Councils win High Court case over allocation of EU structural funds

Nine local authorities have won a High Court challenge over the Government’s regional allocation of EU structural funds for 2014-2020.

The claimants in Rotherham Metropolitan Borough Council & Ors, R (on the application of) v Secretary of State for Business, Innovation and Skills [2014] EWHC 232 (Admin) were four South Yorkshire local authorities within the Sheffield City Region Local Enterprise Partnership and five local authorities within the Liverpool City Region Local Enterprise Partnership.

The challenge was to two decisions made by the Department for Business, Innovation and Skills (DBIS):

1. Its allocation of EU structural funds for 2014-2020 as between the four countries of the UK. This decision was announced on 26 March 2013.
2. Its allocation of EU structural funds for the same period as between the English regions. This decision was announced on 27 June 2013.

The claimant authorities believe that the reductions in their EU funding were disproportionate compared to other areas. The Merseyside region was allocated €202m but it claimed that Government documents showed that the European Commission had calculated its share to be €350m. The equivalent shortfall for South Yorkshire was around €90m.

Mr Justice Stewart, who heard the case in Leeds, ruled that the claimants’ challenge to both decisions failed on all grounds, except that it succeeded on a breach of the public sector equality duty (PSED).

The judge’s findings included:

• In relation to the first decision, the Department was making a socio-economic decision, which given the margin of discretion, was rational and permissible. DBIS was entitled not to take into account the EU average GDP per capita measure, and was entitled to adopt the approach it did.
• In relation to the second decision and the issues of rationality and an alleged failure to treat like cases alike and unlike cases differently, he did not accept there was any irrationality or breach of principle because there was no material difference of treatment. DBIS’ decision to treat the claimants and the other transition regions the same in 2014-2020, despite the fact that their 2013 funding allocations had been arrived at via a different route, was entirely justified. “This is particularly so given (a) the wide margin of appreciation and (b) the fact that the court should be slow to interfere in such a political judgment.” DBIS was entitled to adopt a single rule, even if it meant hard cases resulted.
• He accepted DBIS’ submission that while the claimants were hard cases (to allocate), the decisions were not unlawful. “Both the first and second decisions were rational and therefore, in the context of this case, the decisions were proportionate. Or also whatever the criteria had been adopted this would have produced some hard cases.”
• DBIS had a wide discretion as to the allocation to the transition regions. The judge rejected the submission that the Department had failed to take into account relevant considerations. “[The Department] had no duty to consider the GDP of the transition regions relative to the EU average when carrying out [its] analysis. Nor did the defendant have any duty to consider the hypothesis of the claimants having been competitiveness regions in 2007-2013. Using a basket of economic indicators was considered but rejected.”

On the issue of the PSED, the Department accepted that there had been no consideration of the duty prior to making either of the two decisions challenged.

It argued that where high level decisions were being taken as to budget levels or a spending envelope, detailed assessment of equality impact might be neither appropriate nor possible.

DBIS also claimed it did not have to have ‘due regard’ in this case because:

• It would tend to be the consequences of decisions taken by the claimants themselves which would have an impact on particular protected characteristics.
• The funds available for the transition regions were fixed. The Department's decisions therefore affected regions which were all relatively socially disadvantaged, some more so disadvantaged than the claimants. The Department added that there was no contention or any evidence that the claimants' distribution of those with protected characteristics were in any material sense different from other transition regions.

Mr Justice Stewart rejected these contentions made by DBIS. He said: “The defendant's decisions fixed the individual allocation for each region. Those allocations are in no sense preliminary or provisional. The fact that the individual regions would themselves have to consider the PSED when deciding how to use the funds allocated to them cannot absolve the defendant from the PSED.”

The judge also said that an equality impact assessment carried out by DBIS after the event could not save the decision making. He quashed the decisions.

Joe Anderson, Liverpool’s Mayor, said: “This is excellent news for Liverpool City Region. The court has found that the Government has had complete disregard for its legal duty when making its decision.

“It is well documented that Liverpool is one of the most deprived areas in the country and as part of its process the Government should have fully assessed this to make sure there was no unfair discrimination when making its decision.”

He added: “European funding is meant to tackle economic inequality, yet as the poorest area in the North West were awarded far less funding per head than the rest of the region including wealthier areas such as Cheshire.”