R (on the application of Rotherham Metropolitan Borough Council) v Secretary of State for Business, Innovation and Skills

JurisdictionEngland & Wales
JudgeMaster of the Rolls
Judgment Date28 July 2014
Neutral Citation[2014] EWCA Civ 1080
Date28 July 2014
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: C1/2014/0638

[2014] EWCA Civ 1080

IN THE COURT OF APPEAL (CIVIL DIVISION)

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

MR JUSTICE STEWART

[2014] EWHC 232 (Admin)

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Master of the Rolls

Lord Justice Maurice Kay

and

Lord Justice Floyd

Case No: C1/2014/0638

Between:
The Queen on the Application of Rotherham Borough Council & Ors
Appellants
and
The Secretary of State for Business, Innovation and Skills
Respondent

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

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

Hearing dates: 30 June and 1 July 2014

Master of the Rolls

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

1

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

2

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

The background

3

In order to put the decisions under challenge into their proper context it is necessary to set out at least some of the EU legislative background against which the decisions were taken. Article 174 of the Treaty on the Functioning of the European Union ("TFEU") enjoins the Union, as a general objective, to develop and pursue actions leading to the strengthening of its economic, social and territorial cohesion. In particular it requires the Union to aim at "reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions". Particular attention is to be paid to rural areas, areas affected by industrial transition and regions which suffer from natural and demographic handicaps. Article 175 TFEU requires the Union to support the achievement of these objectives by, amongst other means, the action it takes through the European Structural Funds, which include the European Social Fund ("ESF") and the European Regional Development Fund ("ERDF"). As Article 176 explains, the ERDF is intended to help redress the main imbalances in the Union through participation in the development and structural adjustment of regions lagging behind in development and in the conversion of declining industrial regions. Articles 162–164 TFEU explain that the ESF is established to render the employment of workers easier and to increase their geographical and occupational mobility within the Union, and to facilitate their adaptation to industrial changes through training and retraining. The allocation of funds was to be implemented by regulations. In practice this has meant a series of seven-year funding programmes, starting in 1993, i.e. the periods from 1993–99, 2000–06 and 2007–1The current period is 2014–20 and is the ultimate focus of attention in this case.

4

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

5

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

6

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

7

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

8

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

The 2006 regulation

9

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

10

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

11

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

12

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

The 2013 regulation

13

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

14

Less Developed regions were those whose GDP per capita was less than 75% of the average GDP per capita...

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