R v Secretary of State for Business, Innovation and Skills

A public authority distributing finite funds under a broad statutory scheme enjoys a wide margin of judgment where the exercise requires complex economic, social and political choices. The court must nevertheless ensure that the decision complies with the governing legislation and rational public-law standards.

Equality does not invariably require separate, rigid inquiries into comparability and objective justification. The practical question may be whether the relevant differences are sufficient to justify different treatment. Regional classification by GDP does not alone establish comparability where the governing scheme pursues wider objectives.

Proportionality requires a legal standard against which the burden imposed can be assessed. It adds nothing where the decision complies with the applicable legislation and equality principle.

Local authorities in Merseyside and South Yorkshire challenged the Secretary of State’s proposed distribution of European Structural Funds for 2014–2020. The distribution first preserved each constituent country’s previous share, subject to a 5% reduction. It then gave every English transition region a 15.7% uplift on its 2013 allocation.

The appellants contended that using 2013 as the baseline disadvantaged regions whose temporary transitional support had tapered down before that year. They also compared their treatment with that of Highlands & Islands and Northern Ireland. They alleged breaches of European Union equality and proportionality principles and domestic public-law requirements.

The High Court rejected the claim: [2014] EWHC 232; [2014] LGR 389. The Court of Appeal dismissed the appeal: [2014] EWCA Civ 1080; [2014] PTSR 1387. The central issue before the Supreme Court was whether the process or resulting allocations were unlawful under Regulation (EU) 1303/2013, EU equality and proportionality principles, or domestic public law.

1. By a majority, the appeal was dismissed. Lord Sumption, with whom Lord Hodge agreed, held that the Secretary of State’s two decisions fell within the broad range of lawful choices. Lord Neuberger and Lord Clarke agreed that the decisions were not unlawful.

2. The distribution of finite structural funding required complex economic, social and political judgments. Neither the Treaty nor Regulation (EU) 1303/2013 prescribed a single correct formula for distributing funds within a member state. The Regulation pursued smart, sustainable and inclusive growth as well as reducing regional disparities. A national decision-maker therefore had a particularly wide margin of judgment: paras 22–24, 28, 61–66 and 111–112.

3. The equality principle requires comparable situations to be treated alike, and different situations differently, unless a distinction is objectively justified. Outside discrimination based on personal characteristics, comparability and justification need not be treated as rigidly separate legal stages. The relevant inquiry was whether sufficient relevant differences justified the treatment. Classification as transition regions by GDP did not itself establish comparability for internal funding because the Regulation required consideration of broader thematic objectives: paras 26–29 and 94–99.

4. The Secretary of State could take account of the United Kingdom’s constitutional settlement. Treating England, Scotland, Wales and Northern Ireland as separate territorial units, and applying the same proportional reduction to each, was compatible with the decentralised allocation of implementation responsibilities. The approach neither breached the Regulation nor was irrational: paras 32–36 and 71–79.

5. The use of 2013 as the baseline for English transition regions was also lawful. The enhanced support previously received by Merseyside and South Yorkshire was expressly transitional and had tapered to the national competitiveness-region average. Carrying its earlier effect into the new period could lawfully be regarded as unduly advantaging them at the expense of other transition regions. The alternative would have reduced the other regions’ allocations from a ring-fenced and finite fund: paras 37–44 and 80–108.

6. Proportionality added nothing. No independent legal entitlement to a particular allocation existed beyond the Regulation and equality principle. Compliance with both meant that the resulting burden was not disproportionate: para 47.

7. Lord Mance, with Lady Hale, and Lord Carnwath dissented. They considered that the two-stage method relied on irrelevant territorial considerations and used incomparable 2013 baselines. In their view, the unexplained anomalies constituted unequal treatment, irrationality and a manifestly inappropriate distribution requiring reconsideration: paras 153–165 and 176–187.

1. United Kingdom Supreme Court: By a majority of four to three, dismissed the appeal and upheld the lawfulness of the distribution decisions: [2015] UKSC 6.
2. Court of Appeal: Dismissed the appeal, holding that the allocation decision lay within the Secretary of State’s wide margin of discretion: [2014] EWCA Civ 1080; [2014] PTSR 1387.
3. High Court: Stewart J rejected the judicial-review challenge: [2014] EWHC 232; [2014] LGR 389.