England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		20 April 2005

Mr Justice Stanley Burnton:

Introduction

1. In these proceedings the London Borough of Lambeth ("Lambeth") seeks judicial review of the decision of the Secretary of State for Work and Pensions, in letters dated 8 April 2004 and 20 May 2004, to resume recovery of overpaid housing benefit subsidy relating to the years 1991/92 to 1996/97.
2. The sums involved are considerable, both in absolute terms and relative to Lambeth's budget. The total amount overpaid was £31.5 million. The Department agreed to accept repayment by instalments at the rate of £3.3 million a year. Some £9 million remains outstanding. Lambeth seeks a decision by the Secretary of State not to recover the outstanding sum, or at least a substantial part of it.
3. This is a case in which it is more helpful to an understanding of the issues to set out the legislative framework before the facts, which are in any case limited.

The legislative framework: (a) under the 1992 legislation as originally enacted.

4. Unlike most other social security benefits, housing benefit is administered and funded by local authorities. The housing benefit scheme is an income-related benefit prescribed under section 123 of the Social Security Contributions and Benefits Act 1992. Arrangements for the scheme are contained in Part 8 of the Social Security Administration Act 1992. It was amended by the Housing Act 1996, the relevant provisions of which came into force on 1 April 1997. Both the original and the amended statutory provisions provide for housing benefit to be funded and administered by local authorities, and in particular housing authorities such as Lambeth. Local authorities were, however, to receive a subsidy from central government, provided for in section 135. The subsidy took three forms: a rate rebate subsidy, a rent rebate subsidy and a rent allowance subsidy. Section 135(2) of the 1992 Act required the subsidy to be calculated, in a manner specified in an order made by the Secretary of State, by reference to the total housing benefit (subject to an exclusion and a deduction that are immaterial to the issues before me). In addition, subsection (5) authorised the Secretary of State to pay as part of the subsidy an additional sum in respect of the costs of administering housing benefit.
5. Housing benefit is notoriously vulnerable to abuse. An honest claimant whose rent is covered by housing benefit has no financial interest in negotiating downwards an excessive rent demanded by his landlord. There is also a risk of inflated rents being collusively agreed and paid. Even where the rent is reasonable, a claimant may occupy or seek to occupy, potentially at public expense, premises that are larger than he reasonably needs. It is therefore not surprising that in section 136 Parliament specifically authorised the Secretary of State by regulations to require local authorities in prescribed cases to apply to a rent officer for a determination to be made of the reasonable rent payable for premises that were the subject of a claim for housing benefit, and imposed a duty on local authorities to comply with prescribed requirements as to the time for making such an application.
6. The machinery for payment of subsidy was the subject of section 137:

137. — (1) Subsidy under section 135 above shall not be payable to an authority until either—

(a) they have made a claim for it in such form as the Secretary of State may determine; or

(b) if they have not made such a claim, the amount of subsidy payable to them (apart from subsection (6) below) has been estimated under subsection (3) below.

(2) The Secretary of State may withhold from an authority so much of any subsidy under section 135 above as he thinks fit until either—

(a) the authority has supplied him with prescribed particulars relating to their claim for subsidy and complied with prescribed conditions as to records, certificates, audit or otherwise; or

(b) he is satisfied that there is a good reason for the authority's failure to supply those particulars or comply with those conditions.

(3) If an authority has not—

(a) made a claim for subsidy;

(b) supplied the prescribed particulars referred to in paragraph (a) of subsection (2) above; or

(c) complied with the prescribed conditions referred to in that paragraph,

within the prescribed period, then the Secretary of State may estimate the amount of subsidy payable to them (apart from subsection (6) below) and employ for that purpose such criteria as he considers relevant.

(4) …

(5) …

(6) Where the amount of subsidy paid to an authority for any year is found to be incorrect, the amount payable to them for any subsequent year may be adjusted for the purpose of rectifying that mistake in whole or in part.

As will be seen, subsection (6) is the crucial subsection in the present context.

7. The calculation of housing benefit subsidy was the subject of the Housing Benefit and Community Charge Benefit (Subsidy) Order 1992 ("the 1992 Order"). Broadly speaking, a local authority was entitled to receive subsidy to the extent of 95 per cent of the housing benefit it paid, subject to its compliance with the conditions specified by the Secretary of State. Article 8(3) of the Order applied Article 8 to cases where the local authority was required to apply to a rent officer for a determination of rent, but the authority failed to apply for that determination. In that event, paragraph 7 of schedule 5 to that Order provided that the appropriate amount of subsidy should be nil per cent: i.e., the local authority was entitled to no subsidy in respect of its payment of housing benefit where it failed to refer the rent to a rent officer in accordance with the prescribed requirements. The provisions of the 1992 Order gave local authorities a substantial incentive to refer cases to rent officers. I hesitate to use the emotive word "penalty", which is also redolent of legal consequences, having regard to the criticism rightly made of its use by Lindsay J in R (Anglesey County Council) v Secretary of State Work and Pensions [2003] EWHC 2518 (Admin) at [23], but I suspect that paragraph 7 of Schedule 5 was viewed as penal by local authorities, and it was so castigated by Lambeth in its correspondence with the Department to which I refer below.
8. In practice, doubtless because the amounts involved were so great, the Secretary of State paid sums to local authorities on account of their entitlement to subsidy pending receipt of the claim required by section 137(1)(a), by estimating under paragraph (b) of that subsection the subsidy payable, or making an extra-statutory payment on account. He had the safeguard that in the event of on overpayment, under subsection (6) he could adjust (i.e. reduce) the payments in subsequent years in order to rectify the overpayment.

The legislative framework: (b) as amended by the Housing Act 1996

9. The 1992 Act was amended by the Housing Act 1996, which substituted new provisions for those in Part 8 of the former Act. The new provisions came into force on 1 April 1997. Section 140C is as follows:

(1) Subsidy shall be paid by the Secretary of State in such instalments, at such times, in such manner and subject to such conditions as to claims, records, certificates, audit or otherwise as may be provided by order of the Secretary of State.

(2) …

(3) Where subsidy has been paid to an authority and it appears to the Secretary of State –

(a) that subsidy has been overpaid; or

(b) that there has been a breach of any conditions specified in an order under this section,

he may recover from the authority the whole or such part of the payment as he may determine.

Without prejudice to other methods of recovery, a sum recoverable under this subsection may be recovered by withholding or reducing subsidy.

10. The effect of paragraph 4 of schedule 2 to the Housing Act 1996 (Commencement No. 10 and Transitional Provisions) Order 1997 is that section 137(6) of the 1992 Act as enacted remains in force for the purposes of any benefit subsidy in relation to any benefit paid or claimed in respect of any period before 1 April 1997. The Order does not, however, limit the application of section 140C. In respect of such subsidy, therefore, since 1 April 1997 the Secretary of State has had both the power of adjustment under the original section 137(6) and the power of recovery conferred by section 140C(3).

The facts and other legal developments

11. A subsidy year runs from 1 April to 31 March. Between 1991/92 and 1996/97, Lambeth grossly failed to refer rents to rent officers as required by the Order made by the Secretary of State. The Department made payments to Lambeth, on an extra-statutory basis, on account of subsidy on the assumption that references were being duly made. The result was that sums were paid that were substantially in excess of the subsidy due on application of the provisions of the 1992 Order. Following a sampling exercise, the total overpayment was agreed at some £31.5 million. The great majority of this sum was attributable to the failure of Lambeth staff to refer cases to rent officers.
12. Discussions took place between Lambeth and the Department. It is common ground that the extra-statutory payments on account made by the Department to Lambeth on account of subsidy were payments of subsidy for the purposes of section 137(6) of the 1992 Act, and it appears that after some discussion the same assumption was made at the time. Lambeth pointed out that the Secretary of State had a discretion, rather than a duty, to recover the overpayment. It made the valid point that the failure to refer cases to a rent officer did not mean that the recipient of benefit had no right to it. In many cases, a reference to the rent officer would not have led to a reduction in the amount of benefit; in others, the reduction would have been partial. There would have been few, if any, cases where the result of a reference would have been that no benefit was payable. Yet the result of the provisions of the 1992 Order was a total loss of subsidy in respect of that benefit. The Leader of the Council, Councillor Dickson, cogently made the point in a letter dated 30 September 1998, stating that if Lambeth had referred all its cases to rent officers "it would be facing a reduction in subsidy of £1.8 million rather than £13.3 (million) for 1994/95". Reliance was also made on the effect of the liability to repay on Lambeth's financial situation.
13. Lambeth was far from being the only local authority to fail to comply with the requirements for subsidy. It appears that until 2001, it was the normal, if not invariable, practice of the Secretary of State to recover all overpayments from the local authorities who had been overpaid. In a letter dated 3 February 2000 cited in the claim of Bridgnorth District Council referred to below, the Department stated that "in all previous cases the Secretary of State has sought recovery". See too paragraphs 12 and 28 of the witness statement dated 10 December 2004 of Mr Gorst of the Department of Work and Pensions; but c.f. paragraph 15.
14. The discussions between the Department and Lambeth led to the Department refusing any reduction in the sum to be repaid, but to its agreeing to spread the repayment of overpaid subsidy over a period of 10 years, with no interest to be paid on the outstanding sum. Repayment was to be effected by deduction from future payments of subsidy. The Department's decision was communicated to Lambeth in a letter dated 17 November 1998. Lambeth accepted the decision, and deductions were duly made from subsequent payments of subsidy at a rate of £3.3 million a year. I refer below to the Department's decision to require full recovery of overpaid subsidy, but with repayments spread over the period of 10 years, as "the 1998 decision".
15. It will be appreciated that the deferment of payment over a period of 10 years with no provision for interest on the sum outstanding was a substantial benefit. Mr Kerr suggested that the amount of interest foregone was in the region of £8 million, but it is unnecessary to consider whether this is an accurate figure.
16. In July 2000, judicial review proceedings were brought by Bridgnorth District Council and West Oxfordshire District Council to challenge the decision of the Secretary of State to recover from it the whole of overpaid subsidy under section 140C(3) of the 1992 Act as amended. The local authorities were represented by Mr Drabble QC and Mr Kolinsky, who appear for Lambeth in the present case. The essence of the Councils' complaint was that the Secretary of State had failed to exercise the discretion conferred by section 140C(3), but had applied an invariable and inflexible policy of recovery. Neither claim related to subsidy years to which section 137(6) applied: the earliest year in question was that beginning 1 April 1997, whereas the latest subsidy year to which the 1998 decision related ended on 31 March 1997.
17. The Bridgnorth case (as for convenience I shall refer to both Councils' proceedings) came for hearing before Sullivan J on 18 January 2001. Having heard some of Bridgnorth's argument, but none of the Secretary of State's, he expressed provisional views for the assistance of the parties. He pointed out that section 140C(3) conferred a discretion that could be exercised on the basis of the facts of individual cases, and said that it was arguable that in applying a broad policy of recovery in all cases the Secretary of State was subverting the intention of Parliament. He referred to the analogy of sentencing, and said that it would be unique to find penalties applied to the fullest extent permitted by law regardless of the nature of the error.
18. Sullivan J's observations led the parties to adjourn the hearing of the Bridgnorth's case, in part with a view to factual evidence being obtained as to the basis for the Secretary of State's exercise of the discretionary power under section 140C of the 1992 Act. At the resumed hearing, the Secretary of State accepted that Ministers had placed reliance upon past practice in insisting on repayment, without having identified that that practice had been based on section 137(6) of the 1992 Act in its un-amended form, rather than section 140C(3). In a Note for the Court dated 9 March 2001, counsel for the Secretary of State said:

8. The legal consequence is that the Department finds itself in a position in which it accepts that it cannot say that the decision would inevitably have been the same without regard to past practice. The Department is therefore on the wrong side of the test in Simplex G. E. (Holdings) Ltd v Secretary of State for the Environment (1988) 3 PLR 35 and accepts that the decisions in respect of the two Councils should be quashed.

The wider questions of principle

9. The Department has decided that it wishes to use the occasion of reconsidering the question of recoupment in relation to the two Councils to review the policy which should be applied with respect to recoupment under s140C in outstanding and future cases. In doing so, it proposes to review and take account of the comments made by the learned Judge at the previous hearing.

10. For the avoidance of doubt, the Department makes no concession that there has been any error of law in previous cases.

19. The Department's concession that its decisions to recover overpaid subsidy from the two local authorities should be quashed was embodied in a court order at a hearing before Sullivan J on 12 March 2001. He did not give a judgment.
20. In April 2001, the Department issued Circular S4/2001 informing local authorities of its pending review of its policy on the recovery of overpaid subsidy. It referred to outstanding claims as follows:

3. Outstanding qualified subsidy claims

3.1 In view of the decision to undertake a review of the policy on recovery of overpaid subsidy there will be a delay in clearing outstanding qualifications and making decisions on recovery until the review has been completed. This includes a number of outstanding qualified claims and overpayments from 97/98 and 98/99 as well as qualifications arising on 99/00 claims. The Department will write separately to authorities affected. In the meantime the Department will continue to ask authorities to carry out further work, where appropriate, in order to substantiate their claim, and may, where appropriate, withhold subsidy pending completion of the further work.

21. The Department's policy review resulted in Circular HB/CTB S1/2002 dated February 2002. It stated that the Secretary of State had decided that, in order to satisfy the provisions of section 140 C (3), he would decide whether, and if so how much of it, overpayment should be recovered with regard to specified criteria. These included:

The degree of impact on the public purse, for example, where the case has not been referred to the Rent Officer we would have regard to the movements in rent levels since the date referral should have occurred.

In addition, the Department undertook to consider circumstances additional to those referred to in the specified criteria which authorities might wish to put forward. In effect, the Department accepted that the decision as to recovery should depend on the circumstances of individual case.

22. "Outstanding cases" were the subject of paragraphs 6 and 7 of the circular:

6. There are a significant number of local authorities that, on the basis of the outstanding qualified claims, have been overpaid subsidy. The first step has been to establish the extent of such overpayments and consequently, the Department has been in contact with those authorities to seek quantification of the sums involved. Over the coming weeks, we will, where necessary, be contacting further those authorities where we need specific additional information to enable decisions about whether, and if so how much, to recover. ….

7. After careful consideration of all the relevant facts the decision will be made and authorities will be informed of the outcome. Where the Secretary of State decides that it is appropriate to seek recovery of all, or part, of the overpayment, we will write to authorities giving details of the amount and reasons for the decision. Authorities will be given an opportunity and adequate time to respond. The Department will consider the financial circumstances, having particular regard of (sic) each authority's financial commitment and size of the recovery in setting an appropriate time scale for repayment.

23. At a meeting on 9 June 2003, Lambeth sought relief from the outstanding burden of repayments on the ground of its then financial circumstances. However, the success of the local authorities in the Bridgnorth case, and the issue of circular HB/CTB S1/2002, led Lambeth to revert to the counsel who had previously advised it, and had successfully represented those local authorities, namely Mr Drabble QC. As a result of his advice, Lambeth wrote to the Department on 16 June and 21 July 2003. The latter letter stated that the Department had already recovered £21,493,600 from Lambeth and was continuing to recover the balance of some £10 million, and that:

It is plain that the amount which has already been recovered from the Council to date far exceeds the level of recovery which the Secretary of State would (on any analysis) now consider appropriate in the light of his published approach to the recovery of overpaid housing benefit subsidy.

Accordingly, there can be no justification whatsoever for continuing to recover £3.3 million a year from the Council.

24. Lambeth requested the Secretary of State to indicate that he would not recover any further sums, and threatened that if no such indication was received, it would commence proceedings for judicial review. The letter stated that it did not limit or prejudice the position of Lambeth in respect of the £21,493,600 that has already been recovered.
25. The Department replied on 5 August 2003, offering to consider postponing recovery of the outstanding overpayment if Lambeth provided appropriate information as to its financial circumstances, but otherwise offering no relief. Recovery of the outstanding sums (by deduction from payments of current subsidy) was suspended pending the provision by Lambeth of further information as to its financial circumstances and a final decision by the Secretary of State.
26. In a long letter dated 6 August, which crossed with the Department's letter of 5 August, Lambeth set out its case more fully. It reminded the Department of Councillor Dickson's calculation of the actual loss to the public purse, and stated:

Thus the recovery of £13.5 million from the Council in the context of a maximum estimated loss to the public purse of £1.8 million is a starkly disproportionate penalty.

…. As at 31 July 2003, the position is that the Council will have paid £22,609,200 of the £31.5 million. On any view, this figure far exceeds any loss to the public purse.

This level of recovery is entirely inconsistent with the Secretary of State's current declared policy in respect of housing benefit subsidy overpayments. …

The letter asserted that the Secretary of State had made a number of decisions regarding recovery from other authorities under the approach set out in his Circular, and that the maximum recovery rate imposed had been 20 per cent. It invited the Secretary of State to agree to stop recovery of the £3.3 million per year immediately, and to reimburse to it the sum which it had paid in excess of what was an appropriate level of recovery of overpayment, which was quantified at either £13,159,200 or £10,007,200.

27. The Department agreed to postpone further deductions pending its decision on Lambeth's demand. By letter dated 15 December 2003, the MP for Lambeth was informed that the Secretary of State had "concluded that it would not be appropriate to abandon recovery of the outstanding overpayment or to repay any subsidy already recovered". The letter continued:

I recognise the efforts Lambeth has made in trying to resolve its financial problems, but I have concluded after careful consideration, that Lambeth's current financial situation is no worse than when the original decision was taken in 1997. To cease recovery of the overpaid subsidy would have the effect of reopening and changing the original recovery decision, requiring a change of policy on which the original decision was based. This might lead to pressure from other LAs to have their cases re-opened and refusal to do so could lead to a significant risk of legal challenge. As with policy changes in general, applying this change retrospectively would be untenable. The introduction of a revised approach to recovery decisions from 2002 does not justify any change to the earlier Lambeth decision.

28. The Department's decision was communicated directly to Lambeth by letter dated 8 April 2004. It stated:

The Secretary of State having fully considered your request and the supporting financial information provided has concluded, however, that it would be inappropriate to reverse the policy set out in Circular HB/CTB S1/2002, and apply the criteria to a decision that had been made under previous legislation, and to a decision that was not "outstanding" at the time that the policy was introduced but had actually been made and applied several years previously.

29. Further correspondence ensued. In a letter dated 20 May 2004, the Department stated:

The Secretary of State confirms that Lambeth's financial position and what you call "the precedent effect on other local authorities" did form part of his reasoning in refusing your request even though they were not expressly referred to in the letter of 8 April 2004. The "precedent effect" was a strong reason for the Secretary of State not to depart from published policy, and not to reverse or vary a decision taken many years ago, in the absence of "exceptional" circumstances. The fact that the Council's present financial situation is no worse than when the original decision was taken in 1997 was one of the factors taken into account in determining that Lambeth's circumstances were not "exceptional".

Following this letter, recovery of sums outstanding under the 1998 decision resumed.

30. Lambeth's letter before claim is dated 14 June 2004. It refers to the Secretary of State's decision to reinstate and continue recovering of the outstanding sum of approximately £10 million. It does not assert any claim to repayment of recoveries already made. It set out comprehensively the grounds on which it contended, and now contends, that the decision to resume recovery of overpaid housing benefit was unlawful. It emphasised, among other matters, the inconsistency between that decision and the policy in Circular HB/CTB S1/2002. After further inconsequential correspondence, the Department responded by letter dated 5 July 2004, which addressed each of those grounds and contended that the Secretary of State was entitled to resume recovery. That letter emphasised that the decision to resume recovery was a decision to continue the implementation of the 1998 decision to recover in full but over an extended period, which had not been challenged.

The grounds for judicial review

31. It is to be emphasised that Lambeth does not seek judicial review of the 1998 decision. It accepts that it is far too late now to challenge it. It confines its attack to the decision to resume recovery of the full outstanding sum. I shall refer to this decision as "the 2004 decision".
32. The grounds for judicial review of the 2004 decision, as set out in the claim form, are as follows:

(1) It is perverse and disproportionate to continue to recover the outstanding sum, given that recovery has already been made of sums that far exceed the loss to the public purse and the amount which the Secretary of State would seek to recover under his present policy. Under this head, the separate point is made that the continued recovery from Lambeth "will penalise current council tax payers and service recipients who have little or nothing to do with the errors which gave rise to the overpayments".

(2) The Secretary of State failed to differentiate between decisions which had been taken (under his original policy of full recovery) and fully implemented and a decision which had not been fully implemented, under which a further £9 million remained outstanding.

(3) The Secretary of State's reliance on the precedent effect of revisiting the 1998 decision (i.e., his concern that for him to accede to Lambeth's request would lead to other local authorities making claims) was flawed, since no other local authority was in the comparable position of having such large sums outstanding as Lambeth has.

(4) The reasons given by the Secretary of State for the 2004 decision are inadequate.

(5) The Secretary of State erred in considering that the discretion conferred by section 137(6) differed from that conferred by section 140C.

33. Mr Drabble sensibly did not pursue ground 4, and it is therefore unnecessary for me to consider it.
34. It will be seen that none of the grounds for judicial review relates to Lambeth's financial position in 2004.
35. It will be seen that although the decision challenged is the decision to resume recovery of the sum outstanding, rather than the decision to refuse repayment of sums already paid, footnote 5 of the Statement of Facts and Grounds for judicial review is as follows:

No challenge is made in these proceedings in respect of (the sum of some £22.5 million) which has already been recovered by the Secretary of State from the Claimant. However, the Claimant specifically reserves its position in relation to any claim that it may have in restitution in respect of this sum as a result of any declaration made as result of these proceedings … or otherwise.

36. The Secretary of State disputes each of the grounds for judicial review asserted by Lambeth.

Discussion

37. In the end, I think that the essential dispute in this case is whether on the facts of this case current policy should prevail over a previous unchallenged decision or vice versa. Mr Kerr, for the Secretary of State, submitted that in substance Lambeth is seeking to challenge the 1998 decision out of time; and that there has been no decision amenable to judicial review since then. Mr Drabble, on the other hand, pointed to the undoubted fact that the Secretary of State had made a decision in 2004, and submitted that that decision must be amenable to judicial review.
38. Whether a decision not to change an earlier administrative decision is itself a reviewable decision does not admit of a formulaic or straightforward answer. It must depend on the facts of each case. The Court must determine whether in substance a fresh decision has been made or ought to have been made. A claimant cannot circumvent or avoid the requirements of CPR Part 54.5 or of section 31(6) of the Supreme Court Act simply by requesting reconsideration of an earlier decision. On the other hand, new facts may arise that require fresh consideration, as in asylum cases where there is an adverse change of circumstances in the country to which a claimant is to be returned. A subsequent change of English law or a change of the policy of our government that is not retrospective to the earlier decision will not, in general, justify treating a refusal to alter a previously undisputed decision as a new decision. Similarly, it is not necessarily perverse or unlawful to refuse to alter an earlier unchallenged decision where the only relevant change since the original decision is a new non-retrospective policy or new non-retrospective legislation.
39. Mr Drabble submitted that a reviewable decision was made by the Secretary of State each time that it was decided to apply the deduction determined by the 1998 decision to the subsidy due to Lambeth; that each deduction represents a further exercise of the discretion conferred by section 137(6) (or presumably that conferred by section 140C). That is going too far. The deductions were and are merely the mechanical implementation of the 1998 decision.
40. However, I accept Mr Drabble's submission that the 2004 decision is judicially reviewable. Enough had occurred for the Secretary of State to consider whether or not to change the 1998 decision. That is not to say that the 2004 decision is to be considered as if there had been no 1998 decision, or without reference to history. It seems to me that in cases where it is not clear whether a separate reviewable decision has been made, it is better to assume that it has, and to examine its lawfulness in the light of the previous valid decision, rather than to dismiss the claim for judicial review summarily.

(a) Ground 1: perversity in continuing recovery

41. I do not find the matter of loss to the public purse straightforward. The regulations made by the Secretary of State might have provided for the amount of subsidy to be reduced by the amount or estimated amount of loss caused by, for example, a failure by a local authority to refer cases to rent officers; but it did not do so. Instead, the 1992 Order provides that a local authority has no entitlement to subsidy in cases in which there has been such a failure. The Secretary of State who made the 1992 Order, and Parliament, to whom he was accountable, must have appreciated that the effect of the Order was that local authorities would bear a loss exceeding the loss to the public purse, in the sense of the difference between the rents which would have been determined by rent officers and the rents for which benefit was actually paid. The relevant terms of the 1992 Order do not suggest any concern for the calculation of loss to the public purse or even for the concept of such loss. They deal simply with the calculation of subsidy to which local authorities were entitled. Any payment of subsidy in excess of that to which a local authority was entitled involved a loss to the purse of central government, just as payment of benefit without subsidy involved a loss to a local authority.
42. Thus, I agree with Lindsay J (in the Anglesey case) that recovery of an overpayment of subsidy does not involve the imposition of a penalty in any legal sense. It is simply the recovery of an overpayment.
43. Section 137(6) of the 1992 Act provides no more than machinery for recovery of overpayments or reimbursement of underpayments of subsidy. It does not expressly confer a discretion on the Secretary of State: it does not specify who is to decide on the adjustments that it provides for. In my judgment, it did not provide the exclusive means of recovery of either over- or under-payment of subsidy, as Mr Drabble accepted (although I suspect that the preservation of the claim envisaged by footnote 5 to the claim form was one of the reasons for this concession). The subsection did not expressly exclude recovery at common law and I see no reason to imply such an exclusion, particularly since to do so would deprive an under-paid local authority of the legal right to immediate payment: c.f. R (London Borough of Camden) v Secretary of State for the Environment (1998) 28 HLR 321. Assuming that the subsection conferred a discretion on the Secretary of State, it follows that Parliament could not have intended the Secretary of State to be any more constrained in the exercise of that discretion than he would be when deciding whether to recover an over-payment by proceedings in which he relied on his common law rights. There is no reason to interpret the reference to "in whole or in part" in the subsection as any more than reflecting both that the subsection is not the only means of recovery, and that the Secretary of State, like any creditor, is not under a duty to recover what he is owed.
44. However, I reject the submission made by Mr Sheldon that section 137(6) imposed a duty on the Secretary of State to recover the whole of any overpayment if there was sufficient subsidy due in the following year. There is nothing in the drafting of the subsection to justify that interpretation.
45. In these circumstances, subject to what I say below under other grounds, I do not see that it is either perverse or disproportionate for the Secretary of State to continue to make recovery under section 137(6), which continues in force in relation to Lambeth's outstanding debt. It is no more perverse or disproportionate now to make recovery than was obvious when the 1998 decision was made and accepted.
46. Mr Drabble makes the point that the Secretary of State could have used his powers under section 140C, rather than those under section 137(6), when he made the 1998 decision. I do not think that this helps Lambeth. I assume that the 1998 decision was made under the earlier provision rather than the later: see the reference to section 137(6) in the letter from the solicitor to the Department of 28 November 1997, and the use of the words "adjustments of subsidy" in the decision letter of 17 November 1998. But be that as it may (and it may be that the Secretary of State misunderstood the ambit of his discretion at the time), the essential point is that under whichever provision or provisions the decision was made, it was made, it was not and is not now challenged by judicial review proceedings and it was implemented.
47. Similarly, it is undoubtedly the case that the individuals who bear the cost of Lambeth's repayments are not those who had anything to do with the original overpayment or the failures to refer rents to rent officers. But that too was evident when the 1998 decision was made, and inherent in it. In any event, even if the recovery of overpayments had been made in 1998 (assuming that Lambeth could have repaid then) most of the persons who would have borne the loss of subsidy, whether as tax payers or service recipients, would not have had anything to do with the defaults that caused that loss (apart from their position as voters in Lambeth). The situation is no different from that of tax payers who find themselves responsible for the repayment of borrowings made by their local authority in the past.
48. Perversity is the applicable criterion for unlawfulness, rather than disproportionality, since no Convention right is engaged. It is in addition difficult to apply the test of proportionality to a decision made in 1998, before the Human Rights Act 1998 came into force, or to a decision to adhere to that decision. Be that as it may, for the reasons given above, I see no lack of proportionality in the recovery by the Secretary of State of the sums due to him.
49. It follows that the challenge under this ground fails.

(b) Ground 2: irrationality in treating Lambeth as on a par with other authorities that had completed repayment of their overpayments

50. There is no irrationality in treating Lambeth in the same way as local authorities that have repaid the whole of their overpayments for the subsidy years in question. To treat Lambeth differently would confer on it an uncovenanted advantage from the deferment of its liability made in the 1998 decision. It would be to treat a more serious default in complying with the requirements for subsidy more leniently than a less serious default. These are lawful and weighty considerations that the Secretary of State was entitled to take into account.
51. The other local authorities to whose cases the Secretary of State is entitled to have regard are not limited to those who were compelled to repay (by deduction) their overpayments. Prior to Bridgnorth and the new policy adopted in 2002, many local authorities did not claim subsidy for cases in which they had paid benefit without referring to a rent officer. Their claims were not qualified by the external auditor. If Lambeth's case is to be revisited, it is difficult to see why those authorities would not be entitled to have their position reconsidered also. (Curiously, the 2002 policy does not seem to apply to authorities who continue to make correct claims and therefore do not receive overpayments).

(c) Ground 3: reliance on precedent effect

52. Given that the 2004 decision was made on a claim by Lambeth for both repayment of sums already recovered from it and for the cessation of any further recovery, the Secretary of State was undoubtedly entitled to take into account the effect of his decision on other local authorities who had repaid overpaid subsidy, and to be concerned that a decision to accede to Lambeth's request might lead to requests from other authorities for repayment that could not sensibly be the subject of a different decision. Footnote 5 to the claim form, set out above, shows that the Secretary of State's concern remains relevant, notwithstanding the limitation of the present proceedings to the question of future recoveries.

Ground 5: error in considering that the discretion under section 140C differs from that under section 137(6)

53. The respective positions of the parties on the issue raised under this ground are somewhat curious. Prior to the Bridgnorth case, the position of the Secretary of State was presumably that the discretion conferred by section 140C(3) was no different from that conferred by section 137(6). Having conceded in that case that the later provision conferred a different, and presumably wider, discretion, he now maintains that it did indeed do so, and that Circular HB/CTB S1/2002 lawfully sets out his policy for its exercise. Mr Kerr pointed to the express requirement in section 140C that Secretary of State make a determination whether to recover the whole or only part of an overpayment made to a local authority. The Secretary of State justifies maintaining the 1998 decision on the basis, in part, that he made it in the exercise of the narrower discretion conferred by the earlier legislation.
54. Lambeth asserts that neither section 137(6) nor section 140C(3) imposes a duty on the Secretary of State to make full recovery. It contends that there is no material difference between the discretions conferred by the two statutory provisions. Curiously again, that submission receives some support (albeit strictly irrelevant to the question of construction in question) from paragraph 15 of the witness statement of Mr Gorst of 10 December 2004, in which he asserts that a discretion was exercised for the purposes of section 137(6) on a similar basis to that exercised now under section 140C. That factual account, however, lies uneasily with the evidence that until Bridgnorth the Secretary of State always required full recovery.
55. There are significant differences of wording between section 137(6) and section 140C(3). As I pointed out above, the former does not expressly confer any power of decision on the Secretary of State. However, an adjustment of the amount payable by him to a local authority is in practice going to be made by him, and therefore decided by him. Section 137(6) does not require complete recovery: it expressly permits recovery "in whole or in part" by adjustment of the amount payable for any subsequent year. It thus permits both recovery by other means (e.g. a cash payment) and recovery over a period of years.
56. There is a much stronger argument that section 140C(3) is exclusive. It is difficult to see the point of paragraph (a) if it was not intended to replace the undoubted common law right of recovery. The last sentence of the subsection does not preserve other causes of action: it preserves other methods of recovery of sums payable under the statutory cause of action created by the subsection. If that is right, section 140C does envisage incomplete recovery more clearly than does section 137(6). Lastly, the fact that the same discretion is involved in cases of breach of condition as in cases of overpayment gives some support for the proposition that Parliament intended the facts relating to an overpayment (blameworthiness and the consequences of a failure to refer to a rent officer, for example) to be relevant considerations.
57. I accept Mr Kerr's submission that it was open to the Secretary of State to continue to employ his powers under section 137(6). The co-existence of both that provision and section 140C in relation to subsidy years starting before 1 April 1997 (i.e. the years relevant to these proceedings) necessarily means that the Secretary of State was free to use either statutory provision.
58. I reject Mr Drabble's submission that the Secretary of State's policy set out in Circular HB/CTB S1/2002 applies to Lambeth. Mr Drabble submitted that because sums due from Lambeth were outstanding at the date of the circular, Lambeth's was one of the outstanding cases referred to. Lambeth's claim for subsidy had been qualified, i.e. qualified by the District Auditor, but that was only one of the attributes of the outstanding claims referred to in paragraphs 6 and 7 of the Circular cited above. It is, I think, clear that the outstanding cases referred to there were cases in which there had been no quantification of the sums involved, and in respect of which therefore there could have been no decision on recovery. In Lambeth's case, both quantification and recovery had already been decided.
59. That Circular S1/2002 refers to the Secretary of State's discretion under section 140C(3), but not that under section 137(6), is an indication that the policy stated in it did not apply to cases, such as Lambeth's to which the latter provision was applicable.
60. Doubtless it was because the Department did not consider Lambeth's to be an outstanding claim that it did not include it among the authorities to which it wrote as it said it would in paragraph 3.1 of Circular S4/2001. Presumably if Lambeth considered that it had an outstanding claim in terms of that Circular, it would have itself written to the Department. It did not do so. Lambeth did not contend that its claim was an outstanding claim until 2003.
61. It follows that the Secretary of State was not required by his published policy contained in Circular HB/CTB S1/2002 to reconsider Lambeth's case, and that he was correct so to interpret and to apply that policy.
62. Furthermore, I do not think it matters whether the scope of the discretion under section 137(6) differs from that under section 140C. The difference, if any, between the two statutory regimes was not the basis or a reason for the 2004 decision. That decision was to maintain the 1998 decision: I refer to the extract from the Department's letter of 8 April 2004 set out above.
63. It follows that this ground of judicial review fails also.

Conclusion

64. In my judgment neither the terms of section 140C nor Circular HB/CTB S1/2002 required the Secretary of State to reconsider the 1998 decision and to exercise his discretion afresh. It is not alleged that in 2004 there had been such a change of factual circumstances, such as a sufficiently great and unforeseen change in Lambeth's financial circumstances, as to require him to reconsider his original decision. He was entitled, for the reasons he gave, to adhere to it.
65. It follows that Lambeth's claim fails and must be dismissed.