Case No: CO/5226/02
Neutral Citation Number: [2003] EWHC 1975 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, 
London, WC2A 2LL

Tuesday 5 August 2003  
Before :

THE HONOURABLE MR JUSTICE  STANLEY BURNTON

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The Queen on the application of:

	LIVERPOOL CITY COUNCIL	Claimant	
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	THE  SECRETARY OF STATE FOR HEALTH	Defendant	

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(Transcript of the Handed Down Judgment of
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040,  Fax No:  020 7831 8838
Official Shorthand Writers to the Court)
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Andrew Edis QC and John de Bono (instructed by the City Solicitor, Liverpool City Council) for the Claimant
Nigel Giffin QC and Anya Proops (instructed by the Department of Health) for the Defendant

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Judgment

Mr Justice Stanley Burnton : 

Introduction
1.	In these proceedings, Liverpool City Council (“LCC”) seeks an order quashing the determination dated 16 August 2002 (“the Determination”) made by the Secretary of State for Health pursuant to section 93 of the Local Government Act 2000 of the grant to be paid to it in relation to expenditure incurred by it in the financial year 2002-2003 in the provision of community care services to persons who formerly had preserved rights (“PR”).  The Determination specified the grants that the Secretary of State proposed to pay to local authorities in England and Wales in relation to such expenditure and attached conditions to the payment of the grants. The total amount of the grants provided for in the Determination for local authorities in England and Wales was £624,153,810.  The amount of LCC’s grant was £8,640,683.
2.	The grounds for LCC’s claim are:
i)	that the Secretary of State failed adequately to consult before making his Determination; and
ii)	that his Determination was irrational.
The claim form includes an additional ground, namely that the Determination was inconsistent with LCC’s legitimate expectation that it would receive a sufficient grant to meet all of its expenditure to which the grant relates.  That ground was originally the principal ground put forward by LCC.  The witness statement of Annie Sheppard, Executive Director at LCC, filed in support of its application for judicial review, stated:
“The essence of LCC’s challenge to the Secretary of State is that he promised that the effect of the transfer would be cost neutral.”
However, this claim based on legitimate expectation was abandoned by counsel for LCC during the hearing, in my judgment rightly, because there had been no relevant representation or promise made to it by the Secretary of State, and I need say no more about it.
3.	The Secretary of State denies that LCC is entitled to any relief.  He contends that he consulted sufficiently and that his Determination was reasonable and rational.
4.	As mentioned above, the Secretary of State’s Determination specified the grants to be made to a large number of local authorities in England.  He has not suggested that the Court cannot grant relief restricted to Liverpool’s grant.  For its part, LCC has not suggested that, if it is entitled to relief, the Determination must be quashed as a whole, including its provisions relating to other local authorities.  It is therefore common ground that, if LCC’s grounds are well-founded, the Determination is liable to be quashed in relation to its grant only.  As it happens, LCC is, I am told, the only local authority that has sought judicial review of the Determination.
The statutory background
5.	Section 93 of the Local Government Act 2000 provides, so far as is relevant:
“(1) The Secretary of State may, with the consent of the Treasury, pay grants to local authorities in England towards expenditure incurred by them in providing, or contributing to the provision of, such welfare services as may be determined by the Secretary of State.
(2)	…
(3) The amount of any grants under this section and the manner of their payment are to be such as may be determined by the Secretary of State or the [National] Assembly [for Wales](as the case may be).
(4) Grants under this section may be paid—
(a) 	to all local authorities,
(b) 	to particular local authorities, or
(c)	to particular descriptions of local authority (including descriptions framed by reference to authorities in particular areas).
(5) Grants under this section may be paid on such terms and conditions as the Secretary of State or, as the case may be, the Assembly may determine; and nothing in subsection (6) affects the generality of this subsection.
(10) Any determination, guidance or directions under this section may make different provision in relation to different local authorities or descriptions of local authority (including descriptions framed by reference to authorities in particular areas).
(11) Before making any determination, issuing any guidance or giving any directions under this section relating to all local authorities in England or Wales or any description of such authorities, the Secretary of State or (as the case may be) the National Assembly for Wales must consult—
 (a) such local authorities or representatives of local authorities as appear to him or it to be appropriate,
(b) such recipients, or representatives of recipients, of welfare services as appear to him or it to be appropriate, and
(c) such providers, or representatives of providers, of welfare services as appear to him or it to be appropriate.
(12) In this section—
 "local authority" means—
 (a) in relation to England, a county council, a district council, a London borough council, the Common Council of the City of London or the Council of the Isles of Scilly,
(b) in relation to Wales, a county council or a county borough council,
“welfare services” includes services which provide support, assistance, advice or counselling to individuals with particular needs.”
Preserved rights
6.	I can conveniently take the description of PR from the final report for the Joseph Rowntree Foundation entitled “People with Preserved Rights: a Socially Excluded Minority”, published in January 2000:
“Up until March 1993, the great majority of people needing state funding to enter an independent sector residential or nursing home in Britain were in receipt of special higher levels of Income Support, a means tested benefit available from the Department of Social Security (DSS).
The state funding system changed fundamentally with the implementation in April 1993 of the community care reforms embodied in Part III and IV of the NHS and Community Care Act 1990.  This transferred to local authorities the responsibility to make arrangements for people needing public financial support to enter residential and nursing homes from 1 April 1993, subject to both a means test and an assessment of need.  However, Section 26A of the National Assistance Act 1948 (contained in Section 43 of the NHS and Community Care Act 1990) prohibited local authorities from making residential arrangements for people who were already resident in independent sector care homes on 31 March 1993.
The provisions of Section 26A and associated regulations are described in Local Authority Circular LA[93]6.  The effect has been to divide state-funded residents of independent sector care homes into two groups:
•	Those entering homes for the first time on or after 1 April 1993, who look to local authority Social Service Departments (or in a minority of cases to the NHS) for assessment and financial support;
•	Those who were ‘ordinarily resident’ in an independent sector care home on 31 March 1993, who have ‘preserved rights’ to special higher levels of Income Support; but whom local authorities are – with some exceptions – legally prohibited from supporting.  This group includes care home residents who were paying their fees from private means on 31 March 1993 and who have subsequently run out of money.  
There are four exceptions to the legal prohibition on local authorities providing financial support for people with preserved rights, set out in regulations (SI 477/1993).  Their overall effect is to empower local authorities under the post-reforms regime to ‘top-up’ at their discretion the special higher levels of Income Support funding for people under pension age, in effect continuing the same pre-reforms powers local authorities had under the now repealed Schedule 8 to the NHS Act 1977.  
In contrast, there are few circumstances in which local authorities are empowered to offer financial support to people over pension age with preserved rights.”  
[Italics in the original.]
7.	Those resident in independent sector nursing and residential homes in March 1993 could conveniently be divided into (a) the elderly, and (b) younger persons with learning or physical disabilities or with mental health problems.  Naturally, mortality affected the first group more than the second.  In May 1993 there were 213,000 older persons claiming PR benefits; this number had dropped to 36,000 by August 1999. Numbers of other PR claimants declined proportionately less, from 72,000 in May 1993 to 47,000 in August 1999.  The Rowntree report expected learning-disabled persons to take over as the largest group with PR during 2000.
The calculation of the grants
8.	By 2000, most publicly-funded persons in independent sector nursing and residential homes were supported by local authorities out of their budgets.  PR residents were financed by the Department of Health (“the DoH”), through their social security benefits.  However, many of those residents were partly funded by local authorities, by means of what were referred to as “top-ups”.  The Rowntree report estimated that 38 per cent of learning-disabled PR residents were in receipt of local authority top-ups, and over 50 per cent of young physically disabled and those with mental health problems.  For older people, the estimate was a little under 10 per cent.
9.	The Rowntree report concluded that PR residents were at a financial disadvantage as against those funded wholly by local authorities.  It advocated the abolition of the PR regime and the transfer of the entirety of funding and care management responsibilities to local authorities.  It made an estimate of the sum required to put PR residents on the same financial footing as those wholly funded by local authorities:
“In summary, taking ‘distress’ 3rd party top-ups and PEA (Personal Expenses Allowances) / disregarded capital users together, the state would on the face of it have to meet the shortfalls of 10,800 residents (a little over a quarter of all older preserved rights claimants, Figure 5) at a cost of some £9 million per annum (based on May 1999, reducing by about a third each year) in order to put the older preserved rights population on the same financial footing as the local authority funded population.  It should be emphasised that the figure of £9 million must be regarded as an ‘order of magnitude’ estimate, based as it is on an informed guess on the frequency of ‘distress’ cases, where local authorities would have to bridge existing gaps between fees and preserved rights entitlements.  The estimate is also sensitive to the average value of £75.00 attributed to weekly shortfalls in the ‘open’ class of ‘£65.01 and over’.  However, the principal conclusions of this study do not hinge on the exact amount.  If the scale of additional spending were viewed as a critical issue, then government has the option of commissioning a speedy research exercise in order to provide more reliable data.”
10.	In December 1999 the Government had announced that it was considering the transfer to local authorities of the funding and care management responsibility for those who had entered residential and nursing care homes before 1 April 1993 and in consequence had PR to a higher level of Income Support towards their care costs.  In April 2000, the Government published a consultation paper, “Preserved Rights Income Support”.  It stated that one of the reasons for the transfer of funding and responsibility to local authorities was that the existing system locked people into residential care.  The system discouraged residents with PR from going into supported accommodation for fear of losing their PR.  The paper sought views on that transfer, and stated:
“If the Government decides to implement these changes, we shall consult councils separately on the amounts to be transferred to them and the means of doing so.”
11.	In June 2000, the Government decided that it would indeed transfer care assessment arrangements and funding responsibility for PR residents to local authorities.  The transfer was effected by sections 50 to 52 of the Health and Social Care Act 2001 and the Preserved Rights (Transfer of Responsibility to Local Authorities) Regulations 2001 (SI 2001/3776).  Those provisions required local authority transferees to carry out assessments of the care needs of the persons for whom they were made responsible, in accordance with section 47 of the National Health and Community Care Act 1990.
12.	It was originally anticipated that the transfer of responsibilities from central to local government would take effect on 1 April 2002. In fact, it took place on 8 April 2002, the date stipulated by the Health and Social Care Act 2001 (Commencement No. 5) Order 2001 (“the Commencement Order”).
13.	The transfer of responsibilities to local authorities involved a reduction in central government costs and an increase in those of local authorities.  The Government accepted that it was necessary to transfer an appropriate level of resources to local authorities to reflect this.
14.	An estimate was made of the cost saving to central government consequent on the transfer.  This was done by estimating what the cost to central government would have been if the PR system had remained in place after April 2002 and the cost that central government would continue to incur after the transfer in the form of income support for the residents in question at ordinary rates as opposed to the previous enhanced rates.  The saving to central government is broadly the difference between these sums.  Additional allocations were made:
i)	in respect of the costs of local authorities in carrying out the assessments of the needs of the transferees; and
ii)	in respect of additional top-up contributions that local authorities would have to meet, which previously had been met by relatives and other third parties.  
The contributions referred to in sub-paragraph (ii) would meet the shortfalls referred to in the extract from the Rowntree report quoted in paragraph 9 above.
15.	The sum of money so arrived at, conveniently referred to in these proceedings as “the pot”, was divided up between England, Wales and Scotland according to the Barnett formula, the standard means of apportioning central government funding between the three countries.  The English pot was then divided between the local authorities concerned, by reference to the numbers of PR residents for whom they were expected to accept responsibility, account being taken separately of the numbers of those users who were over 65 and under 65, with adjustments for migration between authorities and an area cost adjustment.
The calculation of the pot
16.	The first step in the calculation of the pot was to arrive at the product of the number of PR users and the average expenditure per user.  This was done on the basis of projections provided by the Department of Work and Pensions (“the DWP”) to the DoH in February 2000 of what the requisite numbers would be in 2001-2002 and 2002-2003.  The projection of user numbers involved taking the number of users known at the date of the projection and reducing it by estimated mortality (and any other reason for ceasing to be a PR user) until the mid point in each of those years.  The projection was made separately for four cohorts: nursing home residents aged over 60 and those under 60, and residents of residential care homes aged over 60 and those under 60.  The projected average amount of benefit was determined, as set out in paragraph 34 of the witness statement of Roger Pettit dated 5 March 2003, for each cohort.  The product of projected PR users and average benefit was £614 million for the year 2002-2003.
17.	To the sum of £614 million so arrived at was added the sum of £40 million, being the projected cost of providing relevant disability benefits to PR users in 2002-2003.  
18.	A calculation was made of the ordinary income support that would be paid to PR users in 2002-2003 after the proposed changes.  This came to £40 million, by coincidence the same figure as the projected cost of relevant disability benefits.  This sum was a deduction in the calculation of the pot, since it would be paid by central government after the transfer.
19.	A further sum of £100 million was then added to cover assessment costs and the shortfall costs referred to in paragraph 10 above.  This sum was negotiated between the Treasury and the DWP, but according to Mr Pettit it represents a generous estimate of the costs in question.  The cost of assessments was estimated at £200 per PR user, this figure having been derived from an earlier study by the Personal Social Services Research Unit.  The shortfall costs were far more difficult to estimate.  Mr Raphael Wittenberg, economic adviser to the DoH, attempted a paper exercise to estimate the likely shortfall using DWP data, and found that the assumptions he had to make were so extensive that they undermined the reliability of the result.  That exercise resulted in a figure in the range between £100 million and £200 million.  However, the information published by Laing & Buisson, specialist community care consultants, suggested that the bulk of these costs were already being met by top-up payments made by local authorities.  The Rowntree report gave an “order of magnitude” figure of £9 million for these costs, as estimated by Mr William Laing of Laing & Buisson, based on 1999 data: see the extract quoted in paragraph 9 above.  Of the sum of £100 million, £88.8 million was notionally attributed to these costs.
20.	These calculations produced a final figure of £714 million, of which £614 million was allocated to England.  The identity of this figure with that referred to in paragraph 17 above is also, apparently, coincidence.  The figure was agreed between the DWP and the Treasury in June 2000 because of the system of 3-year spending reviews.  The 2000 review set public expenditure limits for 2001-2002 and 2002-2003.
21.	At some unspecified time closer to April 2002, the DWP and the DoH reconsidered these figures in the light of developments since June 2000.  There had been an unpredicted increase in PR rates of income support of 1.9 per cent in July 2001; this of itself should have led to an increase in the pot.  Against this, there had been a greater rise in the Government’s minimum income guarantee than anticipated.  According to Mr Pettit, that would have led to a deduction of in excess of £50 million for ordinary income support payments, rather than the figure of £40 million referred to in paragraph 18 above.  In addition, the date for the transfer of responsibility to local authorities was postponed by one week, to 8 April 2002, thereby saving them 1.9 per cent of the cost of the transfer in 2002-2003.  This was worth some £10 million to local authorities.  The balance of these figures favoured the local authorities.
22.	The predictions made of the number of PR users proved to be under-estimates.  The actual number of users in February 2002 was 58,000, as against a predicted 56,000 for April 2002. This of course increased the actual cost to local authorities.
23.	Treasury rules dictate that a financial settlement should only be reopened in exceptional circumstances.  The DoH considered that in general it was inappropriate to depart from the figures agreed with Treasury.  However, having received a number of representations about individual allocations, it was realised that some funding did not reflect the information certain local authorities had provided about the number of out of area allocations they were supporting, and as a result it was decided to increase their funding.  The total of the sums allocated to these authorities was £10 million.
24.	The allocation of the pot between local authorities is described in paragraph 15 above. It was based on information obtained by the DoH referred to in paragraphs 34 to 36 below.
Consultation
25.	The principle of the transfer of responsibility for PR users was the subject of separate consultation with local authorities, and no point is taken as to that consultation.  The claim to impugn the Defendant’s Determination relates to the separate consultation (or lack of it) on the financial implications of the proposed transfer.  According to Mr Pettit, local authorities made clear the need to transfer to them adequate resources to meet their additional responsibilities.
26.	In May 2001, Mr Wittenberg prepared 2 papers relevant to the issues before me. One was entitled “Distribution of Preserved Rights Resources”, and dealt with 3 possible options for distributing the available resources (i.e., the pot) between local authorities.  The other, “Resources for Preserved Rights Residents”, explained how the pot had been arrived at.  Copies of these papers were sent to Mr Duncan Tree, the policy officer for social affairs and health of the Local Government Association.  The LGA is regarded by the Department as the principal representative body for local authorities in England and Wales.  In June 2001, Mr Tree forwarded the papers to some 2 dozen other persons within the LGA and a number of local authorities.  Mr Tree’s email to them stated:
“Dear Adviser
I am attaching papers prepared by the Department of Health on the above on which I would be grateful for your views.  You will know that the Association is not in a position to offer views on preferred options for distributing resources from central to local government but I would welcome your observations on the total amount of resources to be transferred and on any service implications arising from the distribution option.
The Department of Health has indicated that it would welcome commentary on these papers by the end of June.  It would helpful, therefore, if I could here from you by Monday 25 June.
If you wish to send views on the distribution options per se direct to Brian Blagbrough at the Department of Health…it would be useful if you could also send a copy to us.”
Mr Tree’s email was copied to Brian Blagborough of the DoH, who was therefore able to see to whom it had been sent and copied.
27.	The first of Mr Wittenberg’s papers gave three options for the distribution of PR resources among local authorities.  Before describing them, the papers stated:
“The objectives of the system for distributing the resources for preserved rights residents include:
•	Fairness between local authorities;
•	Smooth transition to the new arrangements such that no council suffers any effect on its ability to secure the rest of its business;
•	Clarity and simplicity of approach.”
28.	The second paper summarised the manner in which the pot had been arrived at.  It stated that separate estimates had been made for older and younger residents.  The contents of the paper included the following:
“4. The transfer GB is estimated at £614 million for 2002/3 and £551 million for 2003/4.  The England share of 86% is £528 million for 2002/3 and £474 million for 2003/4.  DSS estimates that 43% of the 2002/3 transfer and 38% of the 2003/4 transfer relates to older people.  
5.  The technical assumptions used in estimating the transfer have turned out to be favourable to Social Services.  …
6.  The transfer will be supplemented by an additional sum of £100 million for Great Britain, or £86 million for England, in respect of the costs of assessment and the costs of the shortfall between care home fees and income support limits.  It was not possible to produce a precise estimate of the shortfall.  This is partly because of caveats surrounding the DSS data on fees met by preserved rights residents and partly because data are not available on local authority contributions to fees for younger residents.  DSS data suggests that the shortfall for older residents is relatively small compared to the shortfall for younger residents.  
…
8.  The net effect of these financial arrangements are that local authorities will receive: - 
For 2002/3: £214 million for older residents and £350 for younger residents, totalling £564 million for preserved rights residents;
For 2003/4: £175 million for older residents and £343 million for younger residents, totalling £518 million for preserved rights residents.”
29.	On 31 May 2001, the second paper was discussed at a meeting between officials of the DoH and Mr Tree and two local authority officers, Mr Richard Killingbeck of Leicestershire County Council and Ms Caroline Highwood of Kent County Council.  Ms Highwood was the Director of Finance at Kent County Council.  She represented the Association of Directors of Social Services (“ADSS”) in the discussions of financial issues.  Mr Killingbeck represented the LGA.  Mr Wittenberg was unable to attend the meeting.  The note of the meeting shows that it was agreed to ask Mr Wittenberg to contact Ms Highwood so that he could provide further information about how the pot had been calculated.  The LGA representatives agreed to submit in writing their considered views on both papers to the Department of Health.  Mr McCracken, of the Department of Health, agreed to contact DSS colleagues to urge them to arrange a meeting with the UK Local Authority Associations: LGA representatives were keen to discuss with the DSS some of the assumptions about benefit expenditure and other matters that underpinned the calculation of the PR transfer.  It was agreed that there would be a further meeting in July.  
30.	On 4 June 2001, Mr Wittenberg sent an email to, among others, Mr Killingbeck, Ms Highwood and Mr Tree, asking them to email their queries on his paper “Resources for preserved rights residents” to him.  Ms Highwood replied on 7 July 2001, with five questions concerning the calculation of the pot.  Mr Wittenberg responded to her on 13 July 2001, enclosing a paper addressing her questions.  One of her questions related to the consequences of the increase in income support of 1.9 per cent, which had not been anticipated.  Mr Wittenberg’s response stated:
“9. The Department is not arguing that the 1.9% rise in the income support limits is directly covered by the minimum income guarantee (MIG).  The issue is more complex.
10. The transfer was estimated using the best information available at the time.  There have, however, been some changes since it was estimated.  First, the income support limits are shortly to be raised by a further 1.9%.  Second, the ordinary income support rates for older people (i.e. the MIG) were raised by substantially more than average earnings.  Third, the date for the transfer of responsibilities will be 8 April rather than 1 April 2002.  
11. If the transfer was to be reviewed, clearly all these changes would need to be taken into account.  It would not seem right to consider only one of them.  Although the further rise in income support limits would lead to a higher transfer, the substantial rise in the MIG and changed date for the transfer would lead to a lower transfer.  Re-estimation of the transfer on updated assumptions, including the further increase in income support limits of 1.9% due in July 2001, would result in a net reduction in the overall transfer to local authorities.  
12. Notwithstanding these comments, under the rules governing three-year Spending Review settlements, it is highly unlikely that the Treasury would allow the size of the transfer to be reopened at this stage.”
31.	A further meeting was held by the DoH on 28 June 2001.  Those present were, in addition to Mr Pettit, Mr Tree of the LGA, Ms Highwood of the ADSS, Jane Hayball, a welfare rights advisor working for the London Borough of Greenwich, for the LGA, Mr Andrew Powell-Chandler of the National Assembly for Wales, and three officials from the DWP.  I do not have a note of the meeting, but Mr Pettit sent an email which summarised it.  Mr Tree stated that the LGA would not be expressing a preference about the suggested means of distributing resources between individual councils.  However, Mr Pettit believed that the ADSS would submit comments, and that written comments had been received from individual local authorities, prompted by the circulation of draft information by the LGA.  He referred to letters on the distribution of resources from City of York Council, North Somerset Council, Bracknell Forest Borough Council, East Sussex County Council and Essex County Council.  Mr Pettit’s email also referred to surveys that the DWP was going to conduct to obtain relevant information from local authorities.  
32.	In addition, correspondence making representations on the basis of Mr Wittenberg’s draft papers was received by the DoH from the County Councils Network, the Resources Committee of the ADSS, North Somerset Council, the East Riding of Yorkshire Council, Essex County Council and East Sussex County Council.  In a letter dated 29 June 2001 from Mr Tree of the LGA to Mr Pettit, he stated:
“I understand that, following my e-mail communication…to colleagues representing the specific interests of unitary, metropolitan and county council social services authorities, the Department has received a number of responses indicating views on the options set out on those papers.  I am sure that you will find these responses helpful when determining which of the distribution options to pursue.  
I know that you will understand that given its nature as a voluntary membership organisation, the Association does not express views on matters relating to resources distribution mechanisms.  Clearly, however, the Department will want to satisfy itself that its preferred distribution option maintains both stability in the care market, secures the least possible service disruption for local authorities and their client and takes account of cross authority funding and placement.”
Most of the submissions related to the distribution of resources.  The ADSS Resources Committee, however, expressed its “considerable concerns as to whether the amount available is adequate to the task required”.
33.	On 10 September 2001, the DoH held a “Discussion Day” on long term care issues.  It included a “Preserved Rights Workshop”, which was attended by representatives of concerned charities, and in addition to Department of Health officials (including Mr Pettit), Lynne Cheeseman of the London Borough of Lewisham, and Caroline Highwood and Duncan Tree.  A note of the workshop lists financial concerns raised and the responses of the DoH and DWP to some of those concerns.  
34.	In October 2001, the DoH published guidance on the proposed transfer of responsibility and funding, and set out numbers of PR residents in the four cohorts referred to above as at December 2000.  The option adopted by the DoH on the distribution of resources among local authorities was the second option referred to in the draft paper, which was in fact the option favoured by the majority of responses.
35.	The figures for each local authority contained in the bulletin published by the DoH in October 2001 on its website and referred to above had been obtained by the DWP, initially from local Benefits Agency Offices, but subsequently from local authorities themselves, who were asked to provide the number of preserved rights cases their authorities were supporting in residential care or nursing homes located outside their areas.  88 per cent of local authorities responded to the request for data.  In September and October 2001, the DWP obtained from social services departments of local authorities the names of PR cases for whom they were responsible but who were living out of their areas.  The resulting information, in addition to being published on the website, was sent to local authorities in mid-November 2001.  The information was used by the DoH to calculate the proportion of the PR grants each authority would receive.  
36.	The DoH sent a letter dated 4 December 2001 to all local authorities.  It contained details of and indicative figures for the actual grant allocations for PR users which the department proposed to make to each authority in respect to the year 2002/2003.  The figures for grants were stated to be provisional and subject to parliamentary approval.  The letter gave the total amount of resources to be distributed to local authorities on account of the PR transfer.  In relation to Liverpool, it gave the figure of £8.641 million, which was the same amount as it did eventually receive by way of grant.  The letter was not expressed to have been sent for the purposes of consultation.  To the contrary, under the heading “Action”, it stated: “This letter is for information only.”  Nonetheless, some authorities did question the amount of their individual allocations by reference to the numbers of cases for which they were responsible.  
37.	On 15 May 2002, a meeting was held of the PSS (Personal Social Services) Expenditure Sub-Group, consisting of representatives of the Department of Health and local authority representatives.  Their discussions included the transfer of PR users.  The representatives of the local authorities expressed concern as to the adequacy of the PR grant that was proposed.  Mr Pettit responded at length to their concerns.  
38.	On 12 August 2002, Mr Pettit emailed to the Local Government Association and others a draft of the Determination.  The LGA regretted the time pressure placed on them, but stated that in the time available it did not have any major difficulties with the draft.  The Determination was then published on 16 August 2002.  
Discussion 
(a) Consultation
39.	LCC’s claim form was unspecific as to the nature of its case in relation to lack of consultation, essentially because it did not know, when it began these proceedings, what, if any, consultation there had been on the part of the DoH before the Determination was made.  It alleged that the Determination was unlawful “because the DoH failed to consult local authorities as required by section 93(11)(a) of the 2000 Local Government Act”.  Mr Pettit’s first witness statement, dated 5 March 2003, aimed to rebut the suggestion that there had been no consultation of local authorities or their representatives by showing what consultation there had been.  It did not however focus on the requirement of section 93(11)(a) that the Secretary of State consult “such local authorities or representatives of local authorities as appear to him … to be appropriate”, doubtless because that requirement was not addressed in LCC’s claim form or evidence.  
40.	It is clear that the italicised words give the Secretary of State considerable scope as to who is consulted.
41.	The premise of LCC’s submissions on lack of consultation was that the Secretary of State was under a duty to consult each local authority that would assume responsibility for PR residents.  That premise is inconsistent with the terms of section 93(11).  There must be consultation, but it need not be of all local authorities or of all representative organisations of local authorities.  It is sufficient that it appears to the Secretary of State that those consulted are those it is appropriate for him to consult on the matter in question.  However, the italicised words in the previous paragraph do require him (or his civil servants) to address the question who is to be consulted and to form the view that they are the appropriate consultees.  Mr Pettit’s first witness statement did not deal with that issue.  
42.	As a result of comments made during the first day of the hearing, Mr Pettit made a second witness statement, dated 18 June 2003.  He was hampered by the fact that he had been unable to contact either of the two officials who would have been best placed to respond to this point, namely Mr Blagborough, who was on leave, and Mr McCracken, who was on secondment to the NHS.  He made the points that consultation with the LGA and the ADSS were normally regarded as appropriate, the latter particularly so in the present context because of the financial nature of the matter in question.  Although the LGA itself did not put forward any views, it forwarded Mr Wittenberg’s papers to officers of local authorities who, it may be assumed, it considered were appropriate consultees.  The identity of those consultees was made known to the DoH: as mentioned above, Mr Tree’s e-mail was copied to Mr Blagborough. In any event, the 2000 Act permits the consultation of representatives of local authorities as an alternative to local authorities themselves, and it must be contemplated that such representatives will circulate their members to the extent that they consider it appropriate.  
43.	Most importantly, the content of the correspondence and discussions referred to above makes it abundantly clear that there was consultation by the Department, not only with local authorities and of organisations representative of local authorities, but also with organisations that might reasonably be regarded as representatives of recipients of welfare services, such as Help the Aged and Mencap, and providers of welfare services, such as Leonard Cheshire and the Association of Residential Care, as required by section 93(11)(b) and (c): see the list of attendees at the Preserved Rights Workshop referred to above.  
44.	I infer, and I am satisfied, that the Secretary of State consulted such representatives of local authorities and such local authorities as appeared to him to be appropriate; and that there is no basis for suggesting that he was irrational in this connection.
45.	However, Mr Edis QC criticised not only the width of the consultation in terms of the consultees, but also its breadth in terms of its subject matter.  The DoH did not consult with any local authorities or representatives of local authorities before calculating and agreeing with Treasury the amount of the pot.  Mr Edis submitted that the fixing of the pot and its allocation to individual local authorities were all part of the process leading to the Determination, and that section 93(11)(a) required that there be consultation in relation to all material matters involved in the determination of a grant.  The consultation in relation to the amount of the pot was too late, he submitted, since by the date the consultees were approached it could not be increased except in exceptional circumstances, by virtue of the Treasury rules referred to in paragraph 23 above.  He stated that LCC were not seeking judicial review of the decision made in June 2000 as to the amount of the pot; but he submitted that the failure to consult on the size of the pot infected the subsequent Determination.  I am not sure that this is a logically consistent position for LCC to take, but in the end that does not matter.
46.	LCC submitted that there was also a relationship between the duty to consult and the requirement of rationality in relation to the decision of the DoH not to provide for reimbursement of actual costs incurred by it: the lack of provision for reimbursement increased the need for consultation and the scope of consultation that was appropriate.  That is clearly correct.  
47.	It is implicit in the obligation to consult that the consultation must be genuine: i.e., that Secretary of State must be willing to take into account the representations made as a result of the consultation required by the statute.  The proposed determination that is being considered must be one on which the Secretary of State has not made up his mind.  Section 93(11)(a) does not specify when the consultation is to take place, other than that it must be “before” the making of the determination; but it follows that a consultation after a decision has been irrevocably made does not comply with the statute.  Mr Edis cited the judgment of the Court of Appeal in R (Coughlan) v North and East Devon Health Authority [2001] QB 213, at 259:
“108.  It is common ground that, whether or not consultation of interested parties and the public is a legal requirement, if it is embarked upon it must be carried out properly.  To be proper, consultation must be undertaken at a time when proposals are still at a formative stage; it must include sufficient reasons for particular proposals to allow those consulted to give intelligent consideration and an intelligent response; adequate time must be given for this purpose; and the product of consultation must be conscientiously taken into account when the ultimate decision is taken: R v Brent London Borough Council, Ex p Gunning (1985) 84 LGR 168.” 
48.	Mr Giffin, for the Secretary of State, submitted that the statutory obligation to consult did not extend to the decision as to the size of the pot.  The making of grants takes place in the context of 3-year spending reviews, and it was inevitable that the overall figure for the potential transfer of resources would be agreed at an early stage, in 2000, before any consultation could take place.
49.	I do not find this an easy issue.  I agree that in general local authorities cannot be expected to be consulted about central government spending limits. Local authorities and representatives of local authorities will understand that grants must be determined in the context of central government spending limits, and it is reasonable that the responses of the DoH to their representations will take that context into account.  On the other hand, if the individual representations made by local authorities showed that the total pot was insufficient, the consultation would have little if any practical content if the Department’s reaction were that the total was fixed and not subject to change.
50.	However, the decision made in June 2000 as to the amount of the pot was not final. Treasury rules permitted its reconsideration in exceptional circumstances, and a demonstrated unforeseen miscalculation of substance would seem to fall within that expression.  As Mr Pettit points out in paragraph 61 of his first witness statement, queries by local authorities as to the schedule annexed to the DoH’s letter of 4 December 2001 of cases for which they were to become responsible led to the allocation of an extra £10 million. I conclude that if the consultations carried out by the Department had resulted in its being demonstrated that the pot had been materially incorrectly calculated, the Secretary of State would have genuinely considered whether it should be increased, and for that purpose whether the Treasury should be asked for a greater allocation of funding.
51.	Furthermore, the deficit alleged by LCC (for which I have no accurate figure) is very small in relation to the pot as determined by the Department: less than £1.5 million on a pot for England of £614 million, and considerably less than the sum of £10 million late addition to the pot. Leaving aside that sum of £10 million, the responses to Mr Wittenberg’s paper on the calculation of the pot did not suggest that it had been incorrectly calculated (although there were later suggestions that it was nonetheless inadequate and that information as to numbers of PR residents may have been less reliable than had been assumed). The LGA assumed an understandable self-imposed disqualification from itself commenting on preferred options for distributing resources from central to local government, but this would not have prevented its making representations on the size of the pot to be distributed.   LCC’s claim form does not allege that the pot was incorrectly calculated.  There is therefore no evidence, and no basis for a finding, that there was any material error in the process of calculation of the pot.  In these circumstances, any defect in consultation in relation to the calculation of the pot would have had no material consequence as to its calculation (though it might have been relevant to the decision whether to provide for the reimbursement of local authorities, which is separately considered).
52.	Criticism is also made of the detail of the consultation process. However, the Department’s thinking was revealed in Mr Wittenborg’s papers.  The principles being applied were disclosed and, in particular in relation to the method of distribution, discussed.  It was implicit in the consultation papers that local authorities would receive a fixed sum rather than reimbursement of the costs they incurred.  There was no pressure for a reimbursement mechanism until a late stage, when in March 2002 a letter was written on behalf of the LGA and the ADSS suggesting that the DoH should reimburse to local authorities the full cost of the transfer.  I do not have a copy of the Department’s reply to that letter, but the request was not repeated at the meeting of the PSS Expenditure Sub-Group of 15 May 2002. 
53.	As to the numbers of PR residents supported by local authorities, in April 2001 the DoH published the information it had obtained from the DWP as to the numbers in each local authority.  That information was published on the Department’s website.  Following concerns expressed at the meeting of 28 June 2001 that those figures did not take into account the migration of PR residents across local authority boundaries, information was sought and obtained from local authorities as to the numbers of PR residents they were supporting in homes in the areas of other local authorities.  In October 2001, the DWP collected from local authorities the names of PR residents for whom they were responsible who lived outside their area.  The DoH then produced a schedule showing the number of PR users for which each local authority was responsible.  It was published on the Department’s website in October 2001 and sent to all local authorities in November 2001.  Information to identify specific clients would have been provided to local authorities separately, through the DWP and Benefits Agency offices.  The totality of information collected by the DoH was used to compile the information contained in its letter of 4 December 2001.
54.	In fact, LCC do not criticise the figures given and used by the DoH for the numbers of PR residents for whom it assumed responsibility.  Indeed, its Chief Executive’s letter of 27 September 2002 indicates that the Department over-estimated the PR residents acquired by LCC.
55.	In my judgment, no greater consultation was required than took place.
56.	LCC submitted that there was no evidence that any of the responses to the consultation had been taken into account.  However, it is for LCC to show that the consultation that took place was purely cosmetic, and irrelevant to the decisions made by the DoH.  It has not done so.  To the contrary the communications in evidence indicate that the consultation was genuine: I refer, by way of example, to the provision of Mr Wittenberg’s papers to the LGA, his invitation to Caroline Highwood to e-mail her queries to him and his responses to them.  Again, the note of the meeting of 31 May 2001 is wholly consistent with genuine consultation.  The summary by Mr Pettit of the meeting of 28 June 2001 shows that the DoH agreed to undertake surveys of local authorities in order to obtain information that they had suggested was necessary to calculate individual grants. To make a finding that the consultation was not genuine involves finding a Machiavellian disingenuousness, if not dishonesty, for which there is no evidence.
57.	I should mention that criticism was understandably made in the claim form of the brevity of the final period of consultation as to the terms of the conditions attached to the grants.  That criticism was not pursued on behalf of LCC in oral submissions, and its subject was irrelevant to LCC’s case, which does not turn on those conditions.
58.	Lastly, the DoH criticised LCC’s failure to make any relevant representations to it in the period between the decision to transfer financial responsibility for PR residents to local authorities and its implementation, and suggested that this barred it from relief.  The DoH published its decision to make the transfer in July 2000.  As stated above, the date when the transfer was to take effect was determined by the Commencement Order, which was made on 7 November 2001.  In the same month, the DWP provided to each authority a list of names of PR residents. LCC was informed of the precise sums it was proposed to pay it by way of grant in the letter of 4 December 2001.  The letter stated that the sums specified were provisional and subject to Parliamentary approval.  It was, as stated above, expressed to be “for information only”, and was not part of the consultation, but it did provide crucial information for LCC’s purposes.  LCC was then able to determine, at least on an approximate basis, whether the proposed grant would meet the additional costs it would incur as a result of the transfer of responsibility to it. It did make such an estimate. It indicated that it would receive £1.8 million less than the costs it was to assume.  Having made that estimate, it could either have budgeted for it or approached the DoH with a request for an increased grant.  It did neither. No good reason has been put forward by LCC for its not having approached the DoH.
59.	LCC determined its budget at the beginning of March 2002.  The explanation put forward by it for not providing for the shortfall in the witness statement of Phil Halsall, Executive Director, Resources, at LCC, is unconvincing.  He referred to the terms of the letter of 4 December 2002, and suggested that it gave an assurance that all local authorities’ costs would be met. It did not: rather, it informed them what sums they would receive.  It was the source of LCC’s calculation that there would be a shortfall.  Secondly, Mr Halsall refers to a DoH notification to local authorities of 14 March 2002; but that was subsequent to the setting of the budget.  Thirdly, he states that the City Council was already budgeting to spend £3 million above the Government’s Personal Social Services Standard Spending Assessment in 2002/03.  That certainly would not have prevented an approach to the DoH, and should not have prevented budgeting for expected expenditure.  Lastly, he refers to other shortfalls for other government grants.  The same comment applies to this factor as for the last, save that it seems to me that it adds to the reasons for approaching the DoH rather than detracts from them.
60.	In the event, it is unnecessary for me to decide whether the matters referred to in the preceding paragraphs should cause the court to refuse relief, since no basis for relief on the ground of lack of consultation has been established.  However, the failings of LCC relied upon by the DoH have to be viewed in the light of the Department’s reaction to LCC’s belated representations.  On 17 April 2002, David Henshaw, the Chief Executive of LCC, wrote to the Secretary of State referring to an estimated deficit of £2.09 million and requesting a review of the financial allocation.  No reply had been received to that letter by 21 May 2002, when Mr Henshaw again wrote to the Secretary of State. A further month passed without a response.  He wrote again on 21 June 2002, again without response.  On 9 July 2002 he wrote to Nigel Crisp, the Permanent Secretary of the Department.  It was not until 4 September 2002 that the Department ventured a reply, by when, of course, the Determination had been made.  The Department’s silence between 17 April 2002 and 4 September 2002 is inexplicable.  If LCC had shown it was otherwise entitled to relief on the ground that it had not been consulted about its proposed grant, I should not have refused it on the ground that it failed to make its representations earlier, given the lack of timely response to its representations when it made them.
(b) Irrationality 
61.	I turn to the allegation of irrationality in the determination of the grant.  There are two connected aspects of the allegation of irrationality: 
i)	that the manner of the calculation of the grant was irrational, i.e., it was liable to arrive at a sum that was an inaccurate and unreliable estimate of LCC’s additional costs; and
ii)	that, given the scope for error in the determination of the amount of the grant, it was irrational to determine a grant which did not provide for the reimbursement of LCC’s costs resulting from the transfer or provide for supplementing the grant if LCC’s actual costs during the year in question exceeded the costs predicted by the DoH.
62.	The allegation of irrationality cannot be considered in isolation from the question of consultation.  The test of rationality is applicable both to the consultation process and to the treatment of the information obtained as a result of the consultation.  Allegations of irrationality and of inadequate consultation both involve consideration of the context and the object of the decision in question.  Consultation appropriate for a particular decision may be obviously inappropriate or inadequate for another.  In certain circumstances, approximation in determining a sum of money may be acceptable or unavoidable; in others, precision may be required.
63.	In the present case, if the DoH had sought to determine grants that accurately met the costs to be incurred by local authorities, the means used to calculate grants would have been irrational, since figures used in the calculation were known to be inaccurate, and in at least one case, namely the shortfall costs referred to in paragraph 40 of Mr Pettit’s first witness statement, the figure was known to be no more than a guesstimate.  But mathematical accuracy was not, and could not sensibly have been, the object of the Department.  Nor was it what the local authorities were promised, as the abandonment by LCC of its claim for judicial review on the ground of legitimate expectation implicitly accepts.  The evidence shows that the Department did not seek, and did not expect, indeed could not rationally have expected, to determine grants that would precisely meet the additional costs to be incurred by local authorities.  There were too many obvious areas in which estimation was required, not least in relation to mortality rates of PR residents.  There was also a fundamental difference in starting point between the Department and what LCC would have wished to see.  The Department’s starting point was not the costs that would be assumed by local authorities, but the costs that it would save. The Department certainly intended that the effect of the making of the grant would be that in 2002/2003 the effect of the transfer of financial responsibility for PR residents would be broadly cost neutral; but due weight must be given to the italicised adverb.
64.	It is not, and cannot be, suggested that it was irrational of the Department to use estimates and approximations in its calculations.  Estimates must frequently be used in calculating actual costs; they are inevitable when one is calculating costs to be incurred in the future.  The difficulties of accurate assessment of costs in this area are exemplified by the figures put forward by LCC for its shortfall.  A briefing paper produced by Veronica Jackson, Assistant Executive Director of Supported Living for LCC, between 12 March and 8 April 2002 gives a figure for the shortfall of over £2 million.  The figure given by LCC in its claim form is £1.63 million, stated to be estimated.  The most recent evidence of LCC, in Anthony Devine’s witness statement dated 6 June 2003 (i.e., after the end of the period covered by the grant), gives a figure of £1,452,767, but this apparently precise figure is not the difference between the grant and the additional costs incurred by LCC as a result of the transfer, but the total of discrepancies resulting from differences between assumptions made by the DoH in calculating grants (e.g. as to mortality) and LCC’s experience. LCC have not given a figure for the actual difference between the grant and LCC’s additional costs actually incurred in the year 2002/2003.  
65.	The absence of an allegation that the figure arrived at by the DoH when it calculated the pot was materially incorrect does not encourage me to set aside the Determination on the ground of the irrationality of its calculation.  Be that as it may, as appears above, the Department was aware that it was using estimates in its calculations of the pot, and indeed in its distribution between Scotland, Wales and England and then among English local authorities. I see no irrationality in their use, which in the main was inevitable and was certainly reasonable. The consultations referred to above did not produce any criticism of the logic or rationality of the calculation of the pot (although concern was expressed as to its adequacy).  There is in my judgment only one area of the calculation of the pot that may be open to criticism, namely the total of the shortfall costs referred to in paragraph 40 of Mr Pettit’s first witness statement.  However, the allowance of £88.8 million included in the pot is so much greater than the “order of magnitude” figure of £9 million given by Laing & Buisson as to make the use of that allowance unexceptionable. LCC do not criticise the basis of the distribution of the pot among English local authorities, summarised in paragraph 15 above; indeed, I see no basis for criticism of its rationality, particularly given that the method used was that favoured by most consultees
66.	Lastly, Mr Pettit put forward cogent reasons for the DoH excluding provision for reimbursement of local authorities for their acquired costs.  Such a provision, involving giving local authorities what is in effect a blank cheque, is unusual within the areas of policy for which the DoH is responsible.  A reimbursement system would remove from local authorities the incentive to encourage PR residents to move out of nursing and care homes into supported accommodation.  While such moves would be unlikely among elderly residents, some at least of the younger residents might be able and willing to move out.  A reimbursement system would also remove the incentive for local authorities to minimise the fees payable to the proprietors of nursing and care homes.
67.	The Department also considered that a reimbursement system would be bureaucratic, involving local authority staff in tracking expenditure and making returns to the Department, and would also require a monitoring system.  This reason for rejecting a reimbursement system carries less weight.  The conditions attached to the grant determined on 16 August 2002 restricted the use of grant moneys in the financial year 2002/2003 to the provision of community care services to persons the responsibility for whom was transferred to local authorities under section 50(3) of the Health and Social Care Act 2001 or who were formerly entitled to accommodation under section 21 or section 26 of the National Assistance Act 1948 by virtue of regulations made under section 26A(3) of that Act.  Condition 8 in Annex B to the Determination required local authorities to repay to the Secretary of State any part of the grant moneys that were not spent in the financial year 2002/2003.  Thus the Determination required local authorities to keep track of their expenditure, although it is to be noted that the permitted expenditure was not confined to the costs formerly incurred by the DoH.  Local authorities were permitted to apply grants towards, for example, costs incurred in providing after-care services under section 117 of the Mental Health Act 1983 to those who managed to leave care or residential homes, or in providing home help for those who leave such homes under section 21 and Schedule 8 to the National Health Service Act 1977: see paragraph 3 of Annex B to the Determination.  Furthermore, I have no doubt that the information that the Secretary of State would have required to be provided by local authorities if he had had to reimburse relevant costs incurred by local authorities would have been more detailed than that required by paragraph 4 of Annex B and that he is likely to require under the power he conferred on himself by paragraph 5.  
68.	The decision of the Secretary of State not to provide for the reimbursement of local authorities, but to pay them a specified sum by way of grant, was one clearly open to him and cannot be criticised as irrational. LCC accepts that a decision of a public authority is not to be quashed on the ground of irrationality save in exceptional circumstances, and that there must be cogent grounds for finding the irrationality alleged.  There are no such grounds in this case.
69.	In these circumstances it is unnecessary to consider whether it would be appropriate for the court to grant relief that would have the effect of putting one local authority in a different position from all others.  
Conclusion
70.	LCC have not established any ground for impugning the Determination.