R v Secretary of State for Business, Innovation and Skills

This appeal concerned the lawfulness of the Secretary of State’s proposed internal distribution within the United Kingdom of funds allocated by the European Commission under Regulation (EU) 1303/2013 for the 2014–2020 programming period. The central legal principles were (i) the discretionary margin accorded to the executive in allocating public expenditure and in implementing the broadly framed aims of the 2013 Regulation (including Article 9 thematic objectives and the mission in Article 89), and (ii) the requirement not to treat comparable situations differently without objective justification, reflecting the EU principle of equality and domestic public law rationality.

The majority held that (a) the 2013 Regulation does not prescribe a detailed formula for distribution within a Member State and confers a wide evaluative discretion on Member States, (b) the Secretary of State was entitled to take account of the United Kingdom’s constitutional/devolution settlement in a two-stage allocation (between the four nations and then among regions), and (c) the particular choice to use 2013 as the baseline and to apply a uniform uplift to English transition regions was within the legitimate margin of judgment and not shown to involve unlawful discrimination or disproportionate burden. The Court rejected the appellants’ contention that Merseyside and South Yorkshire had been unlawfully discriminated against compared with Highlands & Islands and other transition regions.

The appellants were a number of local authorities principally in Merseyside and South Yorkshire. They challenged the Secretary of State’s announced proposals for allocating the United Kingdom’s share of the European Structural and Investment Funds for 2014–2020, as set out in a draft Partnership Agreement under Regulation (EU) 1303/2013.

Procedural posture: This was an appeal to the Supreme Court from the Court of Appeal ([2014] EWCA Civ 1080), following High Court proceedings (see judgment references in the text).

Nature of the claim / relief sought: The appellants sought judicial review of the Secretary of State’s two-stage allocation decisions: first, dividing the United Kingdom allocation pro rata among England, Scotland, Wales and Northern Ireland (each reduced by 5%), and second, distributing the English share among NUTS2 regions by applying a uniform uplift to 2013 allocations (15.7% to English transition regions). They alleged unlawful unequal treatment and irrationality under EU and domestic public law and argued that Merseyside and South Yorkshire were disadvantaged because their historical "phasing-in" transitional funding (2007–2011) meant that 2013 was an inappropriate base.

Issues framed by the Court:

• Whether the Secretary of State’s allocation method and baseline choice were consistent with Regulation 1303/2013 and the treaty objectives (Articles 162, 174, 176, 177) and the fund-specific mission in Article 89;
• Whether the decisions amounted to unlawful unequal treatment of comparable regions (EU equality principle) or were otherwise disproportionate or irrational;
• The extent of the margin of judgment to be afforded to the Secretary of State in allocation of finite public and EU funds and the relevance of the Commission’s role and subsequent approval of the Partnership Agreement.

Court’s reasoning: The majority (Lords Sumption, Neuberger, Clarke and Hodge) emphasised (i) the wide regulatory discretion left to Member States under the 2013 Regulation for internal allocation, (ii) the political and devolved-administration context which legitimately informed the first-stage territorial split, and (iii) the complex evaluative judgment required by the second-stage allocation which warranted a wide margin of judicial respect. The Court held that allocations within a Member State were not dictated by the Commission’s GDP-based methodology for national allocation and that Merseyside and South Yorkshire’s receipt of temporary transitional funding in 2007–2011 was legitimately treated as spent by 2013. A majority concluded there was no unlawful discrimination or disproportionate burden that justified quashing the decisions.

Separate opinions: Lords Mance and Carnwath dissented. They considered that the combined effect of the two decisions produced significant and unjustified disparities between transition regions (notably Highlands & Islands and Northern Ireland on one hand and Merseyside and South Yorkshire on the other), and that comparable situations had been treated differently without adequate justification. They would have allowed the appeal and ordered reconsideration.

Wider context: The Court reiterated that judicial review must respect the executive’s primary role and expertise in high-level distributive decisions, while underlining that the courts retain responsibility to ensure conformity with statutory and EU-law limits; the case illustrates the tension between broad regulatory discretion and the requirement of rational and non-discriminatory decision-making.

The appeal is dismissed. The majority concluded that the Secretary of State’s two-stage allocation method—apportioning the United Kingdom allocation among the four nations (each reduced pro rata) and applying a uniform uplift based on 2013 allocations to English transition regions—was within the wide margin of administrative judgment permitted by Regulation (EU) 1303/2013, did not breach the EU principle of equality or domestic public law irrationality in the circumstances, and was not shown to be disproportionate. Dissenting judgments would have allowed the appeal on grounds that the combined effect of the decisions produced unjustified disparities between comparable transition regions.

On appeal from the Court of Appeal [2014] EWCA Civ 1080. The High Court decision is reported at [2014] EWHC 232 (Admin).