R v Secretary of State for the Environment, ex p. Hammersmith and Fulham LBC and others

The House of Lords dismissed the appeals brought by Hammersmith and Fulham and other local authorities challenging the Secretary of State's use of the capping powers under Part VII of the Local Government Finance Act 1988. The court held that section 100 must be read as requiring the Secretary of State to determine principles of general application (section 100(4)) which establish the norm of excessive expenditure; designation under section 100 is not an ad hoc, case-by-case determination untethered to those principles. The court rejected the submission that the Secretary of State may only designate where an authority's budget is so excessive that no "sensible" authority could have set it. Judicial review of high-level fiscal decisions of this kind is constrained by the principle in Reg v Secretary of State for the Environment, Ex parte Nottinghamshire County Council [1986] AC 240: absent bad faith, improper motive or manifest absurdity the courts will not upset political judgments adopted and approved by the House of Commons. The statutory procedures for challenge (notably sections 102–106) furnish the principal procedural protections; no additional implied consultation or heightened disclosure obligations were required by law.

The appellants were sixteen English local authorities which had their annual budgeted expenditure (and thus their community charge levels) reduced by the Secretary of State under the capping powers in Part VII of the Local Government Finance Act 1988. They sought judicial review of the Secretary of State's designation decisions and draft orders reducing the maximum amounts they might budget and spend.

The principal issues considered by the House were:

• whether, under section 100, the Secretary of State must form an ad hoc opinion about an individual authority's budget independently of principles formulated under section 100(4), or whether designation is governed by principles of general application;
• whether the Secretary of State was limited to intervening only when a budget was so excessive that no reasonable or "sensible" authority could have adopted it;
• whether promises or statements by Ministers created a legitimate expectation that capping would be exercised only to restrain extreme excesses;
• whether additional procedural requirements should be implied into Part VII (for example, a duty to consult before fixing principles, a duty to give reasons on request, or a duty to disclose relevant information from third parties prior to finalising an order).

The court reasoned that the Act plainly contemplates the Secretary of State setting out principles (section 100(4)) to determine what is to count as excessive and that the statutory scheme puts the Secretary of State in the position of fixing a national norm of expenditure. The alternative submission that the Secretary of State's role was limited to policing only manifestly unreasonable budgets (the Tameside-type standard) was rejected as inconsistent with the statutory design. The court applied the limitation on judicial review articulated in Nottinghamshire: where Parliament requires ministerial decisions of fiscal and political character to be approved by the House of Commons, courts will not interfere on grounds of irrationality except for bad faith, improper motive or manifest absurdity. On procedural complaints the court held that the Act already provides for a challenge procedure (sections 102(5), 104 et seq.) and declined to imply broad consultation or disclosure obligations; the judge was however critical of imposing detailed disclosure obligations by way of judicial implication and preferred reliance on sound administrative practice.

Relief sought: quashing of designation notices and draft orders limiting budgeted expenditure and community charge levels. Outcome: appeals dismissed; the Secretary of State's capping decisions were within the statutory powers and not susceptible to the forms of challenge advanced.

Appeals dismissed. The House held that the Secretary of State was entitled under section 100 to determine principles of general application to define what budgetary expenditure is "excessive" and to designate authorities accordingly; designation is not limited to budgets that no reasonable authority could have set. Judicial review of such political or fiscal judgments is limited by the Nottinghamshire principle and will succeed only for illegality, bad faith, improper motive or manifest absurdity. The statutory procedures governing challenge provided the appropriate procedural safeguards and no further implied consultation or disclosure duties were imposed.

Applications for judicial review were heard first by the Divisional Court (Queen's Bench Division; Leggatt L.J., McCullough and Roch JJ.) which dismissed the applications on 15 June 1990. The Court of Appeal (Lord Donaldson M.R., Ralph Gibson and Taylor L.JJ.) dismissed the authorities' appeals on 27 June 1990 and gave leave to appeal to the House of Lords; reserved reasons were given on 3 July. The House of Lords (Appellate Committee) heard the conjoined appeals and dismissed them (oral judgment 17 July 1990; reasons delivered 4 October 1990).