”
and “structural adjustments of regions whose development is lagging
behind”, but it does not require convergence and it has nothing to say about
timing. Having said that, in the light of the terms of the 2013 Regulation, I
Page 38
accept that the level of economic development of each of its regions must be
a point of real relevance when a member state decides how to distribute its
allocated funds between them. Thus, if it could be shown that it was treated
as irrelevant by a state, then the decision would be likely to be held unlawful.
However, as I have sought to explain in para 66 above, it appears clear that a
member state is not required to base the distributions of its allocated funds
between regions solely by reference to their relative stages of economic
development, let alone to their GDP per capita. Further, the “thematic
objectives” referred to in article 9 of the 2013 Regulation have to be taken
into account.
76. The fact that, by contrast with the detailed directions with regard to allocation
between member states, there are no express constraints on member states as
to how they should distribute their allocated funds renders it difficult to
justify a substantial degree of constraint as to the manner of distribution.
While article 93 of the 2013 Regulation limits transfers between the three
types of region, it does nothing to limit transfers between regions of the same
type, which again suggests a relatively high degree of freedom when the state
is deciding how to distribute allocated funds between regions with the same
status. The fact that such transfers would be notional, as the Commission does
not reveal the “split” between individual regions in its allocation, itself
suggests that it cannot have been intended that member states were to be very
limited in their scope for deciding how to distribute between regions.
77. In the course of his impressive judgment, Stewart J said that, essentially for
the reasons discussed in paras 73-76 above, the appellants’ attack on the
Secretary of State’s decision to adopt what I have called the first stage “falls
at first base” – [2014] EWHC 232, [2014] LGR 389, para 73. I agree that
those reasons establish that the attack faces an insurmountable problem in so
far as it relies on the point that the distribution of payments among the regions
of the United Kingdom does not simply reflect their relative state of
economic development. However, it can still be argued that the
apportionment between the four territories is arbitrary and inconsistent with
the purpose of the 2013 Regulation, because the UK allocated funds were a
lump sum for the United Kingdom as a whole, and the apportionment
between the four territories pays no regard to the relative claims of the 37
regions of the United Kingdom, and unjustifiably ties the hands of the
Secretary of State in relation to the distribution of the funds between those
individual regions.
78. I accept that there is real force in that point, but the decision that the 5%
reduction in the United Kingdom’s allocation should be visited equally on,
or pro rata between, England, Scotland, Wales and Northern Ireland is very
much a policy decision, or a politically based decision, which is therefore
Page 39
particularly difficult for a court to evaluate and therefore to criticise, and
therefore to condemn. The decision reflects both the increasingly
decentralised nature of UK administration and the political realities of the
devolution process. As I see it, neither of those two features is an illegitimate
factor for the Secretary of State to take into account, and neither is a factor
whose importance a court is well-placed to assess, let alone to dispute. I agree
with Lord Sumption that the decision of the Grand Chamber in (Case C428/07) R (Horvath) v Secretary of State for the Environment, Food and
Rural Affairs [2009] ECR I-6355 supports the notion that the first stage of
the decision was justifiable under EU law.
79. Apportioning the UK allocated funds between the four territories on this pro
rata approach based on the 2007-2013 payments may not be a course which
most people would expect, or even which many ministers would have
adopted. But I do not consider that it can be said that it is contrary to the 2013
Regulation, particularly as it contains no express restriction as to how
nationally allocated funds are distributed; nor do I consider that it could be
said to be irrational. Indeed, I think that there is some force in the point that
the Secretary of State’s view that each territory should be protected in the
2014-2020 period against a substantial overall reduction from the amount it
received in the 2007-2013 period accords with the inclusion in Appendix VII
of a ceiling on any increase (para 13), and a floor on any decrease (para 16),
in a member state’s allocation in the 2014-2020 period as against the 2007-
2013 period.
The procedural attack on the second stage: distribution between English regions
80. The complaint of the appellants about the second stage of the distribution
process is that they should not have been treated in the same way as the other
seven English “transition” regions because, unlike the other seven regions,
the appellants were “phasing in” regions in the 2007-2013 period. This means
that, although the appellants will receive a 15.7% increase in 2014 on what
they had received the previous year, they are due to receive in the 2014-2020
period around 61% less than they received over the previous 2007-2013
period, whereas the seven other “transition” regions will receive rather more
in the 2014-2020 period than they received for the 2007-2013 period.
81. The explanation for the fact that the appellants will receive a year-on-year
increase between 2013 (the last year of the previous period) and 2014 (the
first year of the current period), but a substantial overall aggregate decrease
between the two periods, is that they were “phasing-in” regions for the 2007-
2013 period. In other words they were regions, which during the 2000-2006
funding period had had GDPs per capita of below 75% of the average of the
EU member states (and hence were “Objective 1” regions), but by 2007 were
Page 40
no longer in that category, but were “competitiveness regions” (ie regions
having GDPs per capita of between 75-90% of the EU average), owing to
their relative economic growth. This meant that during the 2007-2013 period
their allocation of funds had started at a higher level than the other
“competitiveness” regions, which had had GDPs per capita of 75-90% of the
average of the member states during the 2000-2006 period (and therefore had
been “Objective 2” regions in that period). However, as the name suggests,
the level of funds allocated to “phasing in” regions in 2007 tapered down
over the next four years, so that by 2011 it was at the national average level
per capita as other “competitiveness” regions.
82. By contrast, the seven other English regions were not only “competitiveness”
regions during the 2007-2013 period, but they were effectively in the same
category (namely “Objective 2” regions) during the 2000-2006 period, as
they each had a GDP per capita between 75-90% of the EU average in 2000.
83. In my view, the attack on the second stage should also be rejected. The
appellants cannot logically invoke the fact that they received more in the
2007-2013 period than other “competitiveness” regions to justify their being
treated more favourably than the other “competitiveness” regions for the
2014-2020 period. This is because the only reason that they were treated
better in the earlier period was to smooth the passage from having been
“Objective 1” regions in the 2000-2006 period to being “competitiveness”
regions in the 2007-2013 period. From 2011, when the tapering stopped, the
appellants received aid at the average rate per capita for “competitiveness”
regions between 2011 and 2013, and there is no reason why the Secretary of
State should be expected to treat them any differently for the 2014-2020
period. As Stewart J said in para 78(iii) of his judgment, if the Secretary of
State had adopted the approach suggested by the appellants, it “would have
unduly advantaged the [appellants] in relation to the other English transition
regions”.
84. However, the appellants raise a separate argument based on the point that the
annual payments for the 2007-2013 period made to the appellants, as
“phasing in” regions, were, exceptionally and unlike the payments to other
“competitiveness” regions, determined by the Commission rather than by the
UK government. Accordingly, runs the argument, using the payment
received in 2013 as the base for determining the 2014 payment for each
“transition” region in England involved treating the appellants differently
from the other seven English “transition” regions. There is undoubted force
in this argument, particularly given that (reflecting the UK government’s
distribution decision in 2006) the 2013 payments to the other “transition”
regions in the north and midlands of England were increased above what they
would otherwise have been, owing to the UK government’s decision to
Page 41
favour the north and midlands over the south, whereas this did not apply to
the 2013 payments to the appellants.
85. This point has force. None the less, given (i) the fact that it was a reasonable
decision in principle to take the 2013 payments for each region as the basis
for calculating the 2014 payments, (ii) the wide margin of discretion accorded
to member states when deciding how to distribute allocated funds nationally,
(iii) the large number of factors which are potentially relevant, (iv) the long
term nature of the aims of the 2013 Regulation and its predecessors, (v) the
fact that the Secretary of State appreciated and addressed the level of payment
per capita received by the appellants, and (vi) the perceived desirability of
maintaining a degree of continuity for each region, I have reached the
conclusion that this point should also be rejected. The relevant Ministers and
civil servants in the Department of Business, Innovation and Skills were
aware of the fact that the proposed distribution would result in the appellants
receiving a relatively low sum per capita when compared with other
“transition” regions, they considered the possibility of increasing the
appellants’ share of the UK allocated funds. However, they decided that such
a course would be unfair on other “transition” regions, especially as the
appellants had fared better than those other regions, as “competitiveness”
regions, thanks to phasing, during the years 2007-2010.
The procedural attacks: summary
86. For the reasons given in paras 71-85 above, I consider that the appellants’
attacks on the two stages adopted by the Secretary of State for deciding how
to distribute the UK allocated funds in 2014-2020 fail, in so far as they are
considered as a matter of principle. However, as explained in paras 56-60
above, the fact that the procedure adopted by the Secretary of State was
defensible in principle is not the end of the matter. It is still necessary to
examine the outcome in the light of the criticisms raised by the appellants.
The attack on outcome: Highlands & Islands and Northern Ireland
87. The first attack on outcome is primarily based on a comparison between the
appellants and the Scottish region of Highlands & Islands, and it largely
results from the first stage. As explained above, although the appellants will
receive a 15.7% increase in 2014 on what they had received in 2013, the total
amount they are due to receive in the 2014-2020 period would be over 60%
less than they received over the previous 2007-2013 period, whereas
Highlands & Islands would suffer no decrease in the 2014-2020 period as
against the 2007-2013 period. In actual euros per capita, Highlands & Islands
Page 42
will receive about three times as much as the appellants will receive (around
€400 per capita as against around €130 per capita).
88. The status of the appellants as “phasing in” regions in the period 2007-2013
is explained in para 81 above. The status of Highlands & Islands is slightly
different. Like the appellants, it is a “transition” region under the current,
2014-2020, regime, but, unlike the appellants, it was a “phasing out” (rather
than “phasing in”) region, during the 2007-2013 period. This meant that (i)
like the appellants, it had been an “Objective 1” region, with a GDP per capita
of below 75% of the average of the EU member states in the 2000-2006
period, and by 2007 it was no longer in that category, but (ii) unlike the
appellants, its exit from the category arose not because of an improvement in
GDP per capita, but because of the accession of ten new (and, on average,
poorer) member states to the EU between 2000 and 2007. Accordingly,
Highlands & Islands was subject to a rather different tapering regime under
the allocation arrangements for 2007-2013, which only reached the level for
“competitiveness” regions in 2013.
89. On that ground, the courts below considered that it was simply inappropriate
to compare Highlands & Islands with the appellants, and therefore that any
attack by the appellants on the outcome of the Secretary of State’s decision
based on the Highlands & Islands 2014-2020 payment was misconceived.
That may be right, but, at least if one confines oneself to the reason for, and
consequences of, the difference between “phasing in” and “phasing out”
regions, I am not particularly impressed with that view, because all three
regions were “competitiveness” regions, and any phasing had ended by 2013.
However, the differences in co-financing (ie the extent of the domestic
contribution, as briefly explained by the Judge in para 50(c) of his judgment)
may conceivably justify the view taken by the courts below.
90. It is unnecessary to decide that rather nice point: even if one assumes that it
is relevant that Highlands & Islands had a different status from the appellants
in the 2007-2013 period, the difference in outcome between its 2014-2020
aggregate payment and those for the appellants is striking. As already
mentioned, the appellants will receive around €130 per capita, whereas
Highlands & Islands will receive around €400 per capita. This follows from
the combination of (i) the fact that Scotland was more favourably treated than
England at the first stage, and (ii) the fact that Highlands & Islands is the only
“transition” region in Scotland, and it was thought to be wrong to reduce its
2014 payment to bring it more into line with the English “transition” regions
as that would benefit the other three, richer, regions in Scotland.
91. A somewhat similar, if less forceful, point can be made by the appellants
about Northern Ireland, also a “transition” region in 2014-2020, which is to
Page 43
receive around €260 per capita in 2014. Again, it is true that it was a
“competitiveness” region in 2006-2013 period, and therefore was not strictly
comparable with the appellants (or with Highlands & Islands), but I doubt
that that point has much force (subject to the co-financing point referred to at
the end of para 89 above). But, even if it does, the fact that in 2014 Northern
Ireland receives twice the amount per capita that the appellants receive is
rather striking.
92. These disparities do give one pause for thought. Many people in the position
of the Secretary of State might well have taken the view that the disparities
such as those discussed in paras 90-91 above would have justified making
adjustments as between the payments which would otherwise be made to
each region, or even reconsidering the whole methodology. However,
bearing in mind the wide margin of discretion which should be accorded to
the Secretary of State in the distribution of the funds, I do not consider that
this justifies the conclusion that the distribution scheme which he adopted
was unlawful.
93. I start with the point that the disparities arise primarily from the first stage of
the distribution process, which, as already mentioned, does not seem to me
to be objectionable in principle. The first stage almost inevitably will result
in a degree, and no doubt often a significant degree, of disparity between a
region in one territory and a very similar region in another. The same sort of
problem could arise between similarly developed (or undeveloped) regions
in different member states. Particularly bearing in mind that the
apportionment of the UK allocated funds between the four territories of the
UK was based on a high level political decision which is lawful in principle,
it would require a compelling case on the outcome before a court could rule
the decision unlawful in practice. I do not consider that a compelling case has
been made.
94. When considering the disparities relied on by the appellants, it is a mistake
to assume that, merely because a region has in 2014 and/or had in 2013 the
same status as, or had reached the same stage of economic development as,
another region, that the two regions should be accorded a similar level of
distribution. The purpose of distributing the funds is not only to improve the
growth, or relative growth, of poorer regions: it is also to achieve the
multifarious “thematic objectives”. Accordingly, it is dangerous to focus, and
inappropriate to focus exclusively, on GDP per capita when comparing
different regions.
95. The selection of a region’s GDP per capita figure as governing the
appropriate level of payment may well reflect the Commission’s overall
assessment of the UK allocated funds under the provisions of the 2013
Page 44
Regulation. However, as already mentioned, (i) the Regulation has no such
provisions in relation to the distribution of the UK allocated funds between
individual regions, and (ii) the payments in 2007, on which the 2014
payments are based, were arrived at by reference to a basket of indicators,
which were assumed to be equally valid in 2013, on the basis that there had
been no significant shift in the social geography of the United Kingdom. To
take obvious examples which are admittedly speculation on my part,
Highlands & Islands with its low population density and its meteorological
and geographical character must be a relatively expensive region to service,
and Northern Ireland has unique social issues.
96. The danger of focussing on GDP per capita can be demonstrated by
comparing two sets of regions which were both English “competitiveness”
regions in 2007-2013 and are both English “transition” regions in 2014-2020,
and have very similar GDP per capita. First, Devon receives a payment for
2014-2020 of €67 per capita, whereas Cumbria receives €166; secondly,
Lincolnshire receives €137 per capita, whereas Tees Valley & Durham
receives €280 per capita. Given that these two examples do, on any view,
involve comparing like with like, and that the 2014 payments are based on
those for the 2007-2013 period, it underlines the point that the Secretary of
State has not based his distribution, even within a territory, simply on the
basis of a region’s GDP per capita. Indeed, that is clear from the Secretary of
State’s evidence, which, as mentioned in para 67 above, explains that the
distribution for the 2007-2013 period, on which the 2014 payments were
based, (i) was not effected simply by reference to a region’s GDP per capita
but was based on much more material, and (ii) was intentionally loaded in
favour of regions in the north and midlands of England as against those in the
south (hence Devon’s payment per capita is much lower than Cumbria’s).
97. Furthermore, as is clear from what I have just said and is discussed more fully
in paras 100-103 below, it is not by any means necessarily the case that the
appellants would have been treated better, or that Highlands & Islands or
Northern Ireland would have been treated worse, than they have been treated,
if there had been no first stage. There are many ways in which the distribution
of the UK allocated funds could have been effected.
98. Particularly in the light of these features, I consider that the Secretary of State
was entitled to take the view that, whatever scheme he adopted would prove
objectionable to some regions, and that if he adhered to the two-stage system
he did adopt and made adjustments, that too would cause problems and give
rise to complaints. Accordingly, he was entitled to decide that it was simpler
and politically advisable to stick with the scheme and not make adjustments.
Page 45
99. This brings one back to the point that the Secretary of State’s decision
involved a substantial measure of political judgment. Accordingly, his
decision to adhere to a distribution scheme which was clear, simple and
transparent, rather than one which was nuanced, subjective and complex is
one which it is difficult for a court to challenge – unless of course the outcome
appears to be inconsistent with the 2013 Regulations or simply unreasonable.
When one considers the figures mentioned in paras 90-91 above together with
the reasons summarised in paras 94-98 above, it appears to me that it cannot
fairly be said that the appellants have managed to establish either ground.
The attack on the outcome: the other English “transition” regions
100. The second attack on outcome is based on a comparison between the 2014
payments to the appellants and the other seven English transition regions in
the light of their relative stages of economic development. This attack is
effectively based solely on the second stage of the distribution decision in
relation to the 2014-2020 period. In my opinion, the attack should be rejected
for very similar reasons to those given in paras 93-99 above. However, it is
fair to say that the starting point, namely the nature of the decision in
principle, is somewhat less of a formidable hurdle for the appellants. The
decision how to distribute the UK allocated funds between the English
“transition” regions was a more workaday, relatively less high level political,
decision than the first stage decision. Nonetheless, as already explained, it
was a defensible policy decision – at least in principle – and it must inevitably
carry with it a degree of inevitable rough justice.
101. However, although the initial hurdle may be lower for the appellants’ attack
on the outcome for English “transition” regions than it is in relation to
Highlands & Islands and Northern Ireland, I consider that, when one
examines the appellants’ case on this fourth aspect, it should be rejected.
102. In a nutshell, the principal criticism raised by the appellants is that, given that
he based the 2014-2020 distributions on the distributions in the previous
period, the Secretary of State should have assessed the allocation for the
English transition regions by reference to the average annual distribution
which they received for the 2007-2013 period rather than the 2013
distribution which they received. On the face of it, at least, I do not consider
that the Secretary of State’s decision on this point can be criticised. The
difference arising from the choice of the 2013 distribution only affects
regions which were phasing-in regions during the 2007-2013 period, and the
appellants are the only English regions which can claim to suffer in this way.
However, there is, at the very least a real argument that it would be wrong to
take the benefit of their “tapering” payments for the years 2007-2013, into
account when assessing their 2014 distributions, given that these payments
Page 46
were intended to soften the blow of their having become “competitiveness”
regions, a softening which was intended to be spent by 2013, and therefore,
a fortiori, by 2014.
103. Quite apart from this, as already mentioned, it is apparent that there is no
direct or simple correlation between the level of economic development of
an English “transition” region and its 2014 payment, and there is no clear
reason to think that the appellants would be better off under another scheme.
104. The relevant figures for the nine English “transition” regions are set out in
para 55.4.2 of Stewart J’s judgment, and I have already discussed some of
the figures in para 96 above. More specifically, the appellants, each of whom
receive around €130 per capita during 2014-2020 (€123 in the case of South
Yorkshire, and €135 in the case of Merseyside), fare better than Devon (€67
per capita, as already mentioned), but worse than five of the other six English
“transition” regions, if one looks simply at the payment per capita and the
level of the region’s GDP per capita. Ignoring Devon, the other six English
“transition” regions received between (i) slightly more than the appellants,
Lincolnshire at €137 per capita, and (ii) a little more than twice as much as
the appellants, Tees Valley & Durham at €280 per capita. Ignoring the two
“outliers”, Devon and Tees Valley & Durham, the figures vary between €137
per capita for Lincolnshire and €167 for Shropshire & Staffordshire.
Lincolnshire’s GDP per capita is lower than either South Yorkshire’s or
Merseyside’s, whereas Shropshire & Staffordshire’s is a little lower than South
Yorkshire’s and somewhat higher than Merseyside’s.
105. Ignoring Devon, which receives less per capita because it is in the south (see
paras 84 and 96 above), it is noteworthy that Lincolnshire (which in terms of
GDP per capita is somewhat worse off than either of the appellants), receives
a payment which is very similar on a per capita basis to that of the appellants,
whereas Tees Valley & Durham (which in terms of GDP per capita is only
slightly lower than Lincolnshire) receives twice as much. On the other hand,
Cumbria (which is richer than any other English “transition” region) receives
a payment per capita significantly more than Lincolnshire.
106. Thus, the figures demonstrate that there is no reliable correlation between
payment per capita and GDP per capita for 2014-2020, even for English
regions which were ordinary (ie not “phasing in” or “phasing out”)
“competitiveness” regions in 2013 and “transition” regions in 2014. That
does not mean, of course, that any level of payment for the appellants would
be justified. However, the important point for present purposes is that, on a
GDP per capita basis, (i) the appellants plainly fare better than one region,
Devon, and, more significantly, fare consistently with another region,
Page 47
Lincolnshire, and (ii) there is nothing like a precise correlation with the 2014
payments per capita.
107. This analysis of the distributions to the other English “transition” regions thus
leads to the conclusion that criticism of the outcome of the Secretary of
State’s method of distributing the UK allocated funds is not soundly based,
if it rests on the presumption that each English “transition” region (or even
each “transition” region in the north and midlands) should get the same
payment per capita, or the same payment per capita adjusted to take account
of the region’s 2014 GDP per capita. Indeed, as mentioned in para 96 above,
that conclusion is consistent with the Secretary of State’s evidence, which
states that the 2014 payment for “transition” regions was arrived at by a fixed
percentage uplift on the 2013 payment, which itself had been arrived at by
reference to a number of different indicators in 2007.
108. Furthermore, it appears to be very difficult, at least on the evidence in these
proceedings, to assess what difference it would have made if the appellants’
2014-2020 payments had been determined by reference to what they would
have received in 2013, or in the period 2007-2013, had they been ordinary
“competitiveness” regions, rather than “phasing in” regions.
Conclusion
109. In these circumstances, I have come to the conclusion that this appeal fails. I
must, however, confess that I have reached this conclusion with some
hesitation. Although I do not agree by any means entirely with the approach
adopted by Lord Mance (who places more emphasis than I do on the criteria
and limits imposed by the 2013 Regulation on the Commission, when
considering a member state’s freedom of movement when distributing
allocated funds) or by Lord Carnwath (who considers that the Secretary of
State has a greater duty to justify his distributions between individual regions
than I believe is mandated by the 2013 Regulation), I see force in much of
their reasoning, and indeed I was at one time persuaded that they had reached
the right conclusion.
110. While I would dismiss this appeal, it is right to re-affirm the court’s duty to
declare that decisions of the executive, whether relating to the distribution of
funds or otherwise, are unlawful if they are insufficiently justified or do not
accord with the lawful aims or requirements pursuant to which the
distributions in question are made. I appreciate that the decision under
consideration in this case was difficult and potentially complex, and that it
involved many competing factors, political and social as well as economic.
However, with the expertise and information available to the Secretary of
Page 48
State, one would have hoped for a more sophisticated and considered, and a
more consultative, approach to the question of how to apportion such a large
sum of money between different regions of the United Kingdom. I note from
the evidence put in by the Secretary of State that it does appear that a much
more careful approach was adopted in relation to the distribution for the
2007-2013 period.
111. In summary, then, while the decision as to how to distribute the UK allocated
funds between the 37 regions of the United Kingdom may have been
unimpressive in some respects, it was not unlawful.
LORD CLARKE:
112. I have read the other judgments in this appeal with great interest (and no little
admiration). I have throughout been inclined to agree with Lord Sumption. It
does seem to me that the court should be very reluctant to interfere with
decisions of the kind under scrutiny here because they raise questions of
policy which are essentially matters for the executive. I recognise that in an
appropriate case it is the duty of the court to interfere. However, I agree with
Lord Neuberger at para 66 that the decisions under review involved a range
of different policy considerations and that it cannot fairly be said that the
choices made by the Government were unlawful. Like Lord Neuberger I have
had some doubts in the course of the argument, especially in the light of the
judgment of Lord Mance. However, again like Lord Neuberger, I prefer the
reasoning of Lord Sumption to that of Lord Mance. I do not detect any
significant difference between the reasoning of Lord Sumption and that of
Lord Neuberger. I agree with them and Lord Hodge that the appeal should be
dismissed.
LORD MANCE: (with whom Lady Hale agrees)
Introduction
113. The European Union (“EU”) has a set of structural and investment funds (the
“ESI” funds), of which the three main elements relate to the Common
Agricultural Policy, the Cohesion Fund and the Structural Funds. The
Structural Funds, defined by article 1 of Council Regulation (EC) No
1303/2013, consist of the Regional Development Fund (“ERDF”) and the
somewhat smaller Social Fund (“ESF”). The ERDF is established under
article 176 TFEU, and the ESF under articles 162 to 164 TFEU. The EU
makes available the Structural Funds on the basis of its overall assessment of
each Member States’ regional development needs, but their allocation within
Page 49
each Member State is, subject to limits, the responsibility of that State. The
EU operates on the basis of seven year budgets, each of which determines the
Structural Funds available for the next seven year period. The budget for the
years 2014-2020 was thus agreed in 2013.
114. On this appeal various local authorities in the Merseyside and South
Yorkshire regions challenge the defendant Secretary of State’s allocation of
the Structural Funds within the United Kingdom during the EU budgetary
period of 2014-2020. The challenge focuses on two successive decisions
taken by the Secretary of State. The first was to allocate the funds received
in respect of the period 2014-2020 between the individual territories or
nations of the United Kingdom (that is England, Scotland, Wales and
Northern Ireland) in the same proportions as in the previous seven year period
2007-2013. The second was to base the allocations for English “transitional”
regions in the period 2014-2020 on the amounts each such region received in
2013 under the scheme in place during that previous seven year period. These
decisions, taken individually or in combination, are alleged to have affected
Merseyside and South Yorkshire in a manner which, it is submitted, is not
supported by the relevant EU Regulations and involves anomalies and
inequalities of treatment which cannot be and have not been justified.
115. Structural funding is made available by reference to the NUTS level 2
(“NUTS 2”) regions. NUTS 2 regions are second-tier regions corresponding
broadly to large counties in the United Kingdom. They are defined by the
Nomenclature of Territorial Units for Statistics (NUTS 2006/EU27)
(“NUTS”) established pursuant to article 1 and Annex I of regulation (EC)
1059/2003. There are 30 NUTS 2 regions in England (including Merseyside
and South Yorkshire), 4 in Scotland and 2 in Wales while Northern Ireland
is a single NUTS 2 region. For the purposes of structural funding, the EU
also identifies categories of NUTS 2 regions. It determines the total funding
which each Member State receives from the ERDF and ESF by reference to
its own assessment of regional development needs within each such category.
The categorisation adopted has changed from seven-year period to sevenyear period, as has the extent to which the relevant regulations define at an
EU level the amount which each region is to receive, or leave this to the
relevant Member State to determine. All Structural Funds funding has to be
co-financed or matched by domestic investment in a defined percentage.
116. The broad purposes for which the Structural Funds are made available are
defined in article 174 TFEU in the case of the ERDF and article 162 in the
case of the ESF. Article 174 is part of a title consisting of articles 174-178,
headed “Economic, Social and Territorial Cohesion”. It provides:
Page 50
“In order to promote its overall harmonious development, the
Union shall develop and pursue its actions leading to the
strengthening of its economic, social and territorial cohesion.
In particular, the Union shall aim at reducing disparities
between the levels of development of the various regions and
the backwardness of the least favoured regions.
Among the regions concerned, particular attention shall be paid
to rural areas, areas affected by industrial transition, and
regions which suffer from severe and permanent natural or
demographic handicaps such as the northernmost regions with
very low population density and island, cross-border and
mountain regions.”
Article 176 further provides that the ERDF
“is intended to help to 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.”
117. Article 162 provides that the ESF is established:
“In order to improve employment opportunities for workers in
the internal market and to contribute thereby to raising the
standard of living”
and that
“it shall aim to render the employment of workers easier and to
increase their geographical and occupational mobility within
the Union, and to facilitate their adaptation to industrial
changes and to changes in production systems, in particular
through vocational training and retraining.”
118. Articles 164 and 178 provide for the European Parliament and Council to
adopt implementing regulations relating to, respectively, the ESF and the
ERDF, while article 177 confers further more generally worded power to
Page 51
make regulations defining the tasks, priority objectives and organisation of
such funds.
2000-2006
119. During the period 2000-2006 regions were classified in three categories,
which have been described as Objectives 1, 2 and 3. Objective 1 (the most
needy) contained five UK regions, namely Cornwall and the Scillys, West
Wales and the Valleys, Highlands & Islands, Merseyside and South
Yorkshire, plus the whole of Northern Ireland.
2007-2013
120. During the period 2007-2013, Regulation (EC) No 1083/2006 provided for a
different categorisation. The most needy and the least needy regions were the
two main categories, and have been described as respectively convergence
and competitiveness regions. But in between them, under articles 8.1 and 8.2
of the regulation, were two sub-categories to which support was allocated on
a “transitional and specific basis”, and these have been described as phasing
out and phasing in regions.
121. Regulation No 1083/2006 determined the precise amounts allocated to
particular regions falling within the convergence and the two transitional
categories. All that was left to the United Kingdom was to determine the
allocation between competitiveness regions of the funds allocated by the EU
to United Kingdom competitiveness regions. There was no scope for any
transfer of funds between categories. The allocation between competitiveness
regions was done on a basis which, because of the use of NUTS 1 as distinct
from NUTS 2 criteria and a safety net limiting any reduction by reference to
the prior period of 2000-2006 to 6.7%, did not necessarily correspond
precisely with but nonetheless reflected (in the words of counsel for the
Secretary of State, Mr Jonathan Swift QC) “an approximation of” each such
competitiveness region’s economic needs. The indicators and safety net used
by the Government to determine regional allocations within the
competitiveness category also had the intended effect of channelling
relatively high levels of funding to northern regions, compared with southern
regions with similar economic profiles.
122. Under article 8, read with para 6 of Annex II, of Regulation 1083/2006, the
transitional support for phasing out regions was
Page 52
“80% 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 in 2013.”
For phasing in regions, it was
“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.”
123. The purpose of transitional support was thus to smooth the relevant regions’
movement from the most needy category to full competitiveness by the linear
reduction of funding. However, the final figure, based on “the national
average per capita aid intensity level” for competitiveness regions was
necessarily aspirational. In other words, whether or not any phasing in or
phasing out region actually achieved the same level of development as the
average for all competitiveness regions was something that could only be
determined with time. There was no guarantee that any of such regions would
do so.
124. In the case of the United Kingdom the convergence regions (those with less
than 75% of the GDP of the 25 EU member states) were Cornwall and the
Scillys and West Wales and the Valleys. The only phasing out region (ie with
more than 75% of the GDP of the 25 EU member states, but less than 75%
of the GDP of the 15 member states) was Highlands & Islands. The only
phasing in regions (those which had been old Objective 1 regions, but with
GDP now exceeding 75% of the average of that of the 25 EU Member States)
were Merseyside and South Yorkshire.
125. The linear reduction prescribed by the regulation led both phasing out and
phasing in regions to receive a flow of funds tapering sharply downward
during the seven-year period. The tapering extended in the case of phasing
out regions over the full seven-year period, but took in the case of phasing in
regions only four years, leading to the receipt of monies based on “the
national average per capita aid intensity level” for competitiveness regions
during each of the last three years, 2011-2013. Taking rounded figures,
Merseyside thus received some £161m in 2007, £129m in 2008, £95m in
2009, £60m in 2010 and £23m in each of the three years 2011 to 2012, while
South Yorkshire received some £142m in 2007, reducing each year to £52m
in 2010 and then remaining stable at £21m in each of the last three years. The
Page 53
phasing out regions only received monies based on “the national average per
capita aid intensity level” for competitiveness regions in the last year, 2013.
2014-2020
126. For the period 2014-2020, Regulation (EU) No 1303/2013 applies. This is
expressed to have been made with particular regard to article 177. Recital 1
records that article 174 TFEU provides
“that, in order to strengthen its economic, social and territorial
cohesion, the Union is to aim at reducing disparities between
the levels of development of the various regions and the
backwardness of the least favoured regions or islands …”
Recital 77 recites that “in order to promote the TFEU objectives of economic,
social and territorial cohesion, the investment for growth and jobs goal should
support all regions” and that
“to provide balanced and gradual support and reflect the level
of economic and social development, resources under that goal
should be allocated from the ERDF and the ESF among the less
developed regions, the transition regions and the more
developed regions according to their GDP per capita in relation
to the EU-27 average.”
127. The regulation states both common or general principles (article 1) and
thematic objectives (article 9) which are to apply to all ESI funds and “fundspecific,” “general rules governing” the two Structural Funds and the
Cohesion Fund (articles 1, 2(4) and 4 and Part 3). In relation to the Structural
Funds, article 89 (the first in Part 3) identifies one “mission” and two “goals”
to be pursued for the purpose of that mission. The mission is stated in article
89(1):
“89(1). The Funds shall contribute to developing and pursuing
the actions of the Union leading to strengthening of its
economic, social and territorial cohesion in accordance with
article 174 TFEU.
The actions supported by the Funds shall also contribute to the
delivery of the Union strategy for smart, sustainable and
inclusive growth.”
Page 54
The goals are defined as follows:
“89(2). For the purpose of the mission referred to in paragraph
1, the following goals shall be pursued:
(a) Investment for growth and jobs in Member States and
regions, to be supported by the Funds; and
(b) European territorial cooperation, to be supported by the
ERDF.”
128. The thematic objectives which under article 9 all ESI Funds should support
do not alter or detract from the fund-specific mission and goals identified in
the case of the Structural Funds in Part 3. On the contrary, article 9 makes
clear that they are introduced
“in order to contribute to the Union strategy for smart,
sustainable and inclusive growth as well as the Fund-specific
missions pursuant to their Treaty-based objectives, including
economic, social and territorial cohesion …”
They represent, in short, ways in which the fund-specific mission and goals
may be promoted. They are identified as strengthening research,
technological development and innovation; enhancing access to, and use and
quality of ICT; enhancing the competitiveness of SMEs and of the
agricultural, fishery and aquaculture sectors; supporting the shift towards a
low-carbon economy; promoting climate-change adaptation, risk prevention
and management; preserving and protecting the environment and promoting
resource efficiency; promoting sustainable transport and removing
bottlenecks in key network infrastructures; promoting sustainable and quality
employment and supporting labour mobility; promoting social inclusion,
combating poverty and any discrimination; investing in education, training
and vocational training for skills and lifelong learning; enhancing
institutional capacity of public authorities and stakeholders and efficient
public administration. Article 9 concludes by stating that these thematic
objectives are to be “translated into priorities that are specific to each of the
ESI Funds and are set out in the Fund-specific rules”.
129. Article 91 provides that, for the purposes of the mission identified in article
89(1), the resources available for the Structural Funds and the Cohesion Fund
are some €322,000m in 2011 prices, 96.33% (some €313,000m) of which is
Page 55
under article 92(1) for the growth and jobs goal, while only 2.75% is under
article 92(9) for the territorial cooperation goal.
130. Critically, for present purposes, article 90 introduces a new three-fold
categorisation for the period 2014-2020. This is quite different from the
categorisation used in the prior period 2007-2013. It identifies less developed
regions (those with less than 75% of the GDP of the now 27 Member States),
transition regions (those with GDP between 75% and 90% of the average of
the 27 Member States) and more developed regions (those with more than
90% of the average GDP of the 27 Member States). Article 90(4) provides
for the Commission to decide which regions fall within each category, by a
list valid for the whole period 2014-2020.
131. Further, a fixed percentage of the total resources of €313,000m available for
the growth and jobs goal is under article 92(1) allocated to each of the defined
categories of region – viz 52.45% for less developed regions, 10.24% for
transition regions and 15.67% for more developed regions (with 21.19% also
going to the Cohesion Fund and 0.44% for additional funding for outermost
regions). The fixed nature of these allocations is identified in article 93.1:
“The total appropriations allocated to each Member State in
respect of less developed regions, transition regions and more
developed regions shall not be transferable between those
categories of regions.”
Article 93.2 gives Member States a very limited possibility of altering these
fixed allocations. It allows the Commission “in duly justified circumstances
which are linked to the implementation of one or more thematic objectives”
to accept a Member State’s proposal “to transfer up to 3% of the total
appropriation for a category of regions to other categories of regions”.
132. Annex VII prescribes the allocation method for each Member State’s
entitlement in respect of less developed, transition and more developed
regions (basically, in each case, the sum of allocations or shares calculated
for each of its individual NUTS level 2 regions, on bases taking into account
specified factors including GDP). The total allocated to the United Kingdom
for less developed regions was some £2.118 billion, for transition regions
some £2.3266 billion and for more developed regions some £5.126 billion.
The Commission’s calculations of individual regional needs are not
published (though the parties have been able to work out what they
approximately were), and they have no domestic application.
Page 56
133. The overall funds allocated to the United Kingdom for the period 2014-2020
were (after allowing for inflation) reduced by 5% compared with 2007-2013.
The Secretary of State was under article 93.2 permitted to transfer to the two
less developed regions in the United Kingdom, that is Cornwall and the
Scillys and West Wales and the Valleys, 3% of the budget which the EU had
assigned to transition and more developed regions, and to split the amount so
transferred between these two regions, achieving thereby an equal 16% cut
in funding compared with the prior seven-year period.
The Partnership Agreement
134. Within the above parameters, it is for the United Kingdom to adopt national
rules on the eligibility of expenditure (see Recital 61), by preparing a
Partnership Agreement, to be approved by the Commission. “Partnership
Agreement” is defined in article 2 as:
“‘Partnership Agreement’ means a document prepared by a
Member State with the involvement of partners in line with the
multi-level governance approach, which sets out that Member
State’s strategy, priorities and arrangements for using the ESI
Funds in an effective and efficient way so as to pursue the
Union strategy for smart, sustainable and inclusive growth, and
which is approved by the Commission following assessment
and dialogue with the Member State concerned.”
135. Article 4(4) and 5 provide:
“4(4). Member States, at the appropriate territorial level, in
accordance with their institutional, legal and financial
framework, and the bodies designated by them for that purpose
shall be responsible for preparing and implementing
programmes and carrying out their tasks, in partnership with
the relevant partners referred to in article 5, in compliance with
this Regulation and the Fund-specific rules.

5(1). For the Partnership Agreement and each programme, each
Member State shall in accordance with its institutional and
legal framework organise a partnership with the competent
Page 57
regional and local authorities. The partnership shall also
include the following partners:
(a) competent urban and other public authorities;
(b) economic and social partners; and
(c) relevant bodies representing civil society, including
environmental partners, non-governmental organisations, and
bodies responsible for promoting social inclusion, gender
equality and non-discrimination.”
136. Any Partnership Programme prepared for the purposes of articles 4(4) and
5(1) must self-evidently comply with, and be prepared on the basis of
considerations relevant to, the fund-specific mission and goals of the
regulation. It must also comply with more general principles of European and
domestic law, including those of equality and rationality. The present
challenges were brought at a stage when the programme submitted by the
United Kingdom to the Commission had not yet been approved. The
Commission was kept informed about the challenge, but regarded it as an
internal issue for the United Kingdom to resolve. It stated that, if this Court’s
ruling required the United Kingdom Government to review the Partnership
Agreement after it had been adopted, this could be done through the
mechanism of article 16 of the regulation. Article 16(4) enables a Member
State to propose an amendment, whereupon the Commission will carry out a
(re-)assessment and, where appropriate, adopt a decision within three
months. In the event, the Commission has, since the oral hearing, issued a
decision dated 29 October 2014 approving the Partnership Programme
proposed by the United Kingdom. Given the Commission’s stance, the
United Kingdom Government also, successfully, resisted a claim for
disclosure of the communications between it and the Commission about the
Partnership Agreement, as “not relevant to any issue in this appeal”.
137. No submission has been made to the Supreme Court at any stage that the
Commission should be regarded as the judge of the present challenge made
to the Secretary of State’s decisions, or that any decision that the Commission
might make, or has now made, approving the Partnership Programme in its
present form has or could have any effect on the challenge, if otherwise valid,
to such decisions. Lord Sumption’s statements in paras 10 and 24 of his
judgment that the Commission “is the mechanism of compliance envisaged
in the Regulation” is not based on any argument which was or could in the
circumstances fairly be put before the Court. I am also unable to accept the
further assertion that the Commission “is able to review the merits of the
Page 58
Secretary of State’s value judgments in a way that is beyond the institutional
competence of any court”. There is no information at all whether or how the
Commission has looked into the subject matter of the present challenges. The
suggestion that it is beyond the institutional competence of “any court, let
alone a national court” to review the merits of the Secretary of State’s value
judgments furthermore begs the question whether the appellants’ present
challenges are to “value judgments”. Courts, national and international, have
a significant role in reviewing the conformity of administrative decisions
with the legislative framework within which they are made. It is their role to
consider the relevance of the considerations on the basis of which such
decisions are taken, and their compliance with fundamental principles of
equality and rationality. The Secretary of State and the Commission were
both fulfilling administrative functions, the former at the national, the latter
at a supranational level.
The issue in detail
138. The critical issue on this appeal is whether the Secretary of State’s decisions
were in conformity with the legislative framework. The appellants’ case on
this falls under three heads: (i) the Secretary of State was obliged when
making such decisions to take as their basis the relative economic needs and
disparities of the regions, but in fact reached the decisions on a different
basis; (ii) the decisions were in breach of the general EU principle of equality;
(iii) the decisions were in breach of the general EU principle of
proportionality.
139. In relation to (i), the Secretary of State accepts that “the underlying purpose
of Structural Funds is to reduce development disparities between regions”
and the Court of Appeal was, in my view correctly, “content to assume that
the objective of reducing economic disparities was a mandatory relevant
consideration and that the Secretary of State was therefore required to have
regard to the relative economic needs of the transition regions” (para 88). The
fund-specific mission of the Structural Funds is under article 89(1) of the
regulation the strengthening of economic, social and territorial cohesion in
accordance with article 174 TFEU. This is to be pursued overwhelmingly
through the goal of investment for growth and jobs (articles 89(2)(a) and
92(1) of the regulation) with reference to the specified thematic objectives
set out in article 9 of the regulation.
140. In relation to (ii), the Secretary of State accepts that the principle of equality
applies. The Court of Appeal stated the position before it as follows (para
65):
Page 59
“65. The equal treatment principle requires that ‘comparable
situations must not be treated differently and different
situations must not be treated in the same way unless such
treatment is objectively justified’: see, for example, the Arcelor
Atlantique case [2008] ECR I-9895, para 23. Justification is not
in issue in this case. Accordingly, the only question is whether
there was a failure to treat like cases alike and unlike cases
differently.”
Later, in para 82, the Court of Appeal again noted that “the Secretary of State
does not rely on justification”, but added:
“We acknowledge that, as a matter of legal analysis, there is a
clear distinction between the fact of differential treatment and
its justification. But in the circumstances of this case, as is clear
from the evidence of Dr Baxter the dividing line is not easy to
maintain.”
I will revert to Dr Baxter’s evidence later in this judgment.
141. In relation to (iii), the Secretary of State submits and the Court of Appeal
agreed that proportionality can add nothing to a challenge based on the
principle of equality or rationality, in the absence of some specific legal
standard in the light of which it can gain greater content. This seems to me
correct, and I shall proceed on that basis.
142. With regard to the two principal grounds which are therefore open to the
appellants, the Secretary of State submits that both the challenged decisions
involved complex evaluative judgments, which can only attract what may be
described as a “light” standard of review. Referring to its previous decision
in R (Sinclair Collis Ltd) v Secretary of State for Health [2011] EWCA Civ
437, [2012] QB 394, the Court of Appeal said (para 70) that:
“In principle, the more complex and the more judgment-based
the decision, the greater the margin of discretion [that] should
be afforded to the decision-maker.”
That too is a proposition which I accept as relevant, in any context where
different institutions of the State, the administration and the courts, have
different institutional competence and the courts are asked to review the
administration’s decision-making in an area which is with the
Page 60
administration’s particular competence. But that does not apply to, or exclude
closer review of, a decision which is based on irrelevant considerations or
fails to treat like cases alike. Further, the lack of prior consultation with the
appellants, or with Merseyside and South Yorkshire, and the informality of
the process by which the Secretary of State made his decisions, take this case
outside the most extreme category of cases in which courts have expressed
reluctance judicially to review public funding decisions.
The first decision
143. Against this background, it is necessary to examine more closely the
Secretary of State’s two impugned decisions. The first arose as follows.
During the period 2014-2020, the only less developed regions are the two
former convergence regions. Transition regions include not only the three
former phasing out and phasing in regions, but also eight former
competitiveness regions, including Northern Ireland. The total EU funding
for the ERDF and ESF was divided between the three categories of region as
follows. The total allocated to the United Kingdom for less developed regions
was some £2.118 billion, for transition regions some £2.3266 billion and for
more developed regions some £5.126 billion.
144. The overall funds allocated to the United Kingdom for the period 2014-2020
were (after allowing for inflation) reduced by 5% compared with 2007-2013.
The Secretary of State was under article 93.2 permitted to transfer to the two
less developed regions in the United Kingdom, that is Cornwall and the
Scillys and West Wales and the Valleys, 3% of the budget which the EU had
assigned to transition and more developed regions, and to split the amount so
transferred between these two regions, achieving thereby an equal 16% cut
in funding compared with the prior seven-year period. The Secretary of State
then took the amounts allocated to each of the four territorial units making
up the United Kingdom – that is England, Wales, Scotland and Northern
Ireland – in the period 2007-2013 and determined that each such territorial
unit should receive the same amount as in that period, less a 5% reduction.
145. At this stage, Dr Baxter confirms in her first witness statement, that
“Ministers did not consider the split of funding within Scotland
or England”
and that Ministers
Page 61
“were aware that increasing the funding for the Devolved
Administrations [ie in comparison with that which would have
resulted from a region by region assessment] would mean less
for certain regions in England, as allocations had to be made
from a set budget category for each category of region.
However, it was decided that this would be dealt with at the
next stage of the allocation process and that only the big picture
within the UK would be looked at when trying to distribute the
cut fairly between the UK nations.”
146. The first decision was taken after the Department of Business Innovation and
Skills had calculated that an allocation to all United Kingdom regions on a
basis similar to that used by the Commission to arrive at the figures set out in
para 132 above would lead to England receiving £439m more than in the
period 2007-2013, while Wales, Scotland and Northern Ireland would
receive, respectively, £494m, £272m and £216m less.
147. As a result of the first decision:
(a) Northern Ireland, a unit consisting of one transition region which had
previously been a competitiveness region, received the same as it had
received both in 2013 and (because it had been receiving monies on a
flat line basis) in each year during the period 2007-2013 less 5%.
(b) Highlands & Islands received the yearly average of its total receipts
during the period 2007-2013, less 5%. This was effectively inevitable.
The only other regions in Scotland were competitiveness regions, and
the Secretary of State was not likely to (and after discussion with the
Scottish Ministers did not) increase their allocation in order to reduce
that of Highlands & Islands.
(c) The allocation for West Wales and the Valleys was set as described in
para 144, with the effect of allocating to the one remaining Welsh
region, East Wales, a more developed region, the whole of the
remaining amount allocated to Wales.
The second decision
148. The second decision arose as follows. Within England there are in all nine
transition regions. Seven of these are former competitiveness regions, and
two are former phasing in regions, Merseyside and South Yorkshire. The
Page 62
Secretary of State determined that, taking the amount that each region has
received in the year 2013 (not the annual average it had received over the
whole period 2007-2013), each should receive a 20% uplift, reduced by 4.3%
for technical assistance and for funding of the national offenders’
programme, making a final uplift of 15.7%. Regions in the more developed
category received a 5% uplift, reduced again by 4.3% making a 0.7% uplift,
while Cornwall and the Scillys received a 16% reduction.
The effects of the two decisions
149. The combined effect of the two decisions was that, while Northern Ireland
was guaranteed an allocation based, albeit not exactly, on an assessment of
its actual needs during the prior period and while Highlands & Islands would
receive an allocation based on the average of its receipts as a transitional
region over the whole of the prior period, Merseyside and South Yorkshire
received an allocation which was, in contrast, not referable to any assessment
of its actual needs or its average receipts during the prior period, but based
on the average of the aid which had been estimated as required by
competitiveness regions in the prior period (since that was the basis of
Merseyside’s and South Yorkshire’s receipt of aid in the year 2013).
150. By any measure of development and need, however, Merseyside and South
Yorkshire still fall well below the average for competitiveness regions. The
indicators of economic development selected by the Government itself for
allocating funding in 2007-2013 were per capita business expenditure on
research and development, start-ups, qualifications, GVA per workforce job,
percentages of working age population unemployed or inactive, percentages
of working age population without qualifications and with NVQ level 1
qualifications. Applying such indicators, Merseyside and South Yorkshire
are ranked third and sixth most deprived out of the total of 34 regions not
falling into the convergence and phasing out categories in 2007-2013. Using
the Commission’s methodology, Merseyside and South Yorkshire would
have received about £315m and £236m respectively, while on the
Government’s current approach, they would receive only £202m and £178m
respectively, in each case for the whole period 2014-2020. It is common
ground that, even on the basis of the calculation most favourable to the United
Kingdom Government that the Secretary of State has been able to support,
Merseyside and South Yorkshire would, if their entitlement during the period
2014-2020 were computed as if they had then been competitiveness regions,
receive at least £10.3m and £24.1m more than they would be under the
Government’s present intended allocation. They submit that the figures
would be much greater. GDP is not of course the only possible measure of
any region’s entitlement, and Lord Neuberger has identified variations in
funding even between regions whose funding was arrived at on a comparable
Page 63
basis. But the use of inconsistent bases to arrive at the level of funding is on
its face likely to lead to distortions, unless it can be justified by considerations
relevant under Regulation 1303/2013. The combined effect of the two
decisions was in my view to preclude this.
151. The further combined effect of the two decisions is that Merseyside and
South Yorkshire will as transition regions receive funding calculated, as a
matter of substance, on a different basis from that received by other English
transition regions which were formerly competitiveness regions. First, by
taking the year 2013 as the base for the seven former English competitiveness
regions, the Secretary of State was taking as his base for those seven regions
funding which applied in each of the years 2007-2013 and was calculated on
a basis with a relationship to each such region’s needs and characteristics.
Second, the 2013 base reflected in the case of the seven former
competitiveness regions the Government’s deliberate policy of favouring
northern regions over southern regions, which it was free to adopt in the
period 2007-2013 in relation to regions which fell in that period into the
competitiveness category.
152. In contrast, the 2013 base taken for Merseyside and South Yorkshire was
derived from an average for United Kingdom competitiveness regions, which
these two regions do not match. Secondly, their 2013 base was predetermined by the EU by Regulation (EC) No 1083/2006. It was not a figure
which was (or could have been) uplifted to cater for the United Kingdom
Government policy of favouring northern over southern regions. Yet on the
evidence Merseyside and South Yorkshire are among the neediest of northern
regions.
153. In the light of the above, the appellants are therefore right, I consider, when
they observe that (a) the first decision committed a significant part of the
transition funding to two particular transition regions (Northern Ireland and
Highlands & Islands) on a basis which continued to give, subject only to a
5% reduction, the average level of funding received throughout the whole of
the prior seven year period, (b) it did this without regard to the extent to which
this would impact on the funding available for the new range of English
transition regions (including seven former competitiveness regions) formed
by the Commission’s re-categorisation of regions for the period 2014-2020
and (c) in reality there would be an adverse impact, since effectively
preserving the pot for Northern Ireland and Highlands & Islands (less 5%)
was bound to diminish the pot available for the nine English transition
regions, including not only Merseyside and South Yorkshire, but also seven
former competitiveness regions now entitled to enhanced funding as
transition regions in the period 2014-2020. Lord Sumption’s contrary view
in paras 35 and 50 ignores the reduced size of the pot for the new category of
Page 64
transition regions embracing seven former competitiveness regions, once the
previous allocation to Northern Ireland and Highlands & Islands was
effectively ring-fenced (less 5%), compared with the average funding they
received throughout the whole prior seven-year period, by the Secretary of
State’s first decision. As to the second decision, the appellants are also right,
in my opinion, in submitting that this allocated monies to Merseyside and
South Yorkshire on a basis which, although superficially similar, was in fact
fundamentally different from that applied to other English transition regions,
as well as Northern Ireland and Highlands & Islands.
154. In her first witness statement, Dr Baxter identified the reasons for dividing
the United Kingdom’s Structural Fund allocation between the four territories
constituting the United Kingdom. She stated that they were transparency,
simplicity, consistency and a balance taking account of the status of the
devolved administrations under the United Kingdom’s constitutional
settlement. However, none of these reasons relates directly to the fundspecific mission of strengthening economic and social cohesion and the
reduction in that connection of development disparities between regions or
indeed with delivery of the Union strategy for smart, sustainable and
inclusive growth or the thematic objectives introduced to contribute thereto
(see paras 126-128 above). On the contrary, they involve an initial four-way
division, essentially for political reasons, which operates irrespective of the
position in individual regions, and potentially and actually to the detriment
of one or more English regions. Dr Baxter’s witness statement effectively
accepts this (para 145 above). Regional disparities, and consideration of the
mission and goal identified in article 89 of Regulation 1303/2013 were
displaced by territorial and political considerations deriving from the United
Kingdom’s devolution settlements. In so far as she goes on to suggest that
any adverse effect would or might be addressed at the second stage of
decision-making, I have already noted in para 153(c) that this would not have
been practicable and in any event it was not done.
155. The Secretary of State seeks to make good this approach by reference to his
view that there had been no significant change from the years 2006-2007 to
the years 2013-2014 in the economic or other relevant differentials between
different United Kingdom regions. Lord Sumption endorses this response in
para 35, as does Lord Neuberger in para 67. But the response could only have
been relevant, had the categorisation of and treatment of regions introduced
by Regulation No 1303/2013 remained the same as it was in the previous
period 2007-2013 under Regulation No 1083/2006. This was not the case. A
division of total available funding between the four territories of the United
Kingdom in the period 2014-2020 in the same totals (less 5%) as had applied
throughout the whole period 2007-2013 was bound to lead to anomalies in
the light of (a) the re-categorisation of regions under Regulation No
1303/2013, (b) the recognition of seven former competitiveness regions as
Page 65
meriting enhanced treatment as transition regions, along with Merseyside and
South Yorkshire, and (c) the different bases and levels of funding which
different transition regions would necessarily enjoy in the period 2014-2020
compared with the period 2007-2013. The “consistency and balance”
involved in giving each devolved administration the same amount (less 5%)
were in fact bound to lead to inconsistency and imbalance. Two unlike
situations (those existing in the periods 2007-2013 and 2014-2020) were
treated alike, in a manner and with results that none of Dr Baxter’s four
reasons justifies.
156. Reference was made in argument to the Court of Justice’s decision in (Case
C-428/07) R (Horvath) v Secretary of State for Environment, Food and Rural
Affairs [2009] ECR I-6355. But that decision turned on the constitutional
settlement involved in devolution. It was of its essence that the devolved
administrations had under the relevant devolution arrangements the primary
responsibility for implementing the common agricultural policy, and on that
basis the Court of Justice held that “divergences between the measures
provided for by the various administrations cannot, alone, constitute
discrimination” (para 57). In para 56 the Court distinguished “discrimination
… resulting from a measure adopted by that Member State implementing a
Community obligation”, referring in this regard to its decision in Joined
Cases 201/85 and 202/85. Further, the relevant measure expressly required
and permitted Member States to “define, at national or regional level,
minimum requirements” for funding support, a provision which the court
interpreted as expressly recognising “the possibility for the Member States,
to the extent authorised by their constitutional system or public law, to permit
regional or local authorities to implement Community law measures”, by
defining such minimum requirements.
157. The present case is critically different. The Structural Funds are allocated to
the United Kingdom, primarily to strengthen its social and economic
cohesion. The Secretary of State retains responsibility for the internal
allocation of the Structural Funds within the United Kingdom. That he
consulted with the devolved administrations in relation to the decisions which
he took does not affect this, or alter his duty to avoid discrimination between
those affected by his decisions. If he chose to divide up the total funding
available between territories of the United Kingdom, he was obliged to do so
in a way which was consistent with the fund-specific mission of cohesion and
the goal of growth and jobs set by Regulation No 1303/2013, and would lead
to like cases being treated alike, and unlike cases differently, across the whole
United Kingdom. The mathematical division between the four territories of
the funding allocated to the United Kingdom for the period 2014-2020 was,
as noted in para 155 above, bound to lead to discrepancies detrimental to
cohesion, in particular when arrived at in disregard of the re-categorisation
of regions effected by Regulation No 1303/2013.
Page 66
158. The appellants’ challenge to the Secretary of State’s decisions, on the basis
of the discrepancies to which they lead between the bases of allocation to
Merseyside and South Yorkshire and to other regions within the United
Kingdom is, I consider, also made good. All transition regions must in my
view be regarded as comparable, and on this basis differences in treatment
between them require to be considered and justified. The Secretary of State
appears to have foregone any case of justification in the courts below, but,
even if justification is treated as a live issue or an issue which is in the present
context inextricably linked with comparability, I do not consider that the
difference in treatment has been shown to be legitimate.
159. Merseyside and South Yorkshire were given an allocation which took as
relevant funding they received in 2013 by reference to an average for
competitiveness regions, which clearly did not reflect their position or needs.
Highlands & Islands on the other hand received funding based on the average
of the tapered funding they received over the whole 2007-2013 period. They
were both transitional regions. Their funding reduced in each case to the same
level in 2013. Highlands & Islands was admittedly a phasing out region, of
whom it could be said that in 2006 their GDP had been less than 75% of that
of the original 15 EU Member States. This could not be said of Merseyside
and South Yorkshire and they were only transitional regions because they
had been Objective 1 regions in the period 2000-2006. But, nevertheless,
funding in the period 2007-2013 was in each case arranged on the basis that
it reduced to the average for competitiveness regions by 2013. There was no
reason to assume, without analysis, that the needs of Highlands & Islands
merited a complete preservation (subject only to a 5% reduction) of their
average funding in the period 2007-2013, whereas Merseyside and South
Yorkshire required no more than the preservation with a 15.7% uplift of their
very low level funding in the year 2013, based on an average which did not
on any view reflect their actual position. There is (with respect to Lord
Sumption’s comment in para 42 about “additional funding”) no basis for
concluding that Merseyside and South Yorkshire received (but Highlands &
Islands did not) some sort of uncovenanted bonus through the higher early
funding allocated to them during the prior period 2007-2013 which should
now be carried forward as a form of debit to their account in respect of the
period 2014-2020. Differences in the co-financing received in the period
2007-2013 between phasing out regions (which had only to find 33.33p for
every pound of EU funding) and phasing in regions (which had to match EU
funding pound for pound) play against rather than for continuing to award
Highlands & Islands funding on a more favourable basis than Merseyside and
South Yorkshire during the period 2014-2020 when both are now transition
regions.
160. Lord Sumption’s reference to “additional funding” and much of paras 20, 28,
37 and 42-44 of his judgment are focused on a case which was originally
Page 67
advanced by the appellants that Merseyside and South Yorkshire should, like
Highlands & Islands, have received funding by reference to an average of
what they had received in the period 2007-2013. However, save to highlight
the obvious disparity with the funding of Highlands & Islands, the appellants
in their case before the Supreme Court focused on the disparity arising from
the use of the base year 2013. In that respect, in my opinion, the appellants
have made good their challenge to the Secretary of State’s decisions. There
was no good reason for awarding funding on the basis of the same 15.7%
uplift over the 2013 level both in relation to English transition regions which
had been competitiveness regions and to Merseyside and South Yorkshire
which had not been, but whose funding in 2013 had been based on an average
which did not reflect their actual position. Contrary to Dr Baxter’s statement
in para 54 of her first witness statement, the result was not to treat “all English
Transition regions in the same way”, since the nature of the 2013 base
differed significantly between them.
161. Dr Baxter states, in her first witness statement, para 49, that attention was
given to the possibility of using, indeed that “Ministers did see a strong case
for using”, a basket of indicators based on the latest economic data to
determine the allocations within England during the period 2014-2020,
together with applying a suitable safety net. She says that this option was
rejected because it would have led to too great a shift of resources from north
to south, and would have had to be countered by a safety net which, she
suggests, would have taken one back to the present position. But an
assessment of actual development needs would have avoided the use of 2013
allocations as a base for transition regions, and would have meant that
Merseyside and South Yorkshire would have been treated on the same basis
as other English transition regions. Further, in circumstances where, as a
matter of general policy, a shift in funding from south to north was desired,
that could and would then have been given effect in relation to all English
regions, including Merseyside and South Yorkshire. The actual basis of
allocation fails to give Merseyside and South Yorkshire the benefit of any
such policy. Any additional safety net could also have been applied on a basis
which affected all English transition regions in like fashion.
162. In proceeding as he did, therefore, the Secretary of State in my view gave
priority to irrelevant considerations (the maintenance in the period 2014-
2020 of similar funding, less 5%, for each United Kingdom territory to that
which obtained in the period 2007-2013, when the re-categorisation of
regions during the current period makes the comparison inappropriate), failed
to treat like situations alike (although all were transition regions, Merseyside
and South Yorkshire were treated quite differently from Northern Ireland and
Highlands & Islands) and treated unlike situations alike (by taking 2013 as
an appropriate base for funding for all English transition regions, although it
had been arrived at in the case of Merseyside and South Yorkshire on a quite
Page 68
different basis bearing no relationship to their actual needs, in contrast to the
basis on which it had been arrived at in the case of other transition regions).
Whether the matter is viewed under EU law or at common law, these are
manifest flaws which are neither problems of value judgment nor fall within
the margin of discretion undoubtedly due when value judgments are in issue.
163. I would only add that, even if I had arrived at a different view with regard to
the legitimacy of the first decision, the discrepancy in the bases on which
funding was allocated to different English transition regions would still have
led me to conclude that the second decision was illegitimate.
164. I have also had the benefit of reading the judgment prepared by Lord
Carnwath, who reaches the same conclusions as I do and with whose
reasoning in paras 176-187 I find myself in substantial agreement.
165. It follows that, in my opinion, the appeal should be allowed, and the Secretary
of State required to reconsider and re-determine the allocations between all
the transition regions within the United Kingdom in the light of the guidance
given in this judgment.
LORD CARNWATH:
166. I agree with Lord Mance that this appeal should be allowed, substantially for
the reasons given by him. While I agree also with much of Lord Sumption’s
analysis, I am not persuaded that he provides an adequate answer to the
essential complaints made by Mr Coppel QC. In the circumstances I will
confine myself to some comments on the correct general approach, and a
short explanation of my reasons for disagreeing with the majority.
General approach
167. Equal treatment and proportionality are of course well established principles
of EU law, but they are not the starting point. Whether under European or
domestic law, such general principles have to be seen in the context of the
legislative scheme in question. I agree with the Court of Appeal (para 57) that
these decisions were concerned with matters of broad economic, social and
political judgment, for which the objectives were widely defined. As they
said, it is “classic territory” for affording the decision-maker a wide “margin
of discretion” (or “appreciation”), where the court should only interfere if
satisfied that the decisions were “manifestly inappropriate or manifestly
wrong”. On the other hand, the lack of formality in the decision-making
Page 69
process distinguishes the case, for example, from domestic authorities where
public funding decisions have been subject to review in Parliament, and the
courts have accordingly a very restrictive view of the scope for judicial
review (see R v Secretary of State for Environment, Ex p Hammersmith and
Fulham London Borough Council [1991] 1 AC 521).
168. The Court of Appeal referred to the exhaustive review of the relevant
European and domestic authorities by all three members of the Court of
Appeal in R (Sinclair Collis Ltd) v Secretary of State for Health [2012] QB
394. The term “manifestly inappropriate” in European jurisprudence was
traced back by Arden LJ (para 115ff) to R v Minister for Agriculture,
Fisheries and Food, Ex p Fedesa (Case C-331/88) [1990] ECR I-4023, a case
relating to decisions implementing the Common Agricultural Policy. She
showed that it has been treated as applicable also in appropriate cases to
decisions of national legislatures or other decision-makers (para 129).
169. I do not find it necessary to analyse the differences of emphasis between the
three judgments in that case, nor to enter into discussion about different
formulations of the test. I agree with Lord Neuberger of Abbotsbury MR
(para 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.”
As the Court of Appeal said of the present case, the context is one where the
treaty and the regulation together confer a wide area of policy choice on both
the Commission and the member states, within the objectives set by them.
Further, since responsibility is shared between the European and national
agencies, there is no reason for any material differences in the approach of
the courts to their respective decisions.
170. For similar reasons, it is unhelpful in the present context to look for a clearcut distinction between issues of comparability on the one hand and
Page 70
justification on the other. As the regulation makes clear (and as Mr Coppel
QC ultimately accepted), the Secretary of State had a wide discretion as to
the factors he could properly take into account in comparing the various
regions for the purpose of allocating funds. This exercise cannot be equated
to a simple comparison (as in R (Chester) v Secretary of State for Justice
[2014] AC 271) between prisoners and non-prisoners, or the issue of equality
between men and women (specifically addressed in article 7 of the
regulation).
171. None of the cases relied on by Mr Coppel QC seems to me sufficiently close
to the present context to advance his argument for a more stringent test. For
example he cites Franz Egenberger GmbH Molkerei und Trockenwerk v
Bundesanstalt für Landwirtschaft und Ernährung (Case C-313/04) [2006]
ECR I-6331 para 33, for the proposition that the general principle of equality
“requires that comparable situations must not be treated differently and
different situations must not be treated alike unless such treatment is
objectively justified”. The case itself related to the narrow issue of where
applications for butter import licences should be lodged, and provides no
assistance in the present case.
172. The highpoint of his argument perhaps is in Société Arcelor Atlantique et
Lorraine v Premier Ministre (Case C-127/07) [2008] ECR I-9895, where the
equal treatment principle was treated by the European court as applicable to
a scheme for trading in greenhouse gas emission allowances. The issue was
whether that principle had been breached by a scheme which applied to the
steel sector but not to the plastics or aluminium sectors (para 24). The court
accepted that the emissions from all these activities were in principle “in a
comparable situation”, since they all contributed to greenhouse emissions and
were capable of contributing to the functioning of a trading allowance scheme
(para 34). It went on, first, to accept that the different treatment had caused
disadvantage to the steel sector (paras 42-44), but, secondly, to hold that it
was justifiable (not “manifestly less appropriate than … other measures”),
taking account of the broad discretion allowed to the Commission (paras 57-
59), and the difficulties of managing a “novel and complex scheme” with too
great a number of participants (paras 60ff).
173. The case offers some help to Mr Coppel QC’s argument, to the extent that
even in an area of broad policy discretion the court adopted a three stage
analysis – comparability, disadvantage, justification. The margin of discretion
was applied only at the last stage. However, there the issue of comparability
turned on a narrow view of the purpose of the scheme, which applied equally
to all industrial emissions whatever the form of the industry. There is no
parallel with the much more varied objectives of the present scheme, which
Page 71
allow a broad discretion at all stages, and make it impossible to draw a
meaningful distinction between comparability and justification.
174. The Secretary of State no doubt needed to adopt rational and consistent
criteria for his allocations, within the objectives set by the regulation, and he
needed to be able to justify those criteria and their application as between the
regions. But nothing is gained for this purpose by treating justification as a
separate stage in the legal analysis. The court must look at the reasoning as a
whole to decide whether it was affected by legal error, or otherwise
“manifestly inappropriate”. Issues of equal or unequal treatment and
proportionality may play a part in that assessment, in both European and
domestic law (see Kennedy v Charity Commission [2014] UKSC 20, [2014]
2 WLR 808, para 54, per Lord Mance).
175. The danger of the formulaic approach advocated by Mr Coppel QC is that it
may make it more difficult to separate the wood from the trees, and distract
attention from the ultimate question, under EU law or domestic law: whether
something has gone seriously wrong with the decision-making process such
as to justify the intervention of the court.
The two decisions
176. It is unnecessary to repeat Lord Sumption’s description of the two decisions.
The essential complaint against the first decision is simply stated. The
decision to start by dividing the UK allocation between the four jurisdictions
had the effect of limiting the Secretary of State’s options to achieve fairness
at the second stage, in a way which was not justified by anything in the
scheme or objectives set out by the regulation.
177. The complaint against the second decision turns on the adoption of 2013 as a
base for all transition regions. The appellant authorities from the two regions
say that, by taking the 2013 figure as a base for all, the Secretary of State was
not comparing like with like. In the previous round all the other transition
regions had been competitiveness regions, but their allocations had been
determined by reference to their relative economic and social circumstances,
rather than the application of a single formula, and the allocations were
constant throughout the period. By contrast the allocations of the two regions,
as phasing-in regions, had been determined, not by reference to their relative
circumstances, but by a special formula set by the regulations; the last year
was based on the national average for all competitiveness regions throughout
the UK (regardless of relative strength). That meant that their last year did
not reflect either their own circumstances relative to the other transition
regions, nor in particular the extra funding allowed to the north in the
Page 72
previous period, to reflect its greater development needs – a balance which
had not changed in the interim.
178. This is explained most clearly in the evidence of Mr Eyres (para 33).
Although the precise methodology for calculating allocations to the
competitiveness regions in the previous period had not been disclosed, the
government had confirmed that it took account of the greater development
needs of the North and Midlands, and, as he understood, it had used a “basket
of indicators” reflecting the relative deprivation of those areas. Had the
allocations for 2013 been calculated on the same basis as the neighbouring
regions they would have been allocated far in excess of the amounts resulting
from the phasing in formula. He adds (para 50(3)):
“The Secretary of State seems to assume that the additional,
transitional funding was awarded between 2007-2010, leaving
the funding for 2011, 2012 and 2013 as the ‘correct’ funding
allocation for Merseyside and South Yorkshire. Yet this
ignores the fact that the funds allocated in 2011, 2012 and 2013
were significantly below the level for Competitiveness regions
in the North and Midlands, which had no protected status. This
is because the allocation for 2013 was based on the ‘national
average’ for Competitiveness regions and takes no account of
the GDP and high levels of deprivation within individual
Competitiveness regions in North and Midlands, including
within Merseyside and South Yorkshire themselves (which the
Government did take into account when making 2007-2013
allocations to Competiveness regions).”
179. In short, the appellants’ case can be reduced to two apparent anomalies which
required explanation:
(a) Alone of all the transition regions in the UK (including Highland &
Islands, which had been also subject to a “tapered” funding regime in
the previous period), the two regions were given no protection from a
substantial reduction in funding (65%) as compared with the previous
period taken as a whole;
(b) Alone of all the English transition regions, their funding was fixed by
reference to a base which had taken no account of their relative
economic and other circumstances in the previous period.
I will take them in turn.
Page 73
180. The first, as respects the comparison with Highlands & Islands, was in large
part attributable to the prior decision to adopt a two-stage process. In itself
there could be no objection to the Secretary of State taking account of the
territorial divisions and governance arrangements within the UK. The
provisions of the regulation confer a wide discretion on member states to take
account of local structure at all levels. Although the decisions on funding
were not themselves devolved, the devolved administrations had a clear
interest in the process, both as partners, and (presumably) as possible sources
of co-financing.
181. I note also that no objection was taken on behalf of the two regions to the
two-stage process at the time of the first decision. On the contrary Mr Eyres
records (para 40) that the Mayor of Liverpool, as Chair also of the Liverpool
partnership, wrote to the minister welcoming the decision to “amend the EU
formula to provide a 95% safety net for devolved areas” provided the same
principles were applied in England.
182. However, the judge was wrong with respect to treat this as a “socio-economic
decision” by the Secretary of State which thereby absolved him of the need
for further comparisons between different parts of the UK (para 72). That
would in my view be contrary to the scheme of the EU regulation (and indeed
to the devolution settlement), which gives him responsibility for the fairness
and consistency of the distribution as between all the regions in the UK, so
far as not predetermined by the Commission. Rightly, that was not how the
case was argued by Mr Swift QC in the Court of Appeal or before us. As has
been seen, his submission, in substance accepted by the Court of Appeal,
turned on lack of comparability between phasing in and phasing out regions.
183. I agree that there were significant differences of detail between the two
categories, as explained by Dr Baxter, although it is not clear why some of
them were reasons for less favourable treatment for the two regions. For
example, the fact that the co-financing regime was more onerous for them
seems on its face a point going the other way. However, none of these points
addresses the main complaint. The reasons which led the Secretary of State
to include Highlands & Islands in the 95% safety-net by reference to the
2007-2013 funding as a whole, were apparently no less applicable to the two
regions. That indeed was the point made by the Mayor of Liverpool at the
time. Conversely, the main reason which led the Secretary of State to treat
the two regions differently in this respect from the other English transition
regions (that is, the higher funding for 2007-2013 overall, tapered down to
the average competitiveness level) was in principle no less applicable to
Highlands & Islands.
Page 74
184. As Dr Baxter indicates, the Secretary of State was aware of this apparent
discrepancy, but as far as Scotland was concerned he felt constrained (in
practice if not in law) by the “overall budget envelope that had already been
set” (para 62 of her witness statement). The idea of a safety-net for the two
regions was rejected because of the “negative impact” on the other transition
regions. That with respect is little more than a statement of the obvious. If I
take from Peter to give to Paul, it will no doubt have an “adverse impact” on
Peter, but that says nothing about the balance of fairness as between the two.
185. Similar issues arise in respect of the second decision. Viewed by reference
simply to a comparison with the other English transition regions (and
ignoring Highlands & Islands), he was entitled to take account of the different
funding regime in the previous period. Since the overall funding for the two
regions in that period had been on a more generous basis than for the others,
and since that was by definition special and transitional, there was no reason
to carry it forward into the exercise for 2014-2020. Furthermore, if their
figure for 2013 had been related in some way to their own circumstances (as
was the case with the other transition regions), it might have formed a suitable
base for the subsequent period. However, that was not the case. The 2013
figure for the two regions (as for Highlands & Islands) reflected the average
of all the former competitive regions, a category which had included even the
most prosperous regions (that is, those now categorised as “more
developed”).
186. The Secretary of State was faced with a difficulty in that the transition regions
were a new intermediate category, encompassing a relatively wide range of
relative development (between 75% and 90% of the EU average). Had his
distribution been based, as in the previous period, on a comparison of
economic or other factors, within the scope of the regulation, it would have
been very difficult to challenge. It is perhaps understandable that he preferred
a more simple “blanket approach” to the new category, particularly as his
view of the general economic balance had not changed. However, that could
only be justified if he took steps to ensure that the two regions were dealt
with on a comparable basis. His principal reason for his not doing so was, not
a view as to the relative needs of the two regions as compared to the others,
but again the negative impact for them of a 22% cut where they (and probably
the Commission) had expected enhanced levels of funding. This, by
implication, assumed a finite budget for England, in effect predetermined by
the first decision.
187. I conclude that the criticisms made by the two regions of the decision-making
process, including both decisions, have not been satisfactorily answered. I do
so with some hesitation in view of the risk of over-simplification of some
very complex issues and material. It matters not, in my view, whether this is
Page 75
expressed as an issue of unequal treatment or lack of proportionality under
European law, or inconsistency and irrationality under domestic law, the
anomalies are in my view sufficiently serious to have required explanation
which has not been given, and which renders the resulting decisions
“manifestly inappropriate” under EU and domestic principles.