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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. Hammersmith and Fulham LBC [1991] UKHL 3 (04 October 1990)
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Cite as: [1991] UKHL 3, [1991] AC 521

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JISCBAILII_CASE_CONSTITUTIONAL

    Parliamentary Archives,
    HL/PO/JU/18/250

    Regina
    v.

    Secretary of State for the Environment (Respondent) ex parte
    London Borough of Hammersmith and Fulham and fifteen other

    appeals (Appellants)

    (Conjoined Appeals)

    JUDGMENT

    Die Martis 17° Julii 1990

    Upon Report from the Appellate Committee to whom was
    referred the Cause Regina against Secretary of State for the
    Environment ex parte London Borough of Hammersmith and Fulham
    and fifteen other appeals, That the Committee had heard
    Counsel on Tuesday the 10th, Wednesday the 11th, Thursday the
    12th, and Monday the 16th days of this instant July, upon the
    Petition and Appeal of the London Borough of Hammersmith and
    Fulham of Riverview House, Beavor Lane, W6 9AR, Barnsley
    Metropolitan Borough Council of Town Hall, Barnsley, South
    Yorkshire S70 2TA, the London Borough of Islington of Town
    Hall, Upper Street, W1 2UD, St. Helens Metropolitan Borough
    Council of Town Hall, St. Helens WA10 1HP, the London Borough
    of Lambeth of Lambeth Town Hall, Brixton Hill, SW2 1RW, North
    Tyneside Metropolitan Borough Council of 14, Northumberland
    Square, North Shields, Tyne and Wear NE30 1PZ, Derbyshire
    County Council of County Offices, Matlock, Derbyshire DE4 3AG,
    the London Borough of Greenwich of Town Hall, Wellington
    Street, SE8 6PW, the London Borough of Camden of Euston Road,
    NWl 2RU, Doncaster Borough Council of Copley House, Waterdale,
    Doncaster, South Yorkshire DN1 3EQ, Rotherham Borough Council
    of Civic Building, Walker Place, Rotherham S65 1UF, Bristol
    City Council of The Council House, College Green, Bristol BS1
    5TR, Avon County Council of Avon House, The Haymarket, Bristol
    BS99 7DE, Rochdale Metropolitan Borough Council of Town Hall,
    Rochdale DL16 1AB, the London Borough of Brent of Town Hall,
    Forty Lane, Wembley, Middlesex HA9 9HX and Basil don District
    Council of the Basildon Centre, Pagel Mead, Basildon, Essex
    SS14 1DL, praying that the matter of the Orders set forth in
    the Schedules thereto, namely Orders of Her Majesty's Court of
    Appeal of the 27th June 1990, might be reviewed before Her
    Majesty the Queen in Her Court of Parliament and that the said
    Orders might be reversed, varied or altered or that the
    Petitioners might have such other relief in the premises as to
    Her Majesty the Queen in Her Court of Parliament might seem
    meet; as upon the Case of the Secretary of State for the
    Environment lodged in answer to the said Appeals; which said
    Appeals were conjoined by Order of the House of the 5th day of
    this instant July; and due consideration had this day of what
    was offered on either side in this Cause:

    Oral Judgment: 17.7.90
    Reasons: 4.10.90

    HOUSE OF LORDS

    REGINA

    SECRETARY OF STATE FOR THE ENVIRONMENT

    (RESPONDENT)

    EX PARTE LONDON BOROUGH OF HAMMERSMITH AND

    FULHAM
    AND FIFTEEN OTHER APPEALS

    (APPELLANTS)
    (CONJOINED APPEALS)

    Lord Bridge of Harwich
    Lord Brandon of Oakbrook
    Lord Oliver of Aylmerton
    Lord Goff of Chieveley
    Lord Jauncey of Tullichettle


    LORD BRIDGE OF HARWICH

    My Lords,

    The Local Government Finance Act 1988, as amended by the
    Local Government and Housing Act 1989, introduces a radically
    reformed system of local government finance and local taxation in
    place of the long familiar rating system. As is well known, the
    central feature of the new system, the community charge, is a
    matter of acute political controversy. Scarcely less controversial
    in a political sense is the control which the Act enables the
    Secretary of State for the Environment to exercise over the
    finances of individual local authorities, subject to approval by the
    House of Commons, by setting a maximum which an authority's
    budget may not exceed and thereby limiting the amount which
    those liable to the community charge in that authority's area can
    be required to pay. The process is colloquially referred to as
    "charge-capping" or simply "capping" and this is a convenient
    terminology to adopt for brevity when referring to the statutory
    process. The current financial year, commencing on 1 April 1990,
    is the first year of the operation of the new system. After local
    authorities had set their budgets for the year the Secretary of
    State proposed to cap 21 authorities, 19 of whom challenged the
    legality of the action taken by the Secretary of State in
    proceedings for judicial review. These applications, together with
    certain others, were argued extensively by a galaxy of counsel
    appearing for the different authorities, first before the Divisional
    Court of the Queen's Bench Division (Leggatt L.J., McCullough and
    Roch JJ.) who gave judgment dismissing the applications on 15
    June and secondly before the Court of Appeal (Lord Donaldson of
    Lymington M.R., Ralph Gibson and Taylor L.JJ.) who dismissed the
    authorities' appeals on 27 June but gave leave to appeal to your
    Lordships' House. The Court of Appeal gave reasons for their
    decision in a reserved judgment on 3 July. Only 16 authorities, all

    but one now represented by the same counsel, availed themselves
    of the leave to appeal which had been granted. Your Lordships
    were able to report to the House on 16 July your unanimous
    opinion that the appeals should be dismissed so that an order to
    that effect might be made without delay, but then indicated that
    reasons for the decision would be given later.

    I would like, if I may, at the outset to express my
    unqualified admiration for the thoroughness and the speed with
    which both courts below adjudicated upon the issues raised before
    them in these proceedings. The importance of an early
    determination was obvious. Both courts had to consider a
    formidable volume of documentary material and heard many days
    of oral argument, but were able within a very short time following
    the conclusion of the argument to deliver lengthy reserved
    judgments dealing comprehensively with every issue raised. I agree
    entirely with the conclusions which they reached and, in large
    measure, would be content to indorse the detailed reasoning in
    both judgments. Some of the points argued below were not
    pursued in your Lordships' House and of the many points which
    were argued I shall find it neither necessary nor useful to examine
    every one in detail. But having the opportunity, which the courts
    below were denied, for reflection at leisure in the formulation of
    my reasons, I hope it may be possible to examine from a rather
    broader perspective the legitimacy of the grounds upon which the
    local authorities seek to challenge the action taken by the
    Secretary of State.

    It is necessary first to consider the broad scheme of the
    legislation. In the explanations that follow I acknowledge my
    indebtedness to the helpful guidance through the complexities of
    the Act of 1988 provided by the affidavit of Mr. Paul Rowsell, an
    Assistant Secretary in the Department of the Environment and the
    Head of its Finance Local Authority Expenditure and Revenues
    Division. Local authorities are divided into charging authorities,
    who are also referred to as receiving authorities, and precepting
    authorities. Among the appellants the charging authorities are
    either district councils or London borough councils and the
    precepting authorities are county councils. The income of both
    classes of authority is derived from three main sources, the
    revenue support grant, non-domestic rates and the community
    charge. It is the responsibility of the charging authorities to set
    and collect the community charge. Charging authorities also
    receive from central government their share of the revenue
    support grant and of the national pool of non-domestic rates.
    From this income charging authorities must fund the services they
    provide and meet the precepts of precepting authorities.
    Precepting authorities derive their income from the precepts they
    serve upon charging authorities.

    The amount of the revenue support grant for any financial
    year is determined by two reports required to be made by the
    Secretary of State to, and approved by, the House of Commons.
    The first, under section 78 of the Act of 1988, determines the
    global amount of grant, the second, under section 80, determines
    the amounts to be distributed to individual receiving authorities.
    The Act provides for consultation with representatives of local
    government before the Secretary of State determines the amount
    of the global grant.

    - 2 -

    Non-domestic rates are payable by occupiers of non-domestic
    property according to a national rate poundage set by the
    Secretary of State. The rates are collected by charging
    authorities but accounted for entirely to the Secretary of State
    and then distributed by him to receiving authorities in proportion
    to their relevant population.

    Thus it will be seen that the amount of income which a
    local authority will receive in any year from these two central
    sources is directly determined by the central government and in
    the case of the revenue support grant is subject to the approval of
    the House of Commons.

    It is through the community charge alone that a local
    authority is able in some degree to determine its own local
    expenditure and taxation policies. Again as is now well known, at
    whatever rate the community charge is set by the authority it is
    payable, subject to reliefs and exemptions, at that rate by each
    adult resident in the local authority's area, representing broadly
    speaking the local electorate. As explained in the affidavit of Mr.
    Rowsell, the political thinking which underlies the new system is
    that it will operate to secure that local authorities are properly
    accountable to their electorate.

    At the centre of the budgeting process prescribed for
    charging authorities are the calculations required to be undertaken
    for each financial year by section 95 of the Act of 1988, as
    amended by paragraphs 1 and 63 of Schedule 5 to the Act of
    1989. Section 95(2) lists the main heads of revenue expenditure
    and certain other items for which funds must be provided on
    revenue account. Section 95(3) lists certain sources of funds
    available to meet the requirements under section 95(2), not
    including the three main sources of income. Having estimated
    these amounts, a charging authority must then calculate the
    difference between them under section 95(4) which is, in substance,
    the aggregate of estimated expenditure falling to be met out of
    the three main sources of income, revenue support grant, non-
    domestic rates and the community charge. I shall refer to this
    for brevity and convenience as the authority's annual budgeted
    expenditure. A parallel budgeting process is prescribed by section
    68 for precepting authorities. A precepting authority's annual
    budgeted expenditure represents the amount it requires to raise by
    precepts which will reflect its own share of the revenue support
    grant and non-domestic rates included in the sums allocated to
    receiving authorities and also the additional amount which charging
    authorities require to raise by their community charge to meet the
    balance of the precepting authority's annual budgeted expenditure.

    The amounts of the annual budgeted expenditure of
    precepting and charging authorities are the focal points of the
    whole system. It is by reference to these amounts that the
    Secretary of State's powers of capping are exercisable and it is by
    reference to these amounts that community charges are set. The
    statutory programme is such that before authorities set their
    budgets they will know how much they are to receive by way of
    revenue support grant and non-domestic rates and thus what is the
    balance required to be raised by way of community charge.
    Precepting authorities set their budgets before charging authorities,
    who therefore also know how much they require to raise to meet

    - 3 -

    precepts. Thus when a charging authority sets its community
    charge it is determined by the amount required to meet precepts
    made upon it, so far as that amount exceeds the precepting
    authority's relevant share of revenue support grant and non-
    domestic rates and the amount by which the charging authority's
    own annual budgeted expenditure exceeds its own share of revenue
    support grant and non-domestic rates.

    I have not included in this very much abbreviated and
    necessarily over-simplified account of the main provisions of the
    Act any reference to transitional arrangements or to the so-called
    "safety net" which are complex and do not, I think, throw any
    light on the issues falling for determination in the appeals. But
    before turning to the capping provisions themselves I must
    summarise, as briefly as I can, the steps taken by the Secretary of
    State in the operation of the statutory machinery generally which
    form the essential background to his subsequent operation of the
    capping machinery in relation to the appellant authorities.

    The Secretary of State announced in July 1989 that the
    amount the Government considered appropriate as the global total
    of local authority revenue expenditure on services in the year
    1990-91 was £32.8 billion. This becomes the figure referred to in
    various reports as total standard spending (T.S.S.) which plays a
    key role in determining the amount to be distributed by way of
    revenue support grant, the amount to be raised from non-domestic
    rates and the amount considered by the Secretary of State as
    appropriate to be raised by the community charge. The other key
    concept which features in the Secretary of State's calculation of
    these amounts and in the breakdown of T.S.S. is the standard
    spending assessment (S.S.A.). A local authority's S.S.A. is the
    amount which it is estimated that the authority would require to
    spend in the year to maintain a level of services to a common
    standard determined by reference to T.S.S. as the total available
    for spending by all authorities. The calculation of S.S.A.s is a
    matter of great complexity in detail but the basic principles which
    govern it are simple. The services which local authorities provide
    are divided into seven major blocks as follows: education; personal
    social services; police; fire and civil defence; highway maintenance;
    all other services; capital financing. Each major service block is
    allocated a control total representing the share of T.S.S. available
    countrywide to fund that service or those services. A local
    authority's individual S.S.A. is built up from separate elements
    calculated for each of the major services for which that authority
    is responsible. Each separate element is calculated by a formula
    reflecting the physical, social and demographic characteristics of
    the authority's area in so far as they are relevant to the cost of
    providing the service concerned. The objective is that an
    authority's S.S.A. should provide a benchmark of the level of
    expenditure appropriate to enable the authority to provide services
    to a common standard consistent with authorities in total spending
    to the level dictated by T.S.S.

    The detailed basis on which S.S.A.s were eventually
    calculated was the outcome of extensive consultation throughout
    1989 between officials of the Department of the Environment and
    officers of the local authority associations. On 6 November 1989
    the Secretary of State issued a consultation paper setting out his
    proposals for grant determination and a draft of his proposed

    - 4 -

    distribution report, indicating a proposed calculation of S.S.A.S, to
    the English local authority associations and local authorities,
    inviting the comments of the associations and indicating that he
    would consider any representations made by individual authorities.
    In a statement to the House of Commons announcing the
    consultation paper the Secretary of State made clear that his
    principal objective in the proposed grant distribution was to ensure
    that, in general, if each authority spent so as to provide a
    common standard of services, the community charge could be set
    at the same level in every area before allowing for the
    transitional arrangements.

    After considering comments and representations made in
    response to the consultation paper relating, inter alia, to the
    proposed total of the revenue support grant, the proposed control
    total for different services and the proposed methodology for
    calculating S.S.A.s, the Secretary of State submitted his definitive
    proposals to the House of Commons in the Revenue Support Grant
    Report (England) 1990/91 and the Revenue Support Grant
    Distribution Report (England) under sections 78 and 80 of the Act
    respectively. These reports were approved by the House of
    Commons on 18 January. The report under section 78 determined
    the total amount of the revenue support grant at £9.647 billion
    and determined the rate poundage for non-domestic rates at a
    level estimated to yield a distributable amount of £10.428 million.
    The report under section 80 set out the definitive basis on which
    S.S.A.s were to be calculated. The opening paragraph of the
    section of the report headed "Distribution of Grant" states that
    the revenue support grant is to be distributed so that if each
    authority were to spend at the level of its S.S.A. then, subject to
    certain qualifications, all charging authorities could set the same
    personal community charge. During January 1990 local authorities
    were notified individually of the amounts of their S.S.A.s, the
    amounts they were to receive in revenue support grant and of
    their relevant population (determined as required by Schedule 12A
    to the Act) which would determine their share of non-domestic
    rates and were thus furnished with all the information they
    required to set their budgets and their community charges.

    I turn now to the capping machinery in Part VII of the Act
    under the heading "Limitation of Charges etc." and set out the
    relevant provisions of sections 100-102:

    "100 Power to designate authorities

    "(1) As regards a chargeable financial year the
    Secretary of State may designate a charging authority if in
    his opinion -

    (a) the amount calculated by it in relation to the
    year under section 95(4) above is excessive, . . .

    "(2) As regards a chargeable financial year the
    Secretary of State may designate a relevant precepting
    authority if in his opinion -

    (a) the aggregate amount of precepts issued by it for
    the year is excessive, . . .

    - 5 -

    "(4) A decision whether to designate an authority shall be
    made in accordance with principles determined by the
    Secretary of State and, in the case of an authority falling
    within any of the classes specified in subsection (5) below,
    those principles shall be the same either for all authorities
    falling within that class or for all of them which
    respectively have and have not been designated under this
    Part as regards the preceding financial year.

    "(5) The classes are -

    1. county councils,

    2. councils of metropolitan districts,

    (c) councils of non-metropolitan districts,

    1. councils of inner London boroughs,

    2. councils of outer London boroughs,

    (f) metropolitan county police authorities and the
    Northumbria Police Authority, and

    (g) metropolitan county fire and civil defence
    authorities.

    "101 Restriction on power to designate

    "(1) An English authority shall not be designated under
    section 100 above as regards a financial year unless the
    amount calculated by it in relation to the year under
    section 95(4) above or the aggregate amount of precepts
    issued by it for the year (as the case may be) is equal to
    or greater than £15 million or such greater sum not
    exceeding £35 million as the Secretary of State may specify
    by order. . .

    "102 Designation of authorities

    "(1) If the Secretary of State decides under section
    100 above to designate an authority he shall notify it in
    writing of -

    (a) his decision,

    (b) the principles determined under section 100(4)
    above in relation to it, and

    (c) the amount which he proposes should be the
    maximum for the amount calculated by it in relation
    to the year under section 95(4) above or the
    maximum for the aggregate amount of precepts issued
    by it for the year (as the case may be)."

    It will be appreciated that, in relation to a charging
    authority the phrase "the amount calculated by it in relation to
    the year under section 95(4)," and, in relation to a precepting
    authority the phrase "the aggregate amount of the precepts issued
    by it for the year," refer in each case to what I have earlier
    described as the authority's annual budgeted expenditure and it will
    be remembered that the amount which a charging authority may
    set as its community charge is directly determined by its own
    annual budgeted expenditure and the amount of the precepts made
    upon it by precepting authorities so that the capping of the budget
    of either a charging authority or a precepting authority precepting
    upon it will result in the resetting of the community charge.

    - 6 -

    The procedure which follows the service of a notice under
    section 102(1) upon a local authority depends upon the local
    authority's response to the notice. The authority has 28 days
    following receipt of the notice within which it may give notice to
    the Secretary of State either accepting the maximum proposed by
    the Secretary of State for its annual budgeted expenditure or
    stating an alternative higher maximum and giving reasons for its
    belief that the higher maximum is appropriate: section 102(5). If
    the authority accepts the maximum proposed by the Secretary of
    State, the Secretary of State serves a further notice confirming, in
    effect, that the maximum he proposed in his notice under section
    102(l)(c) is to be the maximum amount of the authority's annual
    budgeted expenditure: section 105. If the authority gives notice
    proposing an alternative maximum, the Secretary of State, after
    considering any information he thinks relevant, makes a draft order
    specifying the amount which is to be the maximum amount of the
    authority's annual budgeted expenditure, which may be either
    greater or smaller than the maximum amount he originally
    proposed in his notice under section 102(l)(c) and this takes effect
    when the order is approved by resolution of the House of
    Commons: section 104. If the authority makes no response within
    28 days to the notice served on it under section 102(1), the
    Secretary of State makes a draft order specifying that the
    maximum originally proposed in his notice under section 102(l)(c) is
    to be the maximum amount of the authority's annual budgeted
    expenditure and this again takes effect when the order is approved
    by resolution of the House of Commons: section 106. Section 110
    provides for authorities to supply to the Secretary of State
    whatever information he requires for the purpose of deciding
    whether to exercise his powers and how to perform his functions
    under Part VII of the Act and, in default, authorises the Secretary
    of State to act on the basis of such assumptions and estimates as
    he thinks fit. Section 110(8) provides that in deciding whether to
    exercise his powers and how to perform his functions the Secretary
    of State may take into account any other information available to
    him, whatever its source and whether or not obtained under any
    statutory provision.

    Under the Act precepting authorities are required to set
    their budgets before 1 March and charging authorities before 11
    March. Community charges are required to be set by 1 April. In
    1990 all the appellant authorities except Lambeth London Borough
    Council had complied with this timetable and had supplied to the
    Secretary of State all the information he required about their
    budgets by 18 March. On 3 April the Secretary of State served
    designation notices on all the appellant authorities except Lambeth,
    whose budget was set late and who was served on 10 April.

    In determining, as required by section 100(4), the principles
    in accordance with which the decisions to designate were to be
    made, the Secretary of State made no distinction between the
    different classes of authorities listed in section 100(5) save in
    respect of the councils of inner London boroughs. These councils
    were to be the subject of special treatment in so far as they had
    inherited liabilities from the former Inner London Education
    Authority. Subject to this, which has no relevance for present
    purposes, all authorities were to be designated in accordance with
    the same principles as follows. The first principle was that an
    authority was to be designated if its budget exceeded its S.S.A. (1)

    - 7 -

    by at least 12½ per cent. and (2) by at least £75 per adult of its
    relevant population. The second principle operated by way of
    exception to the first in that an authority was not to be
    designated if the elimination of the excess referred to in the first
    principle, i.e. the reduction of the budget to an amount not
    exceeding 12
    ½ per cent. or £75 per adult above S.S.A., or the
    reduction of the budget to £15m., the statutory minimum for
    designation prescribed by section 101, would effect a saving of less
    that £26 per adult of the relevant population. Specifying in his
    notices under section 102(l)(c) the amount which he proposed to be
    the maximum amount for each authority's annual budgeted
    expenditure, the Secretary of State proposed, in the case of eight
    of the 16 authorities who were appellants before the House,
    reduction by the full amount necessary to eliminate the excess
    referred to in the first principle, but in the case of the other
    eight authorities, taking account of what he considered that the
    authorities could in practice achieve in their individual
    circumstances, he specified a less stringent maximum allowing
    some expenditure above the level of 12
    ½ per cent./£75 per adult
    in excess of S.S.A.

    At the heart of the appellant authorities' attack on the
    Secretary of State's decisions to designate them are two
    submissions relating to the construction of section 100 of the Act.
    First, it is submitted that in making a decision to designate an
    authority under section 100 there are two steps to be taken which
    are independent of each other. The Secretary of State must first
    form the opinion under section 100(1) that the authority's budget is
    excessive. This is to be decided on an ad hoc basis taking
    account of all the individual circumstances affecting that authority
    and without regard to the principles to be formulated under
    section 100(4). It is only after forming the opinion that an
    authority's budget is excessive that the Secretary of State is
    required or permitted under section 100(4) to formulate the
    principles which will determine whether or not that authority is in
    fact to be designated. The second submission is that, in taking
    the first step and forming his opinion that the authority's budget
    is excessive the Secretary of State is not entitled to determine
    what the norm of local expenditure ought to be. The norm, it is
    said, is what a "sensible" local authority in the particular
    circumstances obtaining in its area may reasonably decide to be
    the appropriate level of expenditure and the Secretary of State
    may only form the opinion that an authority's budgeted expenditure
    is excessive if it exceeds that norm as being so profligate and
    extravagant that no "sensible" authority could have approved it.

    I have no hesitation in rejecting both these submissions.
    The decision to designate is clearly a single decision dictated by
    the principles formulated under section 100(4), which are to ensure
    even-handed treatment of different authorities in the same class
    and to settle the norm which will provide the basis of the opinion
    of the Secretary of State as to what constitutes excessive
    budgeting. This is emphasised by section 102(1) requiring the
    Secretary of State to notify his decision to designate and the
    principles determined under section 100(4) "in relation to" that
    decision. Moreover, if a decision "whether to designate" is to be
    made "in accordance with principles" as section 100(4) requires,
    those principles can only be directed to the determination of the
    question what level of expenditure is to be treated as excessive to

    - 8 -

    a degree justifying designation. To construe section 100 as
    requiring the Secretary of State to form an opinion ad hoc on a
    case by case basis as to what budgets are excessive without regard
    to principle would be to defeat the plain purpose of the section.

    The second submission is so closely related to the first that
    it must fall with it, but even if considered independently it is
    fatally flawed. The second submission presupposes that every
    decision to designate an authority as having set a budget which in
    the opinion of the Secretary of State is excessive is a decision
    made ad hoc, having regard only to the circumstances affecting
    that authority and having regard to some notional objective
    standard of what a "sensible" authority might properly budget to
    expend. The aim of this second submission is to bring the
    decisions made by the Secretary of State to designate the
    appellant authorities within the ambit of a familiar line of
    authority of which the leading case is Secretary of State for
    Education and Science v. Tameside Metropolitan Borough Council
    [1977] AC 1014. That case concerned the exercise by the
    Secretary of State for Education and Science of a power under
    section 68 of the Education Act 1944 authorising him to give
    directions to a local education authority as to how it should
    perform its statutory functions if he was satisfied that the
    authority was "proposing to act unreasonably with respect to the
    exercise of any power conferred or the performance of any duty
    imposed by or under this Act." The House held that this did not
    empower the the Secretary of State for Education and Science to
    substitute his own opinion for that of the local education authority
    as to the course of action which it should take, but that he could
    only give directions if, on the material before him, he was entitled
    to be satisfied that no reasonable local education authority would
    act as the authority in question was proposing to act. This was a
    decision on different statutory language in a wholly different
    statutory context and it has no relevance whatever to the
    construction of section 100 of the Act of 1988. If one asks in the
    circumstances of an individual case whether a local education
    authority has acted unreasonably in the discharge of its statutory
    functions, this is clearly a question which admits of an objective
    answer. If one asks, however, even in the circumstances of an
    individual case, whether a local authority's budgeted expenditure
    for a year is excessive, it is plain that there can be no objective
    criterion by which to determine the answer. What is the
    appropriate level of public expenditure and public taxation is, and
    always has been, a matter of political opinion. At one end of the
    political spectrum it may be thought proper for 90 per cent. of
    the national income to be levied in taxation and redistributed to
    the citizens in the form of free services designed to meet nearly
    all their needs. At the other end it may be thought that taxation
    should be kept to the barest minimum level necessary to provide
    minimal public services. Differences of political opinion within
    this spectrum obviously apply at local as well as at national level.
    Thus there can be no objective norm by which it would be possible
    to determine that a local authority's budget was excessive. If the
    Secretary of State's powers under Part VII of the Act were limited
    to restraining excesses in budgetary expenditure beyond what any
    "sensible" authority might determine to be appropriate to its own
    circumstances, they would, in effect, be wholly nugatory. The
    setting of a norm for local government expenditure is essentially a
    matter of political opinion. That is precisely why the Act, in

    - 9 -

    entrusting to the Secretary of State the function of determining
    the norm and imposing a ceiling level of expenditure to which
    local authorities must conform, does so by requiring him to spell
    out the criteria of excessive expenditure in terms of principles of
    general application, which is the very antithesis of subjecting the
    budgets of individual authorities to the ad hoc review which is
    suggested to be the basis of the capping power in the submissions
    made on behalf of the appellant authorities.

    As an alternative to the submissions directed to the
    construction of section 100, it was submitted that various
    pronouncements by the Secretary of State and other Government
    Ministers in the House of Commons and elsewhere had induced in
    local authorities a "legitimate expectation" that the Secretary of
    State's powers of capping would only be exercised to restrain
    excesses going beyond the limits of such budgets as a "sensible"
    authority might properly set and that this legitimate expectation
    could, if necessary, be relied on as imposing a limitation on the
    power otherwise exercisable under section 100 to the same effect
    as that which would follow from acceptance of the authorities'
    submissions on the true construction of the section. I need only
    say that, in my opinion, this submission is plainly misconceived.

    The appellant authorities next submitted that the Secretary
    of State's designation notices did not comply with the Act because
    the principles determined under section 100(4) were not the same
    for all authorities in the same class. The basis of this submission
    is that the principle determining that an authority's budget shall
    be treated as excessive only if it exceeds the authority's S.S.A.
    both by 12
    ½ per cent. in the aggregate and by £75 per adult of
    the relevant population is a principle which can only apply to
    those authorities whose S.S.A. divided by the relevant adult
    population is at least £600. This is, of course, factually correct,
    but the fallacy in the submission is that it confuses a requirement
    that the principles shall be the same for all authorities, which the
    statute imposes, with a requirement that the principles shall be
    capable of application to all authorities, which the statute does
    not impose. In the nature of the case the principles designed to
    govern the determination to designate will discriminate between
    authorities according to whether their budgets are or are not to be
    treated as excessive. The principles to be applied are the same,
    but to require that every principle should be capable of application
    to every authority would defeat the whole purpose of the exercise.
    Accordingly this submission also is without substance.

    I have now referred to all the grounds relied on by the
    appellant authorities to impeach the Secretary of State's action as
    contravening the Act either on its true construction or as falling
    to be applied in the light of the authorities' legitimate
    expectations. Adopting Lord Diplock's threefold classification of
    the grounds on which administrative decisions may be challenged as
    illegality, irrationality and procedural impropriety (Council of Civil
    Service Unions v. Minister for the Civil Service
    [1985] AC 374,
    410) the grounds of challenge so far considered would, if they had
    succeeded, have fallen under the head of illegality. The remaining
    grounds of challenge fall under the heads of irrationality or
    procedural impropriety. Before turning to these grounds it is
    appropriate to consider whether any limitations upon the scope of
    judicial review are imposed by the subject matter of the
    legislation. In this we are not without authoritative guidance.

    - 10 -

    In Reg. v. Secretary of State for the Environment, Ex parte
    Nottinghamshire County Council
    [1986] AC 240, the House had to
    consider an earlier challenge to the action of the Secretary of
    State under the Local Government, Planning and Land Act 1980
    which had this in common with the action here in question that
    the "expenditure guidance" which the Secretary of State had there
    issued to local authorities and which the authorities sought to
    challenge had a directly restraining effect on the authorities'
    conduct of their financial affairs but before it could take effect
    required the approval by resolution of the House of Commons.
    The appellant authorities in that case had challenged the Secretary
    of State's statutory expenditure guidance on the ground, inter alia,
    that it was unreasonable as contravening the principles expounded
    in the judgment of Lord Greene M.R. in Associated Provincial
    Picture Houses Ltd. v. Wednesbury Corporation [1948] 1 KB 223,
    229, which is the classic statement of the basis for a challenge to
    an administrative decision on the ground of irrationality.
    Adverting to this challenge in the Nottinghamshire case, Lord
    Scarman said [1986] AC 240, 247:

    "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. . . .

    "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
    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."

    Later he added, at pp. 250-251:

    "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

    - 11 -

    interpretative role: they must, if cailed 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 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' roie 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."

    Lord Scarman's speech commanded the agreement of all members
    of the Appellate Committee participating in the decision of whom
    I was one. I regard the opinions expressed in the passages quoted
    as an accurate formulation of an important restriction on the
    scope of judicial review which is precisely in point in the instant
    case. There is here no suggestion that the Secretary of State
    acted in bad faith or for an improper motive or that his decisions
    to designate the appellant authorities or the maximum amounts to
    which he decided to limit their budgets were so absurd that he
    must have taken leave of his senses. Short of such an extreme
    challenge, and provided always that the Secretary of State has
    acted within the four corners of the Act, I do not believe there is
    any room for an attack on the rationality of the Secretary of
    State's exercise of his powers under Part VII of the Act.

    This accords with the view expressed by the Divisional
    Court, though they went on to examine on their merits and to
    reject the grounds relied on by the applicant authorities including
    those challenging the rationality of the Secretary of State's
    decisions and orders. The Court of Appeal expressed a somewhat
    different view. Referring to irrationality as a ground for judicial
    review of the exercise of a statutory discretion they said:

    - 12 -

    "This head is relevant if it is alleged that the
    decision taker has had regard to matters which are legally
    irrelevant or has failed to have regard to matters which are
    legally relevant or that his decision would frustrate the
    policy of the Act upon which he relies for his authority
    (Padfield y. Minister of Agriculture, Fisheries & Food [1968]
    A.C. 997). There is nothing in the judgments in the
    Nottinghamshire case [1986] AC 240 to suggest that this
    aspect of the jurisdictional head of 'irrationality' has no
    application to decisions concerning public financial
    administration, whether or not they are also subject to
    review by one or both Houses of Parliament and no principle
    dictates that this should be the case."

    I think there is a danger of confusion in terminology here.
    If the court concludes, as the House did in the Padfield case
    [1986] A.C. 997, that a minister's exercise of a statutory
    discretion has been such as to frustrate the policy of the statute,
    that conclusion rests upon the view taken by the court of the true
    construction of the statute which the exercise of the discretion in
    question is then held to have contravened. The administrative
    action or inaction is then condemned on the ground of illegality.
    Similarly, if there are matters which, on the true construction of
    the statute conferring discretion, the person exercising the
    discretion must take into account and others which he may not
    take into account, disregard of those legally relevant matters or
    regard of those legally irrelevant matters will lay the decision
    open to review on the ground of illegality.

    The restriction which the Nottinghamshire case [1986] A.C.
    240 imposes on the scope of judicial review operates only when
    the court has first determined that the ministerial action in
    question does not contravene the requirements of the statute,
    whether express or implied, and only then declares that, since the
    statute has conferred a oower on the Secretary of State which
    involves the formulation and the implementation of national
    economic policy and which can only take effect with the approval
    of the House of Commons, it is not open to challenge on the
    grounds of irrationality short of the extremes of bad faith,
    improper motive or manifest absurdity. Both the constitutional
    propriety and the good sense of this restriction seem to me to be
    clear enough. The formulation and the implementation of national
    economic policy are matters depending essentially on political
    judgment. The decisions which shape them are for politicians to
    take and it is in the political forum of the House of Commons
    that they are properly to be debated and approved or disapproved
    on their merits. If the decisions have been taken in good faith
    within the four corners of the Act, the merits of the policy
    underlying the decisions are not susceptible to review by the
    courts and the courts would be exceeding their proper function if
    they presumed to condemn the policy as unreasonable.

    One of the main grounds on which the appellant authorities
    attacked the basis on which the Secretary of State determined the
    principles under section 100(4) in accordance with which they were
    designated was that the calculation of an authority's S.S.A. does
    not take account of all the factors which come into play under
    the terms of section 95, in the case of charging authorities or of
    section 68, in the case of precepting authorities, in the

    - 13 -

    determination of an authority's annual budgeted expenditure. In
    essence this ground complains that in using S.S.A.s as the criterion
    by reference to which an authority's budget is judged excessive
    under section 100 the Secretary of State is not comparing like
    with like. The Court of Appeal examined this complaint on its
    merits and rejected it for reasons with which I agree. But I
    would reject it also on the shorter ground that the complaint seeks
    to assert that the use of S.S.A.S as the basic criterion by which to
    determine the permissible level of local government expenditure is
    unreasonable in the Wednesbury sense and for the reasons I have
    explained I am of opinion that such a complaint is inadmissible.

    The remaining complaints advanced by the appellant
    authorities relate to matters of procedure. Before I advert to
    these complaints individually, I must try to dispel a
    misapprehension which underlay the arguments addressed to the
    House on behalf of the appellant authorities on this part of the
    case. The arguments proceed from the assumption that, as
    between the Secretary of State and any authority which may be or
    is the recipient of a notice of designation, the authority, or more
    accurately the majority party in control of the budgeting process,
    is in the position of a person whose "rights," in the broadest sense,
    are liable to be detrimentally affected by any action taken by the
    Secretary of State under Part VII of the Act. This is the
    necessary assumption on which to base the argument advanced by
    the appellant authorities that the court must supplement the
    procedural requirements which the Act itself stipulates by implying
    additional requirements said to be necessary to ensure that the
    principles of natural justice are observed in the procedures both
    leading to designation and following designation. The decided
    cases on this subject establish the principle that the courts will
    readily imply terms where necessary to ensure fairness of
    procedure for the protection of parties who may suffer a
    detriment in consequence of administrative action. Clearly this
    principle applies to decisions whereby citizens may be affected in
    their person, their property or their reputation. The principle
    equally applies to public bodies or public authorities affected by an
    administrative decision which is based upon their having acted, or
    which necessarily implies that they have acted, unlawfully or
    discreditably. Thus in Durayappah v. Fernando [1967] 2 AC 337,
    the case primarily relied on by the appellant authorities, the Privy
    Council held that a minister, given power by statute to direct the
    dissolution of a municipal council on the ground that it "is not
    competent to perform, or persistently makes default in the
    performance of, any duty or duties imposed upon it, or persistently
    refuses or neglects to comply with any provision of law," was not
    entitled to exercise the power without giving the council a fair
    opportunity to be heard in its defence.

    The administrative decision taken by the Secretary of State
    in designating a local authority and setting a maximum amount for
    the authority's budget lower than the amount which the authority
    thinks it appropriate to raise by way of community charge and to
    spend in the provision of local services is in one sense adverse to
    the authority, but it does not in any way impinge on the rights of
    members of the authority, either as citizens or as councillors, nor
    does it impugn their collective conduct as either unlawful or
    discreditable. A difference of opinion between the Secretary of
    State and the designated authority as to what is the appropriate

    - 14 -

    level at which their community charge and their expenditure should
    be set is purely a political difference. The parties affected by
    the capping process are the community charge payers and the
    consumers of local services. The payers gain, the consumers lose.
    The party in control of the council may be politically frustrated
    by the restriction imposed on powers which they might otherwise
    exercise freely, but it is only in this sense that the Secretary of
    State acts to their detriment and they are perfectly at liberty to
    continue to claim that they were right and the Secretary of State
    was wrong and to make what political capital they may out of the
    dispute. In this statutory context I am very doubtful as to
    whether it would be appropriate for the court to imply terms in
    the statute derived from the doctrine of audi alteram partem.
    But it is unnecessary to consider this point further because at the
    only point in the process leading to capping at which it might be
    appropriate to insist that, as a matter of fair procedure,
    authorities should have the opportunity to be heard in opposition to
    the Secretary of State's proposed cap and to make a reasoned case
    in support of an alternative and less restrictive maximum for their
    budget, the Act itself by sections 102(5)(a) and 104 expressly
    prescribes a procedure precisely to this effect. This procedure
    was duly followed and in addition all the authorities who had
    served notices under section 102(5)(a) proposing alternative
    maximum amounts for their annual budgeted expenditure were
    given the opportunity to make representations orally in support of
    their cases by delegations received by the Minister for Local
    Government and Inner Cities and the Parliamentary Under-
    secretary.

    There are two further points at which the appellant
    authorities invite the House to conclude that terms must be
    implied in the statute in the interests of fair procedure. First it
    is said that the Secretary of State should be held under an
    obligation to consult local authorities before determining the
    principles on which he will act under section 104 in relation to
    designation and, having determined those principles, must announce
    them before authorities have set their budgets so that the
    authorities may have the opportunity to set them at a level which
    will avoid the necessity for designation. So far as consultation is
    concerned, no obligation to consult is imposed by Part VII of the
    Act. This is in contrast with Part V where section 78 imposes an
    express obligation to consult "such representatives of local
    government as appear to [the Secretary of State] to be
    appropriate." As I have recounted earlier, a very full process of
    consultation between the Department of the Environment and
    officers of local authority associations preceded the setting of
    local authorities' S.S.A.S. I can see no basis whatever on which to
    imply a statutory obligation to consult local authorities about the
    principles on which the Secretary of State proposed to base his
    designation decisions under section 100. The advantages of a prior
    announcement of what those principles are to be, enabling
    authorities to budget to avoid designation and the administrative
    expense and inconvenience necessarily consequent upon designation,
    are obvious. Mr. Rowsell in his affidavit carefully explains that
    the Secretary of State weighed these advantages against the
    disadvantages which he saw in a prior announcement as presenting
    a temptation to authorities to budget to spend up to the limit
    which the proposed principles would allow and therefore as inimical
    to the achievement of economy in local government expenditure

    - 15 -

    which is the primary objective of government policy. The
    Secretary of State concluded that the disadvantages outweighed the
    advantages and therefore made no prior announcement of the
    principles. Whether or not this was a politically wise decision is
    no concern of your Lordships. Here again I can see no basis on
    which to imply a term in the Act which would render it an
    unlawful decision.

    A second point at which it is contended that additional
    obligations on the Secretary of State must be implied in the
    statutory procedure is in any case where an authority is minded,
    after receiving the Secretary of State's designation notice under
    section 102(1) to give notice under section 102(5)(a) proposing an
    alternative maximum for its budget and giving reasons in support
    of that alternative. It is accepted that the Secretary of State is
    under no initial obligation when he serves a designation notice to
    give reasons for the amount of the cap which he proposes under
    section 102(l)(c), but it is said that he must do so on request by
    an authority wishing to challenge the cap to enable it the better
    to formulate its counter-proposal. I need only say that, in my
    opinion, the implication that it would be necessary to make to
    sustain this proposition is plainly excluded by the very precise
    terms in which the statute lays down the relevant procedure to be
    followed. The Secretary of State's notice under section 102(1) is
    in terms required to inform the authority of his decision, the
    principles determined under section 100(4) in relation to it and the
    amount of the proposed cap. An authority wishing to challenge
    the cap has 28 days in which to do so and is in terms required to
    give reasons in support of its alternative proposal. If it were
    intended that the Secretary of State should give reasons in support
    of the proposed cap, it is inconceivable that this should not either
    be stated in terms as a requirement of the notice under section
    102(1) or, if the reasons were only to be given on request, that
    the statute should not prescribe a timetable for making the
    request and for the time to be allowed to the authority after
    receipt of the Secretary of State's reasons for formulating and
    notifying its counter-proposal.

    Finally it was submitted for the appellant authorities that
    the Secretary of State is under a legal obligation before submitting
    a draft order for approval by the House of Commons under section
    104 to disclose to the authority affected any information which he
    intends to take into account received from a source other than the
    authority in question and of which that authority might not be
    aware. Both courts below accepted the view that the
    requirements of fair procedure imposed such an obligation, but the
    Court of Appeal rejected the complaint, which only arose after the
    hearing in the Divisional Court, that there had been any breach of
    the obligation. The position taken on behalf of the Secretary of
    State in relation to this submission was that it was the practice to
    inform an authority of any factual information on which the
    Secretary of State proposed to act which contradicted the case put
    forward by the authority, but that the reason for this practice was
    simply to ensure so far as possible that the information on which
    the Secretary of State proposed to act was accurate. It was not
    accepted that there was any legal obligation in the matter.

    This is the only point where I take a view at variance with
    that of both courts below. As I have pointed out, section 110 of

    - 16

    the Act in terms provides that in performing his functions under
    Part VII the Secretary of State may take into account any
    information available to him from whatever source it comes. In
    the nature of the case the Secretary of State is bound to receive
    representations as to how he should exercise his power of capping
    from many quarters. Bodies speaking for community charge payers
    and political opponents of those who have set the budget to be
    capped are likely to urge one view, political supporters and bodies
    speaking for consumers of local services or employees engaged in
    the provision of those services are likely to urge another. These
    representations may be factual, argumentative or both. Against
    this background to read into the statute a legal obligation on the
    Secretary of State to disclose to an authority challenging his
    proposed cap all relevant information before him and then to give
    the authority the opportunity to comment upon or counter that
    information (which would be the only purpose to be served by
    requiring disclosure) would introduce such delays into a procedure
    which is meant to operate with the greatest expedition that I
    cannot believe that this is what Parliament intended. Short of
    this, I do not think it is possible to spell out, as a matter of legal
    obligation, a duty of disclosure confined to a particular narrow
    category of factual information which it would be necessary to
    define with great precision. Here again it is vital to remember
    that the procedure under the Act is not in any ordinary sense an
    adversarial one. The important objective of the procedure is that
    the information on which the Secretary of State acts should be
    both full and accurate. In this respect it is much better, in my
    opinion, to leave the attainment of that objective to sound
    administrative practice than to attempt to achieve it by nice legal
    definitions.

    As this is the first year of the operation of the new system
    of local government finance it was predictable that there would be
    a challenge in the courts to any exercise by the Secretary of
    State of his capping power and in the light of the public
    importance and sensitivity of the subject matter it was appropriate
    that the authorities who wished to do so should be given leave to
    bring their case before your Lordships' House. But I hope that
    your Lordships' decision will serve to make it clear for future
    years that no similar challenge has any prospect of success unless
    an authority is in a position to show that the Secretary of State
    has acted in bad faith or for an improper motive or can point to
    some failure to comply with the procedural requirements which the
    Act clearly spells out.

    LORD BRANDON OF OAKBROOK

    My Lords,

    I am in full agreement with the reasons which have been
    given by my noble and learned friend, Lord Bridge of Harwich, for
    dismissing these appeals.

    - 17 -

    LORD OLIVER OF AYLMERTON

    My Lords,

    I am in full agreement with the reasons which have been
    given by my noble and learned friend, Lord Bridge of Harwich, for
    dismissing these appeals.

    LORD GOFF OF CHIEVELEY

    My Lords,

    I am in full agreement with the reasons which have been
    given by my noble and learned friend Lord Bridge of Harwich, for
    dismissing these appeals.

    LORD JAUNCEY OF TULLICHETTLE

    My Lords,

    I am in full agreement with the reasons which have been
    given by my noble and learned friend Lord Bridge of Harwich, for
    dismissing these appeals.

    - 18 -


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