Legal Briefing

Cutting the deficit: the legal hurdles

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Public Sector | 01 December 2011

The UK Coalition’s programme for government set out that deficit reduction, and continuing to ensure economic recovery were the most urgent issues facing Britain. 
It then started on a programme to cut public spending. One of the results has 
been a plethora of legal challenges, directed both against central government and against local government. Typically, challengers in these cases take every conceivable point but there are three areas of challenge that are more likely to be successful (or looking at it from the public body’s perspective, more likely to be problematic). Those areas are: legitimate expectation; adequacy of consultation; 
and compliance with equality duties.

A starting point for consideration of the courts’ approach is that although spending decisions have never been non justiciable, or completely off limits, there has always been a recognised need to be cautious. That caution has been expressed in a number of different ways, but was encapsulated by Lord Justice Laws:

‘The more the decision lies in what may inelegantly be called the macro-political field, the less intrusive will be the court’s supervision.’

This caution represents both a recognition that the courts lack the expertise to make economic decisions and a recognition that such decisions, to carry authority, require the democratic legitimacy available to the executive and legislature.

LEGITIMATE EXPECTATION

Building schools for the future: R (on the application of Luton Borough Council & ors) v Secretary of State for Education [2011]

The New Labour mantra was ‘education, education, education’. One of the manifestations of that was the building schools for the future (BSF) programme. It was to run for 15 years (2005-2020), with the aim to rebuild or refurbish every secondary school in England. By 2009 the estimated overall capital cost of the programme had reached in excess of £50bn. Perhaps unsurprisingly, given that cost, the programme came under scrutiny following the formation of the coalition government. The consequence was that on 5 July 2010 Michael Gove, the secretary of state for education, announced that certain projects in the BSF pipeline were to be stopped. That decision was challenged by eight local authorities – and the amount at stake was in the order of £1bn.

The BSF programme was delivered by 
an agency, owned by the Department 
for Education, called Partnership for 
Schools (PfS). The first stage was to determine the funding envelope for 
each local authority. Broadly speaking, 
the overall funding requirement for the 
15-year period of the programme, taking into account agency delivery, was to be through a series of ‘waves’, with the 
most pressing projects to be allocated 
to the earlier waves. At that point the 
local authority prepared a strategic business case and then an outline business case (OBC) that was submitted to the PfS for approval (the approval process included, of course, the Treasury). The OBC concerned scope, costs, affordability, risks, procurement route and timetable. OBC approval was the trigger for the local authority to set up a local education partnership (LEP); a joint venture for the delivery of the projects, including appointing a private-sector partner (to do the actual building or refurbishment). The LEP was to last for the whole of the 15 years of the programme. After OBC, the local authority and LEP prepared and submitted a final business case (FBC) for a project. If approved by PfS (and HM Treasury) a promissory note to fund the project 
was issued.

The position of the local authorities 
that challenged the cancellation decision was that their initial OBC approvals for the first wave of projects had been obtained, LEPs had been set up and FBC approval 
had been obtained for some projects. 
Their complaint was about the fact that 
for a number of other projects, although OBC approval had been obtained after 
1 January 2010 (if obtained before then, project could still go ahead), FBC approval had not been obtained by 5 July 2010 
and the projects were therefore cancelled.

The judge in the Luton case, Mr Justice Holman, recognised that he was dealing with a case in which a cautious approach might be appropriate, but signalled that 
he was not necessarily going to treat the case in that way:

‘These… are of course very large sums. But BSF was a very large and ambitious project and the size of the sums involved may tend to cut both ways. They certainly underline the macro-economic and political nature of the decision, an area into which the court should be slow to tread. But they may also tend to fortify the claimants’ complaints, in particular, as to the lack of consultation’.

There were two aspects to the local authorities’ legitimate expectation claim. The first was that there was a substantive expectation that, once OBC approval had been given, projects could not be cancelled. FBC approval was characterised as being merely in the nature of an audit of detailed costings. To succeed in this argument, the local authorities had to show that there had been something in the nature of a practice, or promise or commitment (however described) that was clear, unambiguous and devoid of relevant qualification that OBC approval meant that a project would be funded. The judge found, on the evidence, there was no such commitment, essentially for two reasons:

  1. looking at the documentation as a whole, such a commitment was simply not there. The judge accepted the secretary of state’s submission: 
‘… reaching an advanced stage 
(the OBC approval) in a multi-stage process is not the same as reaching the finishing line (the FBC approval) and that there is no room for a clear and unambiguous promise earlier than the FBC point’; and
  2. all of those participating in the scheme knew that there would be a general election no later than June 2010 and knew that the election could lead to a change in policy. To ‘allow’ a substantive legitimate expectation would have meant that the Labour government had been ‘guilty of unlawfully fettering a successor government’.

The second aspect of the legitimate expectation argument was that there was a procedural expectation: that there should have been consultation before the decision, in so far as it affected the claimants, was taken. It was not argued that there had to be consultation before the decision to scrap the scheme was taken in principle, but that the implementation in relation to these local authorities should have been consulted on. To succeed on this argument, the local authorities needed to persuade the judge that what happened was so unfair as to amount to an abuse of power. And the judge was persuaded. Three factors were important:

  1. the degree of ‘continuous and intense dialogue’ between the local authorities, Department for Education (DofE), PfS over many years;
  2. the sums involved; this ‘fortified’ the duty to consult; and
  3. there was no pressing reason why there should not have been a short opportunity, perhaps only three weeks or so, for the local authorities to press their case.

As Mr Justice Holman viewed it: ‘However pressing the economic problems, there 
was no “overriding public interest” 
which precluded any consultation or justifies the lack of any consultation’.

Biodegradable municipal waste: Cheshire East Borough Council Cheshire West & anor, R (on the application of)
v Secretary of State for Environment Food and Rural Affairs & anor [2011]

Cheshire provides a striking contrast to Luton. The background is an EC requirement that member states have national strategies to reduce the amount of biodegradable municipal waste going to landfill. The UK government strategy 
to achieve this was twofold:

  1. to make landfill more expensive by increasing charges and taxes; and
  2. to provide support for Private Finance Initiatives (PFIs) to be run by local authorities, to assist in the financing of projects that sought to avoid waste going to landfill.

The route to obtaining support for the 
PFIs was strikingly similar to the BSF process: an outline business case; a procurement exercise to the stage 
of preferred bidder; a final business 
case; confirmation that financial close 
has been reached; a PFI credit letter 
issued.

Cheshire obtained OBC (subject to conditions) long ago in December 2005. There was then a protracted procurement process (probably not helped by one 
round of local government reorganisation) so that by May 2010 Cheshire had not reached the stage of submitting its FBC. Nevertheless the procurement process continued, to the knowledge of Defra. In or around September 2010, Defra took a decision to consider a reduction in the number of local authority waste infrastructure procurements supported by PFIs. Without informing local authorities why it was doing so, it set about an exercise of collecting up-to-date data about projects. The result was that the Cheshire project ended up as number 11 on a list of projects – but only numbers 1-10 on the list were to be supported. The value of the PFI credits 
lost was £70m.

As happened in the Luton case, Cheshire argued that it had a substantive legitimate expectation and in the alternative that it had a procedural expectation that it would be consulted about the potential withdrawal of funding. As in the Luton case the judge, Mr Justice Langstaff, had to consider if there was anything amounting to a commitment by Defra, in clear and unambiguous terms that would have created a substantive expectation: and, 
he found that there was not.

Also, as in Luton, the judge had to consider whether non-consultation was so unfair as to amount to abuse of power. He noted that this was: ‘in principle a high hurdle. It cannot be too readily assumed that public authorities are unfair, to the extent of abusing power’. Unlike in Luton he concluded that there was no such unfairness.

It is difficult, perhaps impossible, to reconcile the outcome of the two cases. This seems to have been recognised, at least implicitly, by Mr Justice Langstaff:

‘The facts of this case must be judged on their own value: whereas Luton might provide a guide, it does not provide either an answer or a precedent which must be distinguished.’

CONSULTATION

Closing magistrates courts: The Vale of Glamorgan Council v The Lord Chancellor and Secretary of State for Justice (Rev 1) [2011], and Robin Murray & Co, R (on the application of) v The Lord Chancellor [2011]

The second common battleground in cuts cases is challenges on the basis that consultations that have been conducted are flawed. Vale of Glamorgan and Robin Murray are two examples, Although they 
do not say anything terribly new, they 
are a helpful reiteration of the relevant principles and illustrations of the application of those principles.

Both cases arose out of a project conducted by the Ministry of Justice to review the use of court buildings (Magistrates Courts and County Courts). There was an initial consultation between October 2009 and March 2010, leading to an announcement that 20 Magistrates Courts would be closed (leaving 330 in operation). Following the general election a further consultation exercise was launched with, in total, 16 consultation papers covering 15 areas of England and Wales. The proposal was to close 103 courts and, following the consultation, the decision was taken to close 93. Two of the courts for closure were at Sittingbourne (consultation responses 49 against, 3 in favour) and Barry (41 against, 2 neutral and 2 in favour).

In the Sittingbourne challenge (the Robin Murray case), the court summarised the principles:

  1. consultations where conducted, have to be conducted fairly;
  2. fairness will require:
    1. consultation undertaken at a time when proposals are still at a formative stage;
    2. sufficient reasons must be provided for particular proposals so as to allow intelligent consideration of them and intelligent responses to them;
    3. adequate time must be allowed for responses to be made; and
    4. responses must be conscientiously taken into account when the ultimate decision is made;
  3. when challenging a consultation, it is not sufficient to show it could have been done better – you must show 
that something went ‘clearly and radically’ wrong;
  4. as part of the obligation to allow intelligent consideration/response, 
the consultation should reveal the criteria that will be adopted when the decision is ultimately made and the factors that will be of decisive or substantial importance;
  5. there is no general obligation to disclose all material relied on for the decision.

In both of the cases, the challenges were essentially about undisclosed information. The first such information was the results of work done, while the consultation was going on, by officials to set benchmarks for the weighting of factors, so as to try and achieve a consistent approach in decision making. The court held that this did not need to be disclosed:

‘To require a public body engaged on a consultation exercise routinely to circulate information about the way its consideration of the matters before it is developing and afford an opportunity for further responses has the potential to lead to a never-ending dialogue and to be inimical to the principle that there must come a time when finality has to be achieved.’

However it was recognised that, in exceptional cases, the position might be different: if the matters that had emerged lead the public authority to wish to do something fundamentally different, or fairness otherwise requires consultation.

A separate point was taken, again unsuccessfully, in the Vale of Glamorgan case. This was that, in the consultation, alternative ways of achieving the objectives should have been indentified. This was rejected, with the court holding that such an obligation would ‘make the process of consultation inordinately complex and time consuming’.

EQUALITY DUTIES: ‘THE NEW FRONTIER’

A third area of challenge in cuts cases has been arguments that public bodies have failed to comply with their duties under the equalities legislation (now drawn together in the Equality Act 2010). At the heart of these arguments has been duty of public authorities to have ‘due regard’ to their obligations to promote equality. What constitutes ‘due regard’ has been explored in a number of cases.

One such case was a challenge by the Fawcett Society challenge to the 2010 Budget in its entirety. The basis of challenge was that in setting the Budget there had been a failure to have ‘due regard’ to the need to promote equality of opportunity between men and women.

The first issue considered in the case was whether the duty required an assessment of the overall impact of the whole Budget or whether it could be met by an individual assessment of each of the line items within it. The judge accepted that the duty could be fulfilled by a line item assessment – 
but his approach predicated on his view 
that doing it in that way would still show any cumulative impact from the accumulation of separate impacts. The second issue was the setting, within the Budget, of the overall departmental spending limits or envelope. The Fawcett Society’s case, in essence, was that the 
due regard duty needed to be assessed 
at this stage because by the time it got 
to individual item assessment at departmental level it would be too late. The judge did not accept that, on the basis that, in fact, there was always considerable scope for reallocation of funds within departmental budgets, there would always be a way to remedy an otherwise irremediable gender inequality.

Compliance with equality duties was also argued in the Luton case. The challenge was that, in cutting the BSF programme, there had been a failure to pay due regard to the duties in relation to race, sex and disability. Mr Justice Holman identified the principles (known as the ‘Brown principles’) applicable in determining whether ‘due regard’ has been paid:

  1. the decision maker must be aware of the duty;
  2. the duty must be fulfilled before and at the time of the decision being considered;
  3. duty must be exercised in substance, with rigour and with an open mind;
  4. the duty is non delegable;
  5. the duty is a continuing one;
  6. good practice is to keep a record of what has been considered – that, it was said, ‘disciplines decision makers to undertake their equality duties conscientiously’.

On the facts, Mr Justice Holman concluded that there had not been any regard to the equality duties at all, let alone the rigorous regard required by the Brown principles.

The requirements of the Brown principles were elaborated, arguably extended, in a further case, R oao W v Birmingham City Council, R oao M, G and H v Birmingham
City Council [2011]. In particular what was said was:

‘The equality duties impose “significant and onerous” obligations on public bodies in the context of cuts to public services’

and:

‘In a case where the decision may affect large numbers of vulnerable people, many of whom fall within one or more of the protected groups, the due regard necessary is very high.’

Birmingham City Council involved a challenge to the council’s adoption of its business plan (budget) and, subsequently, its adult social care policy. Those decisions involved a change in the eligibility criteria under which the council would provide specific support for individual needs. The council was moving from a situation of supporting those assessed with substantial or critical needs to supporting only those assessed with critical needs.

One of the striking features about the 
case was the depth of the evidence explored by the court to see whether the equality duty had been complied with. It amounted to a very intense degree of scrutiny indeed.

A second striking feature was that the adoption of the budget was taken at a 
full meeting of the council, following a vote and it is absolutely clear, by virtue of a proposed amendment to the budget that was rejected, that the meeting was aware of the possible consequences of the change in eligibility criteria for those in the substantial needs group. But that democratic legitimacy for the decision seems to have weighed not at all in the judge’s ultimate conclusion.

Overall, the judge concluded that the equality duty had not been complied with, in essence because once the council had made a high-level or macro decision that, in principle there should be a move to ‘critical’-only funding, it did not subsequently make any, or at least a sufficient, attempt to assess the practical impact on those whose needs fell into the substantial band but not the critical band.

LOOKING AHEAD

There can be little doubt that those seeking to oppose cuts in public spending will continue to use litigation as a tool to do so. The experience from the cases decided so far strongly suggests both that it will be difficult to predict the outcome of such challenges and that they will involve a hugely detailed assessment of how public authorities have conducted their decision making. There seems to be at least the beginning of a significant shift from the traditional cautious and unintrusive approach to such challenges.