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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> R v Secretary of State for the Environment ex p. Nottinghamshire CC [1985] UKHL 8 (12 December 1985)
URL: http://www.bailii.org/uk/cases/UKHL/1985/8.html
Cite as: [1986] AC 240, [1985] UKHL 8

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JISCBAILII_CASE_CONSTITUTIONAL

    Parliamentary Archives,
    HL/PO/JU/18/245

    Nottinghamshire County Council (Respondents) v. Secretary of

    State for the Environment (Appellant) and City of Bradford
    Metropolitan Council (Respondents) v. Secretary of State for

    the Environment (Appellant)

    JUDGMENT

    Die Jovis 12° Decembris 1985

    Upon Report from the Appellate Committee to whom was
    referred the Cause Nottinghamshire County Council against the
    Secretary of State for the Environment and the City of
    Bradford Metropolitan Council against the Secretary of State
    for the Environment, That the Committee had heard Counsel on
    28th, 29th, 30th and 31st October and 4th, 5th and 7th
    November last upon the Petition and Appeal of the Secretary
    of State for the Environment of Marsham Street, London, SW1
    praying that the matter of the Order set forth in the
    Schedule thereto, namely an Order of Her Majesty's Court of
    Appeal of 3rd October 1985, might be reviewed before Her
    Majesty the Queen in Her Court of Parliament and that the
    said Order might be reversed, varied or altered or that the
    Petitioner might have such other relief in the premises as to
    Her Majesty the Queen in Her Court of Parliament might seem
    meet; as also upon the Cases of the Nottinghamshire County
    Council and the City of Bradford Metropolitan Council lodged
    in answer to the said Appeal, and due consideration had this
    day of what was offered on either side in this Cause:

    It is Ordered and Adjudged, by the Lords Spiritual and
    Temporal in the Court of Parliament of Her Majesty the Queen
    assembled, That the Appeal be Allowed, and the said Order of
    Her Majesty's Court of Appeal of the 3rd October 1985
    complained of in the said Appeal be, and the same is hereby,
    Set Aside: And it is further Ordered, That the Order as to
    Costs of Mr. Justice Kennedy of 15th March 1985 be, and the
    same is hereby, Restored: And it is further Ordered, That the
    Respondent Councils do each pay or cause to be paid to the
    said Appellant one half of the Costs incurred by him in the
    Court of Appeal and also of the Costs incurred by him in
    respect of the said Appeal to this House, the amount of such
    last-mentioned Costs to be certified by the Clerk of the
    Parliaments if not agreed between the parties: And it is
    also further Ordered, That the Cause be, and the same is
    hereby, remitted back to the Queen's Bench Division of the
    High Court of Justice to do therein as shall be just and
    consistent with this Judgment.

    Cler: Parliamentor:


    HOUSE OF LORDS

    NOTTINGHAMSHIRE COUNTY COUNCIL
    (RESPONDENTS)

    v.

    SECRETARY OF STATE FOR THE ENVIRONMENT

    (APPELLANT)

    CITY OF BRADFORD METROPOLITAN COUNCIL

    (RESPONDENTS)

    v.

    SECRETARY OF STATE FOR THE ENVIRONMENT

    (APPELLANT)

    Lord Scarman
    Lord Roskill
    Lord Bridge of Harwich
    Lord Templeman
    Lord Griffiths


    LORD SCARMAN

    My Lords,

    In December 1984 the Secretary of State for the
    Environment laid before the House of Commons the Rate Support
    Grant Report (England) for the year 1985-86. In due course the
    report was approved by resolution of the House. The Secretary of
    State included in the report (additionally to the matters which he
    was required by law to specify therein) expenditure guidance to
    local authorities for that year.

    He was empowered to issue guidance by section 59 of the
    Local Government, Planning and Land Act 1980 ("the Act") as
    amended by the Local Government Finance Act 1982 and he would
    have power to enforce the guidance by the mechanism of a
    multiplier if he reported to and obtained the approval of the
    House of Commons: section 59(1)(4)(5)(6) and section 60(6)(7)(8). It
    is this guidance which the respondent authorities, the
    Nottinghamshire County Council ("Nottingham") and the City of
    Bradford Metropolitan Council ("Bradford"), challenge as unlawful.
    They make two submissions.

    First, they submit that the guidance does not comply with
    subsection (11A) of section 59 of the Act in that it was not
    "framed by reference to principles applicable to all local
    authorities." This submission was rejected by the trial judge
    (Kennedy J.) but accepted on appeal by the Court of Appeal
    (Lawton, Slade and Dillon L.JJ.). In his speech to your Lordships
    my noble and learned friend, Lord Bridge of Harwich, considers the
    Act as amended, and advances his reasons for holding that on the
    true construction of the subsection the Secretary of State's
    guidance was framed by reference to principles applicable to all
    authorities. I agree with him. Accordingly, I confine my speech
    to the respondents' second submission to which I now turn.

    Their second submission is that, even if the guidance
    complies with the words of the statute, it offends a principle of
    public law in that the burden which the guidance imposes on some
    authorities, including Nottingham and Bradford, is so
    disproportionately disadvantageous when compared with its effect
    upon others that it is a perversely unreasonable exercise of the
    power conferred by the statute upon the Secretary of State. The
    respondents rely on what has become known to lawyers as the
    "Wednesbury principles" - by which is meant the judgment of Lord
    Greene M.R. in Associated Provincial Picture Houses Ltd, v.
    Wednesbury Corporation
    [1948] 1 KB 223, 229.

    Neither the trial judge nor the Court of Appeal accepted
    the second submission. But much has been made of it in the
    courts below and in your Lordships' House. The respondents' case
    is that the guidance is grossly unfair, some authorities doing
    disproportionately well and others being hit undeservedly hard.
    Your Lordships have been taken through the detail and have been
    invited to hold that no reasonable Secretary of State could have
    intended consequences so disproportionate in their impact as
    between different local authorities. The House is invited in its
    judicial capacity to infer from these consequences that the
    Secretary of State must have abused the power conferred upon him
    by the Act.

    The submission raises an important question as to the limits
    of judicial review. We are in the field of public financial
    administration and we are being asked to review the exercise by
    the Secretary of State of an administrative discretion which
    inevitably requires a political judgment on his part and which
    cannot lead to action by him against a local authority unless that
    action is first approved by the House of Commons.

    The Secretary of State's guidance which is challenged was
    included in the Rate Support Grant Report for 1985-86 which was
    laid before and approved by the House of Commons: no payment
    of grant, and no reduction in the amount of grant by the
    Secretary applying a multiplier pursuant to section 59 of the Act,
    can be made unless covered by the report or by a supplementary
    report and approved by the House of Commons. I am not
    surprised that the trial judge and Court of Appeal declined to
    intervene.

    My Lords, I think that the courts below were absolutely
    right to decline the invitation to intervene. I can understand that
    there may well arise a justiciable issue as to the true construction
    of the words of the statute and that, if the Secretary of State has
    issued guidance which fails to comply with the requirement of
    subsection (11A) of section 59 the Act of 1980 the guidance can
    be quashed. But I cannot accept that it is constitutionally-
    appropriate, save in very exceptional circumstances, for the courts
    to intervene on the ground of "unreasonableness" to quash guidance
    framed by the Secretary of State and by necessary implication
    approved by the House of Commons, the guidance being concerned
    with the limits of public expenditure by local authorities and the
    incidence of the tax burden as between taxpayers and ratepayers.
    Unless and until a statute provides otherwise, or it is established
    that the Secretary of State has abused his power, these are
    matters of political judgment for him and for the House of

    - 2 -

    Commons. They are not for the judges or your Lordships' House
    in its judicial capacity.

    For myself, I refuse in this case to examine the detail of
    the guidance or its consequences. My reasons are these. Such an
    examination by a court would be justified only if a prima facie
    case were to be shown for holding that the Secretary of State had
    acted in bad faith, or for an improper motive, or that the
    consequences of his guidance were so absurd that he must have
    taken leave of his senses. The evidence comes nowhere near
    establishing any of these propositions. Nobody in the case has
    ever suggested bad faith on the part of the Secretary of State.
    Nobody suggests, nor could it be suggested in the light of the
    evidence as to the matters he considered before reaching his
    decision, that he had acted for an improper motive. Nobody now
    suggests that the Secretary of State failed to consult local
    authorities in the manner required by statute. It is plain that the
    timetable, to which the Secretary of State in the preparation of
    the guidance was required by statute and compelled by
    circumstance to adhere, involved him necessarily in framing
    guidance on the basis of the past spending record of authorities.
    It is recognised that the Secretary of State and his advisers were
    well aware that there would be inequalities in the distribution of
    the burden between local authorities but believed that the guidance
    upon which he decided would by discouraging the high spending and
    encouraging the low spending authorities be the best course of
    action in the circumstances. And, as my noble and learned friend
    Lord Bridge of Harwich demonstrates, it was guidance which
    complied with the terms of the statute. This view of the
    language of the statute has inevitably a significant bearing upon
    the conclusion of "unreasonableness" in the Wednesbury sense. If,
    as your Lordships are holding, the guidance was based on principles
    applicable to all authorities, the principles would have to be either
    a pattern of perversity or an absurdity of such proportions that
    the guidance could not have been framed by a bona fide exercise
    of political judgment on the part of the Secretary of State. And
    it would be necessary to find as a fact that the House of
    Commons had been misled: for their approval was necessary and
    was obtained to the action that he proposed to take to implement
    the guidance.

    In my judgment, therefore, the courts below acted with
    constitutional propriety in rejecting the so-called "Wednesbury
    unreasonableness" argument in this case. The trial judge, Kennedy
    J., rightly reminded himself of an observation made by Lord
    Diplock in Secretary of State for Education and Science v.
    Tameside Metropolitan Borough Council
    [1977] AC 1014, 1064:

    "The very concept of administrative discretion involves a
    right to choose between more than one possible course of
    action upon which there is room for reasonable people to
    hold differing opinions as to which is to be preferred."

    And he concluded, after giving more attention to the
    detailed arguments as to the financial consequences of the
    guidance than they were strictly entitled to receive:

    "In my judgment, although the Secretary of State could, of
    course, have set different guidance which would perhaps not

    - 3 -

    have caused the applicant authorities to complain, it cannot
    be said that the approach which he has adopted was
    unreasonable in the Wednesbury sense."

    The Court of Appeal adopted the same approach. After
    referring to section 59(6)(cc) of the Act of 1980 which requires
    the Secretary of State, when deciding what guidance to issue, to
    do what he thinks necessary having regard to general economic
    conditions, Lawton L.J. observed with constitutional propriety:

    " Parliament has left him to decide what he thinks necessary.
    He has to make a political and economic judgment. He
    may make a sound one or a bad one. This court might
    have been able to make a better one than he made; but we
    must remind ourselves that Parliament, no doubt for good
    reason, has not entrusted guidance to us."

    The other members of the court had no doubt that no case was
    made out that the [Secretary of State] had acted with Wednesbury
    unreasonableness or perversity.

    "Wednesbury principles" is a convenient legal "shorthand"
    used by lawyers to refer to the classical review by Lord Greene
    M.R. in the Wednesbury case of the circumstances in which the
    courts will intervene to quash as being illegal the exercise of an
    administrative discretion. No question of constitutional propriety
    arose in the case, and the Master of the Rolls was not concerned
    with the constitutional limits to the exercise of judicial power in
    our parliamentary democracy. There is a risk, however, that the
    judgment of the Master of the Rolls may be treated as a
    complete, exhaustive, definitive statement of the law.

    The law has developed beyond the limits understood to apply
    to judicial review as practised by the courts in 1948. The ground
    upon which the courts will review the exercise of an
    administrative discretion by a public officer is abuse of power.
    Power can be abused in a number of ways: by a mistake of law in
    misconstruing the limits imposed by statute (or by common law in
    the case of a common law power) upon the scope of the power; by
    procedural irregularity; by unreasonableness in the Wednesbury
    sense; or by bad faith or an improper motive in its exercise. A
    valuable, and already "classical," but certainly not exhaustive
    analysis of the grounds upon which courts will embark on the
    judicial review of an administrative power exercised by a public
    officer is now to be found in Lord Diplock's speech in Council of
    Civil Service Unions v. Minister for the Civil Service
    [1985] A.C.
    374.

    In an earlier case, in which this House ruled that the Inland
    Revenue Commissioners were "not immune" from judicial review,
    Lord Diplock made the comment that they were accountable to
    Parliament

    "so far as regards efficiency and policy, and of that
    Parliament is the only judge; they are responsible to a court
    of justice for the lawfulness of what they do, and of that
    the court is the only judge": Reg, v. Inland Revenue
    Commissioners, Ex parte National Federation of Self-
    Employed and Small Businesses Ltd.
    [1982] AC 617, 644.

    - 4 -

    In the same case I indicated, at p. 650, that the judges had
    consistently recognised that they could provide a remedy for abuse
    of power on the principle that the improper or capricious exercise
    of a power is was unlawful. And I went on, at pp. 652-653, to
    stress the existence in the case of the commissioners of a legal
    duty of fairness owed to the general body of taxpayers.

    This approach with its distinction between accountability to
    Parliament and review by the courts of the lawfulness of the
    exercise of administrative power was further developed and
    confirmed by the House in two recent decisions: Reg, v. Inland
    Revenue Commissioners, Ex parte Preston
    [1985] 2 W.L.R. 836 and
    Wheeler v. Leicester City Council [1985] 3 W.L.R. 335. In
    Preston's case my noble and learned friend, Lord Templeman,
    delivered the leading speech with which their other Lordships
    agreed. He declared the principle of law to be that the courts
    may intervene to review a power conferred by statute on the
    ground of unfairness but only if the unfairness in the purported
    exercise of the power be such as to amount to an abuse of the
    power. Wheeler v. Leicester City Council is a striking illustration
    on its facts of circumstances in which the courts may intervene on
    the ground of abuse of power arising from an improper motive in
    its exercise.

    The present case raises in acute form the constitutional
    problem of the separation of powers between Parliament, the
    executive, and the courts. In this case, Parliament has enacted
    that an executive power is not to be exercised save with the
    consent and approval of one of its Houses. It is true that the
    framing of the guidance is for the Secretary of State alone after
    consultation with local authorities: but he cannot act on the
    guidance so as to discriminate between local authorities without
    reporting to, and obtaining the approval of, the House of
    Commons. That House has, therefore, a role and a responsibility
    not only at the legislative stage when the Act was passed but in
    the action to be taken by the Secretary of State in the exercise
    of the power conferred upon him by the legislation.

    To sum it up, the levels of public expenditure and the
    incidence and distribution of taxation are matters for Parliament,
    and, within Parliament, especially for the House of Commons. If
    Parliament legislates, the courts have their interpretative role:
    they must, if called upon to do so, construe the statute. If a
    minister exercises a power conferred on him by the legislation, the
    courts can investigate whether he has abused his power. But if,
    as in this case, effect cannot be given to the Secretary of State's
    determination without the consent of the House of Commons and
    the House of Commons has consented, it is not open to the courts
    to intervene unless the minister and the House must have
    misconstrued the statute or the minister has - to put it bluntly -
    deceived the House. The courts can properly rule that a minister
    has acted unlawfully if he has erred in law as to the limits of his
    power even when his action has the approval of the House of
    Commons, itself acting not legislatively but within the limits set
    by a statute. But, if a statute, as in this case, requires the
    House of Commons to approve a minister's decision before he can
    lawfully enforce it, and if the action proposed complies with the
    terms of the statute (as your Lordships, I understand, are
    convinced that it does in the present case), it is not for the

    - 5 -

    judges to say that the action has such unreasonable consequences
    that the guidance upon which the action is based and of which the
    House of Commons had notice was perverse and must be set aside.
    For that is a question of policy for the minister and the
    Commons, unless there has been bad faith or misconduct by the
    Minister. Where Parliament has legislated that the action to be
    taken by the Secretary of State must, before it is taken, be
    approved by the House of Commons, it is no part of the judges'
    role to declare that the action proposed is unfair, unless it
    constitutes an abuse of power in the sense which I have explained;
    for Parliament has enacted that one of its Houses is responsible.
    Judicial review is a great weapon in the hands of the judges: but
    the judges must observe the constitutional limits set by our
    parliamentary system upon their exercise of this beneficent power.

    My Lords, for the reasons which I have developed coupled
    with the reasons developed in the speeches of my noble and
    learned friends, Lord Bridge of Harwich and Lord Templeman, I
    would allow the appeal of the Secretary of State. I would propose
    that the order for costs made by the trial judge should be restored
    and that the Secretary of State be granted an order that his costs
    in the Court of Appeal and in your Lordships' House be paid as to
    one half by Nottingham and as to the other half by Bradford.
    There should be a certificate for three counsel for the Secretary
    of State.

    LORD ROSKILL

    My Lords,

    I have had the advantage of reading in draft the speeches
    of my noble and learned friends Lord Scarman and Lord Bridge of
    Harwich. The former speech deals with the issue of judicial
    review. In agreement with my noble and learned friend Lord
    Scarman and with both courts below I am of the opinion that
    guidance issued by the Secretary of State which the respondents
    seek to challenge is in no way susceptible of attack by this route
    for the reasons which my noble and learned friend gives.

    The latter speech deals with the construction of the
    relevant legislation. In agreement with my noble and learned
    friend Lord Bridge of Harwich and Kennedy J. but in respectful
    disagreement with the Court of Appeal, I am of the opinion that
    the submissions of the Secretary of State as to the true
    construction of the relevant legislation are correct for the reasons
    which my noble and learned friend Lord Bridge of Harwich gives in
    that speech. No useful purpose would therefore be served by
    adding any observations of my own upon on either issue. In my
    opinion the appeal should be allowed and the order of Kennedy J.,
    dated 15 March 1985, refusing the relief sought by the respondents
    be restored.

    - 6 -

    LORD BRIDGE OF HARWICH

    My Lords,

    These appeals raise questions of importance to central and
    local government under the Local Government, Planning and Land
    Act 1980 ("the Act of 1980") as amended by the Local Government
    Finance Act 1982 ("the Act of 1982").

    As required by section 60(2) of the Act of 1980 the
    appellant, on 20 December 1984, made for the financial year
    1985/86 the Rate Support Grant Report (England) 1985/86 ("the
    1985/86 Report") which was laid before, and in due course
    approved by resolution of, the House of Commons pursuant to
    section 60(7) and (8). Although not one of the matters formally
    required by the relevant statutory provisions to be included in the
    Rate Support Grant Report, the appellant in fact included in the
    1985/86 Report, as he had in previous years, the guidance which
    he is empowered to issue under section 59(6)(cc) of the Act of
    1980 as amended by the Act of 1982, setting expenditure targets
    for all local authorities for the coming year which, as will be
    explained, they may only exceed at risk of suffering a reduction in
    the amount they will receive by way of grant from central
    government funds.

    Three local authorities, the Derbyshire County Council and
    the two present respondents, thought their expenditure targets had
    been set at unfairly low levels. All three made applications for
    judicial review, asking the court to make orders of certiorari or
    declarations condemning the guidance as ultra vires. The two
    broad grounds of attack were (1) that the guidance had not been
    "framed by reference to principles applicable to all local
    authorities" as required by section 59(11A) of the Act of 1980; (2)
    that the appellant had exercised his power unreasonably in what, in
    current legal jargon, is commonly called the "Wednesbury" sense
    (Associated Provincial Picture Houses Ltd. v. Wednesbury
    Corporation
    [1948] 1 KB 223).

    The applications were heard together and dismissed by
    Kennedy J. The present respondents appealed to the Court of
    Appeal (Lawton, Slade and Dillon L.JJ.) who allowed both appeals
    on the first ground. The appellant now appeals in each case by
    leave of your Lordships' House.

    As is well known, it has been government policy since 1979
    to reduce or restrain the level of public expenditure, which
    includes, of course, expenditure by local authorities. Local
    authorities' revenue expenditure is funded from three main sources,
    namely central government grants, rates, and fees and charges for
    services provided. Part VI of the Act of 1980 entitled "Rate
    Support Grant" and Part II of the Act of 1982 entitled "Block
    Grant" establish elaborate statutory mechanisms clearly designed to
    encourage efficiency and economy on the part of local authorities
    by providing, to put the matter in the broadest and necessarily
    over-simplified terms, for variations in the level of block grant to
    any local authority depending on the level of that authority's
    expenditure in relation to a given base-line. To over-simplify
    again, the result is that the proportion of a local authority's total
    expenditure which it must raise from the rates is higher if it is

    - 7 -

    extravagant, lower if it is economical. The block grant system
    thus contains elements of both the carrot and the stick, but stops
    short of giving central government any direct control over local
    authority finance. The further step of empowering the government
    to exercise such control was taken by the Rates Act 1984 which
    introduced the system commonly referred to as "rate-capping." I
    mention this at the outset only to make clear that your Lordships
    are not concerned in these appeals in any way with rate capping.
    True, it was argued for the appellant that we should look at
    certain provisions of the Act of 1984 as aids to the construction
    of the Acts of 1980 and 1982. Even assuming that to be
    permissible, which I doubt, I do not find it helpful and accordingly
    I dismiss the Act of 1984 from consideration as irrelevant.

    Before 1980 the government, save in relation to specific
    services supported by specific grants, could only influence local
    authority spending, otherwise than by exhortation, by varying the
    amount of rate support grant available to all local authorities. It
    suffices to say of the old statutory system that it contained no
    effective mechanism in relation to the distribution of the rate
    support grant for discriminating between high-spending and low-
    spending authorities. As already indicated, the Act of 1980 was
    designed to provide just such a mechanism and the Act of 1982
    undoubtedly introduced an additional discriminating element which
    Parliament must have thought necessary to make the mechanism
    more effective.

    The statutory provisions under which the distribution of
    grants is regulated are highly complex and sophisticated. The
    manner in which the statutory powers have been exercised in
    successive Rate Support Grant Reports has been no less so. It is
    perhaps not surprising that there should have been a number of
    challenges to the Secretary of State in judicial review proceedings
    by local authorities aggrieved by the way in which his exercise of
    the powers has affected them. The earliest case, and so far as I
    know the only one to reach the law reports, was Reg, v. Secretary
    of State for the Environment, Ex parte Brent London Borough
    Council
    [1982] Q.6. 593. Since then there have been a number of
    unreported decisions of which your Lordships have been provided
    with transcripts. Nearly all the judges who have had to grapple
    with the subject have found it necessary for the purpose of
    deciding the particular point before them to attempt an exposition
    of the system at some length.

    Some introductory outline of the system is essential to any
    understanding of the subject. But in pursuit of the almost
    unattainable objective of reasonable brevity combined with
    intelligibility it may be legitimate once again to run the risk of an
    over-simplified sketch of the system's main features.

    The aggregate rate support grant for any year is the total
    amount estimated by the Secretary of State to be available from
    central government funds in support of local government
    expenditure apart from specific grants in support of certain
    specific services. Whatever is received by a local authority by
    way of rate support grant is allocated and expended at the
    discretion of that local authority as between the various services
    it provides. Rate support grant is divided into two elements,
    domestic rate relief grant and block grant. Domestic rate relief

    - 8 -

    grant is a direct subsidy to domestic ratepayers who pay at a
    lower rate poundage than others. No question arises in these
    appeals with respect to it.

    The critical provisions of the statutory system under
    consideration are those which govern the distribution of the block
    grant between local authorities. It is essential to appreciate at
    the outset that the aggregate amount available for distribution as
    block grant is a fixed sum determined by the Secretary of State,
    so that adjustments of grant to any one or more authorities must
    affect the grant to others.

    One key concept in the distribution system is that of grant-
    related expenditure (GRE). This is defined by section 56(8) of the
    Act of 1980 as meaning "in relation to each authority to whom
    block grant is payable for any year, . . . the aggregate for the
    year of their notional expenditure having regard to their
    functions." This "notional" expenditure has been used in successive
    Rate Support Grant Reports as an estimate of the expenditure
    which each authority would need to incur if all authorities
    provided the same standard of service with the same degree of
    efficiency at a level consistent with the government's aggregate
    spending plans for local government. Assessments of GRE relate
    spending need to the cost of providing services to each "client" in
    need of them or "unit" of service provided. To reflect
    differences, not only between authorities' functions and the size of
    populations for which they must provide relevant services, but also
    between all other identifiable factors which may affect the cost of
    their provision (e.g. the make-up of the population, the physical
    features of the area, local social and environmental problems), an
    elaborate table of "indicators" is used (see Appendix 1 to Annex K
    to the 1985/86 Report).

    The second key concept is grant-related poundage (GRP).
    The basic yardstick used is GRP at GRE. What this means is the
    rate poundage which a local authority in any given class (county
    councils, district councils, London borough councils, etc.) would
    need to levy, having regard to the aggregate rateable value of the
    properties in its area, to finance expenditure at GRE level. The
    actual GRP of each individual authority is then determined by a
    complicated formula which depends on the authority's total
    expenditure. If an authority spends at GRE level its GRP will be
    determined by the basic yardstick of GRP at GRE. But if an
    authority's expenditure is above or below GRE level, the formula
    will determine the appropriate increase or decrease in its GRP.

    GRP is the key determinant in fixing an authority's block
    grant, which is calculated by deducting from an authority's total
    expenditure the product of its GRP multiplied by the gross
    rateable value of the property in its area. The formula for
    determining GRP according to the relationship between an
    authority's total expenditure and its GRE is thus all-important in
    its effect on the distribution of block grant.

    The statutory definition of GRP in section 56(8) is:

    "a poundage related - (a) to a given ratio between [a local
    authority's] total expenditure and their grant-related
    expenditure; or (b) to a given difference between their total

    - 9 -

    expenditure divided by their population and their grant-
    related expenditure so divided." This leaves the formula to
    be determined in the Rate Support Grant Report. But an
    important constraint is imposed by section 58(2) and (3)
    which provide as follows:

    "(2) Where an authority's total expenditure is at a level
    equal to or less than their grant-related expenditure, a given
    decrease in their total expenditure must produce the same
    decrease in their grant-related poundage as would be
    produced by the same decrease in their total expenditure if
    it were at any other level which is less than their grant-
    related expenditure. "(3) Where an authority's total
    expenditure is at a level equal to or more than their grant-
    related expenditure, a given increase in their total
    expenditure must produce an increase in their grant-related
    poundage not less than the increase that would be produced
    by the same increase in their total expenditure if it were at
    any lower level."

    The effect of these provisions is accurately and lucidly stated in
    an affirmation of Peter Francis Owen, an Under Secretary in the
    Department of the Environment, as follows:

    "(a) so long as an authority is spending at less than its GRE
    the cost to the ratepayer of each unit of increase in
    expenditure must be the same; (b) if an authority is
    spending more than its GRE, the principles for determination
    of [GRP] may provide that the cost to the ratepayer of
    each unit of increase in expenditure shall be higher, and
    must provide that it shall not be less, than would have been
    the case had the authority been spending at any lower level;
    (c) it is possible for the principles to specify a threshold at
    which the tapering mechanism that I have described above
    begins to take effect."

    This tapering mechanism provides the primary means under the Act
    of 1980, as originally enacted, of applying a disincentive to
    extravagant spending by local authorities and has been used in
    successive Rate Support Grant Reports to set a threshold at 10
    per cent. above GRE, beyond which the formula for calculation of
    GRP results in a lower proportion of excess expenditure being
    centrally funded and consequently a higher proportion failing on
    the ratepayers.

    The Act of 1982 added the important new power of
    abatement of block grants to high-spending authorities with which
    these appeals are concerned. It empowered the Secretary of State
    to set expenditure targets for local authorities and to adjust the
    amounts of their block grants in the light of their performance by
    reference to those targets.

    It will be convenient at this point to set out the essential
    provisions of the legislation on which the point of construction
    raised in the appeals principally depends. Section 59 of the Act
    of 1980 as amended by section 8 of the Act of 1982, so far as
    material, provides as follows:

    "(1) Subject to the following provisions of this section, the
    Secretary of State may provide in a Rate Support Grant

    - 10 -

    Report that the amount of block grant payable to a local
    authority for a year shall be calculated by deducting from
    their total expenditure, instead of the product of their
    grant-related poundage and the gross rateable value of their
    area, the product of those sums multiplied by a multiplier
    determined by the Secretary of State. ...(4) The power
    conferred by subsection (1) above may be exercised so as to
    determine different multipliers for different authorities. (5)
    Except as provided by subsection (7) below, the power - (a)
    may only be exercised - (i) in accordance with principles to
    be applied to all local authorities; or (ii) in accordance with
    principles to be applied to all local authorities belonging to
    the appropriate class; and (b) may only be exercised for any
    such purpose as is specified in paragraphs (a) to (d) of
    subsection (6) below. (6) The purposes mentioned in
    subsection (5) above are - (a) limiting the change in the
    amount of block grant payable to an authority for the year
    from the amount payable in the previous year; (b) taking
    account of less than the gross rateable value of an authority
    or group of authorities in calculating the amount of block
    grant payable; (c) reducing, whether in whole or in part,
    disparities in the rates levied in different rating areas of
    Greater London other than the Temples; (cc) making, in the
    amount of block grant payable to an authority, adjustments
    by reference to guidance issued by the Secretary of State
    and designed to achieve any reduction in the level of local
    authority expenditure (or any restriction on increases in that
    level) which he thinks necessary having regard to general
    economic conditions; and (d) any such other purpose as the
    Secretary of State may determine. . . . (11A) Any guidance
    issued for the purpose of subsection (6)(cc) above shall be
    framed by reference to principles applicable to all local
    authorities; and before issuing any guidance for those
    purposes the Secretary of State shall consult such
    associations of local authorities as appear to him to be
    concerned and any local authority with whom consultation
    appears to him to be desirable."

    The amendments introduced into this section by section 8 of the
    Act of 1982 are subsection (6)(cc) and subsection (11A). Section S
    of the Act of 1982, so far as material, provides as follows:

    "(3) The powers conferred by ... section 59 [of the Act of
    [1980] - . . . (c) shall be exercisable for the purpose
    specified in paragraph (cc) of [subsection (6)] so as to
    increase or decrease the amount of block grant payable to a
    local authority according to whether or the extent to which
    they have or have not complied (or have or have not taken
    steps to comply) with the guidance referred to in that
    paragraph. (4) If representations in that behalf are made to
    him by any association of local authorities or by any local
    authority the Secretary of State may - (a) in the Rate
    Support Grant Report made for any year under section 60 of
    the said Act of 1980; or (b) in a supplementary report
    made for any year under section 61 of that Act, provide
    that expenditure of any description or amount shall be
    disregarded for the purposes of paragraph (cc) of subsection
    (6) of the said section 59 and in determining under
    subsection (3)(c) above whether or the extent to which local

    - 11 -

    authorities have or have not complied (or have or have not
    taken steps to comply) with the guidance referred to in that
    paragraph. ... (6) The powers conferred by the said section
    59 ... shall not be exercised for the purpose specified in
    subsection (6)(cc) of that section except in accordance with
    principles to be applied to all local authorities; and
    accordingly [subsection] (5)(a)(ii) ... of that section . . .
    shall not apply to any exercise of those powers for that
    purpose. (7) A supplementary report made for any year
    under section 61 of the said Act of 1980 may specify a
    determination under the said section 59 ... in relation to a
    local authority notwithstanding that no such determination
    was specified in relation to that authority in the Rate
    Support Grant Report made for that year under section 60
    of that Act. (8) No determination made for the purpose
    specified in subsection (6)(cc) of the said section 59 and
    specified by virtue of subsection (7) above in a
    supplementary report shall be such as to decrease the
    amount of block grant payable to a local authority in any
    year to any greater extent than is permissible in accordance
    with principles specified in that behalf in the Rate Support
    Grant Report made for that year. . . . (10) This section has
    effect in relation to block grant for any year beginning on
    or after 1 April 1981 . . . . (11) In relation to the year
    beginning on 1 April 1981 or 1 April 1982 references in this
    section to guidance issued by the Secretary of State include
    references to guidance issued by him before the passing of
    this Act . . . ."

    The guidance issued under section 59(6)(cc) of the Act of
    1980 in the 1985/86 Report, so far as relevant for present
    purposes, is found in paragraphs 11 and 12 of the main text of the
    Report and in paragraphs 2 and 3 of Annex D. These paragraphs
    read as follows:

    "11. The Government remains concerned about the level of
    spending by local authorities, and believes that present
    economic circumstances necessitate further restraint. As
    for 1984/35, the Secretary of State has therefore decided to
    issue guidance to each local authority about its level of
    expenditure in 1985/86. He circulated provisional guidance
    figures to all authorities on 24 July 1984. He has
    considered all the representations made to him since then by
    local authorities and their associations, and has now issued
    expenditure guidance, or targets, for 1985/86 to all local
    authorities. Some changes have been made to the
    provisional targets proposed earlier, affecting a number of
    low-spending authorities. No authority's target is lower than
    its provisional target. 12. Compliance with the guidance
    requires most restraint from authorities budgeting in 1984/85
    to spend above both their grant-related expenditure
    assessment and guidance for the year and least restraint
    from those budgeting in 1984/85 to spend at target and at
    or below GRE. The effect of the guidance is to allow most
    low-spending authorities an increase in spending in line with
    the Government's best estimate of inflation. An explanation
    of the principles on which the guidance has been framed is
    at Annex D. The sum of the guidance is equal to estimated
    total expenditure, as defined for block grant purposes (see

    - 12 -

    Annex A). ... ANNEX D ... 2. The guidance is as
    follows: if an authority's budgeted total expenditure for
    1984/85 is less than or equal to that authority's grant-
    related expenditure (GRE) for 1984/85, the guidance is 3.75
    per cent. above its 1984/85 adjusted GRE; otherwise the
    guidance is 3.75 per cent. above its adjusted expenditure
    guidance for 1984/85; in either case it is subject to the
    constraints described in paragraph 3, and in all cases further
    adjusted as described in paragraph 4. 3. The constraints
    mentioned in paragraph 2 are as follows: (a) the maximum
    percentage increase from an authority's 1984/85 adjusted
    budget is 4.5 per cent., unless: (i) that gives a figure less
    than is given by a 4.625 per cent. increase on the
    authority's 1984/85 adjusted expenditure guidance, and (ii)
    the authority's budgeted total expenditure for 1984/85 is less
    than or equal to its GRE for 1984/85, in which case the
    constraint is a 4.625 per cent. increase on whichever is the
    lower of the authority's 1984/85 adjusted budget and its
    1984/85 adjusted expenditure guidance, and (b) the
    maximum percentage reduction from an authority's 1984/85
    adjusted budget is 1.5 per cent."

    To summarise the effect of this, local authorities are given
    targets for expenditure in 1985/86 based either on their 1984/85
    targets or on their 1984/85 GRE, subject to maximum limits on
    the percentage by which the application of the formula in
    paragraph 2 of Annex D may increase or reduce their expenditure
    targets for 1985/86 above or below their budgeted expenditure in
    1984/85.

    It is important to realise, and it is, I think, now common
    ground, that the exigencies of the timetable, having regard both to
    the various requirements of consultation and to the need to allow
    local authorities sufficient time to prepare their budgets for the
    coming year, constrained the Secretary of State, when he issued
    his guidance in December 1984, setting targets for expenditure in
    1985/86, to look to 1984/85 budgets as the latest indication of
    authorities' spending levels, and so far as he wished to take GRE
    levels into account, to base himself on GRE levels in 1984/85. It
    is also common ground that, while GRE is designed to provide a
    theoretical norm to which ideally it would be appropriate for local
    authority expenditure to conform, in practice levels of expenditure
    have in the past varied widely in relation to GRE, some
    authorities spending well above it, others well below it. The
    consequence of this is that any part played by the notional GRE
    level of expenditure in determining expenditure targets must be
    subordinate to historical levels of actual expenditure by different
    authorities in recognition of the reality that to require a large and
    sudden down-turn in a local authority's expenditure would be
    impracticable, while conversely to permit a large and sudden up-
    turn in a local authority's expenditure would be unnecessary.

    I hope this introduction sets the scene sufficiently to enable
    me now to turn to the respondents' primary attack on the
    guidance. The submission, which found favour with the Court of
    Appeal, is that paragraph 2 of Annex D, in that it distinguishes
    between local authorities who budgeted in 1984/85 to spend below
    and those who budgeted to spend above GRE and sets their 1985/86
    targets at a percentage increase above different base-lines

    - 13 -

    (1984/85 GRE and 1984/85 targets respectively), is not "framed by
    reference to principles applicable to all local authorities" and
    therefore contravenes section 59(11A) of the Act of 1980.

    The submission for the respondents is that section 59(11A),
    on its true construction, requires that each and every principle by
    reference to which the guidance is framed must be capable of
    being applied equally to all local authorities. The submission for
    the appellant is that one set of principles must be applied to all
    local authorities, but that those principles may, where different
    circumstances affect different authorities, identify and reflect
    those differences accordingly.

    The new machinery introduced by the Act of 1982 for
    adjusting block grants operates at two stages. At the first stage,
    the Secretary of State gives guidance, or in other words sets
    expenditure targets, for all local authorities. This has no
    immediate effect on grants. At the second stage, the power to
    determine a multiplier under section 59(1) of the Act of 1980 is
    exercisable under section S(3)(c) of the Act of 1982 to increase or
    decrease block grants by reference to authorities' expenditure
    performance in relation to their targets. This second stage power
    would, I apprehend, normally only be exercised after the end of
    the relevant financial year when authorities' actual expenditure is
    known. The power must be exercised by a supplementary report
    made under section 61 of the Act of 1980 and subject to the
    limitation on decreases in grant imposed by section 8(S) of the Act
    of 1982. It must also, be it noted, be exercised, as required by
    section 8(6), "in accordance with principles to be applied to all
    local authorities."

    The Court of Appeal placed great emphasis on this contrast
    between the two stages. They recognised inevitably that at the
    second stage there is express power to discriminate between
    authorities by reference to their spending record. They reached
    the conclusion, expressly in the judgments of Lawton and Slade
    L.JJ, and I think by necessary implication in the judgment of
    Dillon L.J., that there was no power to take account of, or at all
    events to discriminate by reference to, local authorities' past
    expenditure records at the stage of giving the statutory guidance.
    The point is dealt with most comprehensively in the judgment of
    Slade L.J. who said:

    "Provided that it is linked to the future conduct of the
    respective authorities' affairs and not to their past conduct,
    a set of principles specified in a Rate Support Grant Report
    in relation to expenditure guidance and hold back of block
    grant can properly be said to be 'applicable to all local
    authorities,' even though these principles may or will in the
    subsequent event have different effects on different
    authorities. Nevertheless, totally different considerations
    from those relevant to the determination of the multipliers,
    in my opinion, govern the framing of expenditure guidance
    in the Rate Support Grant Report itself. If, in so doing,
    the Secretary of State adopts a number of principles which
    vary according to the past conduct of the respective
    authorities' affairs, inevitably some principles will fall to be
    applied to some authorities, others will fall to be applied to
    others, but all cannot fall to be applied to all."

    - 14 -

    This was a central theme of the reasoning of the Court of Appeal
    leading them to construe section 59(11A) in the manner for which
    the respondents contended and as designed precisely to safeguard
    authorities against any discrimination based on past expenditure
    records.

    This approach, if it is correct, involves two consequences
    which are, to my mind, very startling in the context of this
    legislation and in the light of its evident purpose. The guidance
    issued by the Secretary of State must be "designed to achieve any
    reduction in the level of local authority expenditure (or any
    restriction on increases in that level) which he thinks necessary
    having regard to general economic conditions": section 59(6)(cc)
    The first startling consequence of the Court of Appeal's view is
    that, as I understand it, it would only permit guidance to be issued
    requiring an overall reduction or restricting the overall increase of
    local government expenditure across the board by a given
    percentage. It must be obvious that the scope for reduction varies
    greatly between different local authorities and it is to be
    remembered both that the Secretary of State already controls the
    overall amount of the rate support grant and that the Act of 1980
    itself, with its built-in discriminatory taper mechanism, was
    designed to replace a system under which central government's
    only effective influence over local government expenditure was by
    reducing or limiting the aggregate rate support grant with an
    effect across the board on local authorities.

    Mr. Schiemann, in arguing the point of construction for the
    City of Bradford Metropolitan Council, was, I think, conscious of
    the difficulty of maintaining the position that the guidance could
    not reflect local authorities' previous expenditure records in any
    differential way. If, for example, paragraph 2 of Annex D had set
    expenditure targets exclusively by reference to GRE, this would
    certainly have applied a single principle to all local authorities,
    but it would at the same time have discriminated severely between
    high spending and low spending authorities. The second startling
    consequence of the Court of Appeal's view is that it would then
    have been illegitimate to mitigate the severity of that
    discrimination by applying such constraints as are in fact applied
    by paragraph 3 of Annex D, limiting the increase or decrease in
    any local authority's expenditure in 1985/86 as compared with
    1984/85 to 4.5 per cent (exceptionally 4.625 per cent) and 1.5 per
    cent respectively. Constraints of that character are only capable
    of applying to those local authorities whose target expenditure,
    calculated by reference to whatever basic formula is used, would,
    apart from the constraints, rise above or fall below the limits set
    by the constraints. Accordingly on the construction of section
    59(11A) urged for the respondents and accepted by the Court of
    Appeal, the constraints themselves cannot have been "framed by
    reference to principles applicable to all local authorities."

    The recognition of this second consequence of adopting the
    respondents' construction is of central importance to the argument.
    It means if the respondents are right, either that the guidance
    must be based on a flat reduction or limited increase in existing
    expenditure levels across the board or that it must set a new
    notional expenditure level for all which cannot be adjusted to take
    any account of existing expenditure levels at all.

    - 15 -

    I recognise that, if the statutory language leads inescapably
    to these consequences, they must be accepted. But it would be
    wrong to construe the words "principles applicable to all local
    authorities" in section 59(11A) without regard either to the
    apparent scheme of the legislation or to the use elsewhere in the
    Act of the same phrase or of the very similar phrase "principles
    to be applied to all local authorities."

    The first example of the latter is found in section 56 of the
    Act of 1980. Section 56(8) contains a definition of "total
    expenditure" as embracing certain categories of expenditure
    "adjusted by the addition or subtraction of such descriptions of
    expenditure or receipts as the Secretary of State may direct, . . .
    " Section 56(11) then provides: "Any such direction shall be given
    in accordance with principles to be applied to all local
    authorities." The next example is in section 57(1) which provides:

    "A local authority's grant-related poundage and grant-related
    expenditure shall be determined by the Secretary of State in
    accordance with principles to be applied to all local
    authorities."

    Further examples are to be found in the provisions, which I have
    already set out earlier in this opinion, of section 59(5)(a) of the
    Act of 1980 and section 8(6) of the Act of 1982. All these
    instances, I note in passing, relate to the exercise of a power by
    the Secretary of State to give a direction or make a determination
    "in accordance with principles to be applied to all local
    authorities." In all these instances it is perfectly clear from the
    context that the principles will not necessarily be equally capable
    of application to ail local authorities. This is not disputed by the
    respondents. The sense of the provision in each case is, as it
    seems to me, that the Secretary of State is required to exercise
    the relevant power in accordance with principles of general
    application, not on an ad hoc or case by case basis.

    It is contended for the respondents, however, that the
    phrase "principles applicable to all local authorities" conveys a
    crucially different meaning from the phrase "principles to be
    applied to all local authorities." The former, it is said, requires
    that every principle should be capable of universal application, the
    latter only that the same principles should be applied to
    authorities whose relevant circumstances are the same. As we
    listened to the argument, I could not help feeling, in common I
    believe with others of your Lordships, that we were back among
    the medieval schoolmen debating nice theological differences about
    angels dancing on the head of a pin. I should be extremely
    reluctant to accept that the draftsman of the legislation by so
    small a difference of language intended to achieve so fundamental
    a difference in legislative effect with consequences which, as I
    have already pointed out, seem to me out of accord with the
    scheme and underlying purpose of the two Acts.

    The argument for the respondents stressed the principle that
    a difference of language in two similar contexts in the same
    statute, a fortiori in the same section, is presumed to indicate a
    difference of legislative intent. I recognise the force of this.
    Sometimes, however, it may be that a slight difference in the
    context explains a merely grammatical difference in the form in

    - 16 -

    which a word is used. As I have pointed out, the provisions to
    which I have drawn attention which require the same principles "to
    be applied" to all local authorities relate to the exercise by the
    Secretary of State of a power to give a direction or make a
    determination. The operation of such a direction or determination
    in relation to block grants to those local authorities whom it
    affects will be immediate. In this context it may be thought
    grammatically correct to speak of the direction being given or the
    determination made "in accordance with principles to be applied to
    all local authorities." But when the Secretary of State issues
    guidance it must be framed, not "in accordance with principles to
    be applied to all local authorities" but "by reference to principles
    applicable to all local authorities." The guidance has no
    immediate effect on the amount of block grant to any local
    authority. The effect, if any, on grants will come at the second
    stage when the Secretary of State determines multipliers

    "so as to increase or decrease the amount of block grant
    payable to a local authority according to whether or the
    extent to which they have or have not complied (or have or
    have not taken steps to comply) with the guidance"

    under section 8(3)(c) of the Act of 1982 and is once again required
    by section 8(6) to act "in accordance with principles to be applied
    to all local authorities." I think it is at least possible that this
    subtle difference in the context in which the phrase "principles
    applicable to all local authorities" is used in section 59(11A) as
    compared with the phrase "principles to be applied to all local
    authorities" which is used elsewhere, explains the difference in the
    language. A purist grammarian might say that the principles
    underlying the guidance are applicable to all local authorities, in
    the sense, not that they are capable of universal application,
    simply that they are potentially to be applied, but do not fall to
    be applied in fact to any local authority so as to affect the
    amount of its grant until it is known whether or the extent to
    which that authority will not comply with the guidance.

    I have to recognise, however, that this theory is quite
    irreconcilable with section 61(5) of the Act of 1980. But that
    subsection likewise, if it is to be given any significance at all, is
    wholly destructive of the respondents' argument that the draftsman
    uses the word "applicable" to signify a different intent from the
    phrase "to be applied."

    Section 61 empowers the Secretary of State, after a Rate
    Support Grant Report has been made for any year, to make one or
    more supplementary reports for that year. Subsections (3) and (5)
    provide as follows:

    "(3) Subject to subsections (4) and (5) below, a
    supplementary report may specify fresh determinations in
    place of all or any of those specified by the Rate Support
    Grant Report.

    (5) The power conferred by subsection (3) above shall be
    exercisable only in accordance with principles applicable to
    all local authorities and specified in the supplementary
    report."

    - 17 -

    In this context I see no way to avoid the conclusion that the
    draftsman is using the phrases "in accordance with principles to be
    applied to all local authorities" and "in accordance with principles
    applicable to all local authorities" as completely interchangeable.
    A single example will, I hope, suffice to make this clear. In the
    original Rate Support Grant Report the Secretary of State
    determines GREs under section 57(1) "in accordance with principles
    to be applied to all local authorities." In a supplementary report
    the Secretary of State makes a fresh determination of GREs under
    section 61(3) and (5) "in accordance with principles applicable to
    all local authorities." It is surely inconceivable that one approach
    is called for when making the original determination but a
    different approach when making a fresh determination. It is, in
    any event, rightly and inevitably conceded by the respondents that
    their suggested construction of the phrase "principles applicable to
    all local authorities" in section 59(11A) would be wholly inapt in
    relation to the determination of GREs, which must necessarily
    distinguish between different classes of authority according to their
    different functions.

    I am led by this examination of section 59(11A) in its wider
    context and by a comparison of its language with the same or
    similar language used elsewhere to the conclusion that the
    subsection is capable of bearing either of the meanings which the
    parties urge your Lordships to put upon it. I am clearly of the
    opinion that a purposive approach and the avoidance of the
    consequences implicit in the respondents' construction to which I
    have earlier drawn attention point in favour of the appellant's
    construction.

    There is, however, one further consideration to throw in the
    scales, which, to my mind, would be sufficient to bring them down
    on the appellant's side even if they were more evenly balanced
    than I think they are. The effect of section 8(10) and (11) of the
    Act of 1982, the relevant parts of which I have set out earlier, is
    to enable the Secretary of State to exercise the power to adjust
    block grants under section S(3)(c) retrospectively with reference to
    guidance issued for the financial years 1981/82 and 1982/83. The
    Act of 1982 received the royal assent on 13 July 1982. The Rate
    Support Grant Report for the year 1982/83 had been submitted to
    the House of Commons on 5 February 1982 and in due course
    approved by resolution of the House. That Report referred to the
    anticipated enactment of section 8 of the Act of 1982, then
    embodied in a Bill before Parliament (see paragraph 9). It
    contained the guidance for 1982/83 in paragraph 8 of Annex G,
    which, so far as material, reads:

    "The expenditure guidance given to each authority will be in
    the form of a target expenditure derived from authorities'
    budgeted expenditure for 1981/82 .... These figures are
    scaled up to the levels of expenditure applying to 1982/83.
    They are then adjusted in the following way: (i) For each 1
    per cent by which an authority's rescaled 1981/82 planned
    expenditure is below (or exceeds) its 1982/83 grant-related
    expenditure, the figure is increased (or reduced) by 0.2
    percentage points; (ii) For each 1 per cent by which an
    authority's volume of planned current expenditure in 1981/82
    is below (or exceeds) the expenditure target set for that
    year the figure is increased (or reduced) by 0.2. percentage

    - 18 -

    points; (iii) The resulting figure is subject to the following
    limitations: (a) the difference between the resulting figure
    and the 1982/83 budgeted figure (expressed in estimated
    1982/83 outturn prices) must not be less than 0 per cent nor
    greater than 7 per cent.; (b) any authority whose
    expenditure at (i) is less than its grant-related expenditure
    for 1982/83 and whose expenditure at (ii) is less than its
    target for current expenditure for 1981/82 must not have a
    difference in expenditure as described at (iii)(a) greater than
    1 per cent.; (iv) . . .

    The limitations imposed at (iii) by this guidance are, if the
    respondents are right, open to precisely the same objections as the
    guidance under attack in the 1985/86 Report.

    Now I recognise that if the Act of 1982 when it reached
    the statute book purported to give retrospective statutory force to
    guidance contained in a report already approved by the House of
    Commons which, on the true construction of the Act, it was not
    within the power of the Secretary of State to issue, the prior
    approval of the report in which the guidance was contained could
    not save it. But it is another thing to say, as the respondents do,
    that, even if the statute be ambiguous, the guidance contained in
    the prior report cannot be looked at to help resolve any ambiguity
    in the provisions to which retrospective force is given.

    The point is a novel one and must, therefore, be determined
    by resort to principle. There is no question here of looking at
    travaux preparatoires. The reality is that the Rate Support Grant
    Report for 1982/83, which contained the relevant guidance and
    secured the approval of the House of Commons, was submitted to
    the House by the Secretary of State whose department was
    concurrently promoting the money Bill which became the Act of
    1982. Is there any principle which requires us to put on blinkers
    and ignore this reality? I know of none. If we can regard the
    reality, then it seems to me that, to the extent that the meaning
    of provisions given retrospective force is open to doubt, the nature
    of the guidance by reference to which those provisions will
    operate, having been set out in a report submitted to and approved
    by the House of Commons before the enactment of the statute, is
    available as a contemporanea expositio of the drafstman's purpose.

    For all these reasons I have reached the conclusion on the
    issue of the construction of section 59(11A) of the Act of 1980
    that the appellant is entitled to succeed.

    On the other issue raised in the appeals I have had the
    advantage of reading in draft the speech of my noble and learned
    friend Lord Scarman and I entirely agree with it.

    I would accordingly allow the appeals. I concur in the
    orders proposed by my noble and learned friend Lord Scarman with
    respect to costs.

    - 19 -

    LORD TEMPLEMAN

    My Lords,

    Local authorities are too small to be self-financing and too
    large to be managed by central government. More than 50 per
    cent. of local government revenue expenditure has in recent years
    been met by central government grants. Local authorities' current
    and capital expenditure amount to about one-quarter of all public
    expenditure and comprise a significant part of the national
    economy. Increases in local government expenditure either
    increase the total tax burden on the economy or contribute to the
    public sector borrowing requirement. Rates levied by local
    government are a significant factor in the costs faced by industry
    and commerce which in turn have implications for inflation and
    employment. No government can, therefore, ignore local

    government expenditure in framing either its general economic
    strategy or its more detailed policies for public expenditure and
    the consequences for taxation and borrowing.

    This situation is fraught with differences of opinion and
    conflicts of interest as between central and local authorities
    generally, between central government and individual local
    authorities, between taxpayers and ratepayers, between different
    classes of ratepayers, between the supporters of direct taxation
    and the supporters of indirect taxation and between politicians who
    disagree about the relevant roles of public enterprise and private
    enterprise. The inevitable differences of opinion between central
    government and local authorities are exacerbated when the
    political persuasion of the elected majority of the House of
    Commons differs from the political persuasion of the elected
    majority of a local authority, but any government of whatever
    political complexion will be concerned to ensure some control over
    the volume of Local authority expenditure.

    These conflicts are resolved by policy enactments by
    Parliament exercising the supremacy of power conferred on
    Parliament by the unwritten constitution of the United Kingdom,
    subject to quinquennial democratic control and to the daily force
    of public opinion. The policy decisions of Parliament in relation
    to local government expenditure are implemented by advice
    delivered by central government to local authorities and by the
    method of distributing central government grants which take into
    account the success or failure of each local authority in following
    the advice of central government.

    The House of Commons retains some supervisory control
    over the advice and over the distribution of central government
    grant by requiring an annual Rate Support Grant Report to be laid
    before and approved by the House.

    By the provisions of the Act of 1980, as amended by the
    Act of 1982, considered in detail by my noble and learned friend,
    Lord Bridge of Harwich, Parliament authorised the Secretary of
    State to issue to each local authority every year guidance as to

    - 20 -

    the aggregate amount of expenditure which that local authority
    ought not to exceed. If the local authority exceeds the guidance
    expenditure then the Secretary of State is empowered to reduce
    the amount of the central government grant made to the local
    authority. A reduction in the amount of central government grant
    automatically increases the amount of rates which must be levied
    by a local authority. Thus the elected representatives of a local
    authority are encouraged to keep expenditure within the guidance
    target set by the Secretary of State in order to obtain the
    maximum proportion of central government grant and to avoid
    placing increased burdens on their ratepayer electorate. A
    separate guidance target of a fixed amount is issued by the
    Secretary of State to each local authority annually. The statute
    under which guidance targets are set requires that any guidance
    "shall be framed by reference to principles applicable to all local
    authorities" (Section 59(11A)).

    For the purpose of determining the amount of the guidance
    target appropriate to be issued to a particular local authority, the
    Secretary of State has three measuring rods. First, there is the
    estimate known as "GRE" of the expenditure which each authority
    would need to incur if all authorities provided the same standard
    of service with the same degree of efficiency at a level consistent
    with the government's aggregate spending plans for local
    government. GRE is only a rough guide because it embraces a
    number of imponderables. Every local authority differs from every
    other local authority in its expenditure needs which depend on
    matters of history and geography and on its resources which
    depend on the value of the rateable properties within the area of
    the local authority. Secondly, some guide to future expenditure
    can be obtained by considering past expenditure. This also is only
    a rough guide because high expenditure in one year does not
    necessarily justify an increase or decrease in the next. Thirdly,
    the Secretary of State can take into account the guidance which
    he has set in past years and the success or failure of the
    authority in following that guidance. But this also is only a rough
    guide because an excess of expenditure over guidance might be due
    to imperfections in the guidance.

    For the year 1985/36 the Secretary of State took into
    account GRE, past expenditure as evidenced by the local
    authority's budgeted expenditure for 1984/85 and success or failure
    in complying with guidance in 1984/85. He formed the view that
    if in 1984/85 a local authority budgeted to spend less not more
    than GRE it was in the current jargon "a low spender" and could
    be set guidance for 1985/86 at GRE plus an inflation factor of
    3.75 per cent. If on the other hand a local authority budgeted in
    1984/85 to spend more than GRE it was a "high spender" and
    should be set guidance for 1985/86 at 1984/85 guidance plus 3.75
    per cent. At the same time the Secretary of State recognised
    that these general formulas might result in a reduction in the
    amount of central government grant of a magnitude which in some
    cases it would not be reasonable to impose on the ratepayers of a
    particular authority. He therefore provided that the guidance for
    1985/86 should not in any event be less than the 1984/85 budgeted
    expenditure by the local authority less 1.5 per cent. The general
    principles to be deduced from the expenditure guidance made by
    the Secretary of State for 1985/86 are that the aggregate of local
    authority expenditure should be contained, that the guidance for

    - 21 -

    each local authority should be set at a level which would
    encourage that local authority to contain expenditure, that high
    spending authorities needed more encouragement and possessed
    more scope for economy than low spending authorities, and that
    high spending authorities can be identified by reference to their
    1984/85 budget, the 1984/85 GRE, and the 1984/85 guidance.
    These principles are applicable to all authorities although the
    effect of the principles will differ as between different local
    authorities. But no one contends that the Secretary of State could
    only issue guidance which produced for 1985/86 the same
    percentage increase on 1984/85 GRE or 1984/85 guidance. It is
    recognised that such a principle which would apply to all
    authorities equally in percentage terms would be most unfair and
    inequitable. Once this is conceded it seems to me that the
    Secretary of State was entitled to formulate a set of principles
    which were fair to all local authorities and gave encouragement to
    those authorities who could properly be identified by the principles
    as possessing scope for economies. Of course the Secretary of
    State must not pick and choose and did not pick and choose
    between authorities. He laid down a set of principles which are
    applicable to all local authorities, but which produce consequences
    which differ according to the different spending patterns of
    different local authorities.

    The minister gave guidance based on the principle that to

    each local authority there should be given a grant according to Its

    needs and from each local authority there should be exacted an
    economy according to its abilities.

    The relevant statutory provisions are analysed in detail in
    the speech of my noble and learned friend, Lord Bridge of
    Harwich. I gratefully accept his analysis, his reasoning and his
    conclusions.

    The speech of my noble and learned friend, Lord Scarman,
    deals with the alternative contention by the respondent councils
    that the guidance issued to each of them was "unreasonable." The
    speech of my noble and learned friend contains a timely reminder
    and perceptive analysis of the principles applicable to judicial
    review and of the role of the courts in administrative law. The
    courts will not be slow to exercise the powers of judicial review
    in order to strike down illegality or abuse of power. The
    accusation of illegal conduct fails for the reasons given by my
    noble and learned friend, Lord Bridge of Harwich. No objective
    reader of the evidence filed on behalf of the department for which
    the Secretary of State is responsible could convict the minister of
    abuse of power. The principles inspiring the 1985/86 guidance
    were carefully considered and evolved in the light of experience
    and with the obvious desire to carry out in an even handed and
    equitable manner fair to all local authorities the task imposed on
    the minister in the national interest of securing overall economies.
    Nottingham's guidance increased from £263,897,000 in 1981/82, to
    £311,234,000 in 1982/83, to £345,240,000 in 1983/84, to
    £350,332,000 in 1984/85, and, finally, to £362,390,000 in 1985/86.
    Nottingham's GRE for 1984/85 was £356,883,000 and its budget for
    that year was £357,569,000. In the two preceding years
    Nottingham had exceeded both GRE and guidance. Nottingham's
    budget for 1985/86 exceeded their guidance for 1984/85 by
    £7,200,000. And Nottingham had overspent their guidance in the

    - 22 -

    two preceding years. Out of 413 local authorities there were only
    10, including Nottingham and Bradford, whose 1984/85 budgeted
    expenditure exceeded GRE where GRE itself was above target.
    Nottingham's complaint is devoted solely to the 1985/86 guidance
    and amounts to a retrospective regret that they did not budget
    below GRE. In that event, they say, their 1985/86 guidance would
    have been £6,752,000 higher. But the Secretary of State had
    decided as a matter of principle applicable to all authorities that
    those authorities which budgeted below GRE should not be
    discouraged from incurring expenditure, subject to limitations, up
    to GRE, and he also decided that authorities which budgeted above
    GRE should be discouraged, subject again to limitations, from
    incurring expenditure in excess of their 1984/85 guidance. The
    courts have no authority to interfere with the principles enunciated
    by the Secretary of State by awarding Nottingham a consolation
    prize for only budgeting to exceed GRE by a modest sum, ignoring
    the fact that Nottingham had, not for the first time, budgeted to
    exceed their guidance. Judicial review is not just a move in an
    interminable chess tournament. Although I do not blame
    Nottingham or Bradford for instituting these proceedings, I hope
    that in future local authorities will bite on the bullet and not seek
    to persuade the courts to absolve them from compliance with the
    Secretary of State's guidance. If for any particular city or for
    any group of cities guidance is set too low, having regard to their
    peculiar needs, then persuasion should be offered not to the judges,
    who are not qualified to listen, but to the department, the
    minister, all members of parliament and ultimately to the
    electorate.

    For these reasons and for the reasons given by my noble
    and learned friends, I would allow these appeals.

    LORD GRIFFITHS

    My Lords,

    I agree that these appeals should be allowed for the reasons
    appearing in the speeches of my noble and learned friends Lord
    Scarman and Lord Bridge of Harwich.

    - 23 -


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