England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		11/08/2008

Mr Justice Goldring :

Introduction

1. This application for permission to apply for judicial review concerns the operation of a new financial arrangement put in place by Her Majesty's Treasury and the Office of the Deputy Prime Minister ("ODPM"), now the Department for Communities and Local Government, whereby local authorities retain a share of the growth in business rates generated in their area. I grant permission.
2. The new arrangement started from 1 January 2005. Until then the local authorities collected the rates and remitted them to central government. They did not benefit from them directly. Under the new arrangement, in broad terms, if the local authority increased its total rateable value between 1 January 2005 and 31 December 2005 by more than an assumed or expected amount, the defendant was to pay it a grant. That was to continue in future years. The scheme was called the Local Authority Business Growth Incentives Scheme ("LABGI").
3. Again, in very broad terms, there was in respect of the first year's Grant Determination (the 2006 Grant Determination), a dispute between the present claimants and the defendant. The claimants challenged the Determination. They alleged that in calculating the amount of the grant, the defendant unlawfully failed to take account of actual growth in the rateable value where that growth had been recorded by the Valuation Office Agency ("VOA") under its "code 20." Again broadly, code 20 concerns increases and decreases in business rates as a result of changes during the year. Its omission, among other things, effectively excluded in-year business expansion from the calculation of business growth.
4. On 31 July 2007 Mr. Justice Newman held that the Secretary of State acted so as to defeat the claimants' substantive legitimate expectation regarding how growth during the first calendar year was to be calculated and rewarded. They legitimately expected code 20 growth would be included. The failure to include it was unlawful.
5. Both councils now submit that in calculating the Grant Determination (for the year 1 January 2006-31 December 2006), the defendant has again failed to take account of code 20 growth as was required by the published scheme and in accordance with Mr. Justice Newman's judgment. Put simply, she has failed to take into account code 20 growth during the first calendar year (for the year 1 January 2005-31 December 2005) when taking the starting point for the rateable value in the second year (for the year 1 January 2006-31 December 2006). Although the Determination in question was promulgated in February 2007, the decision impugned is that of 6 September 2007, in which the Secretary of State announced corrections to the grant promulgated in February 2007 following the judgment of Mr. Justice Newman. As a result, the claimants allege they have lost out.

The width of the Secretary of State's statutory discretion

6. The Secretary of State has a very wide discretion, both as to whether to award a grant and as to the calculation of its amount. By section 31(1) of the Local Government Act 2003:

"A minister of the Crown may pay a grant to a local authority in England towards expenditure incurred or to be incurred by it…

(3) The amount of a grant under the section and the manner of its payment are to be such as the person paying it may determine."

The evolution of the scheme

7. As Mr. Justice Newman said:

"3. Reduced to its simplest, under LABGI, a local authority can become entitled to receive a grant where the annual growth in business rates receipts in its area exceeds a target. The scheme is arithmetically based. Once the target for that local authority is calculated, a multiplier (of 0.415) is applied to the growth above that target. The local authority is entitled to a grant equal to 70% of that figure, up to a certain ceiling …

11. Two of the stated guiding principles for implementation of the scheme were that 'the distribution of benefits must be fair' and that 'the scheme should be as intelligible and transparent as possible'. Appendix A, entitled 'Technical Working of the Scheme', stated:

'Growth itself [in rateable value] is measured each year using the rateable value of additions to the ratings list plus the net increase as a result of enhancements less the number of demolitions. This amount is also adjusted for the movement of empty properties by comparing the amount granted in empty property and partially empty property relief for the year in question with the starting point as adjusted for revaluation…

A.22 Since valuations for rating purposes are made by central government agencies, authorities will not see their rewards under the scheme reduced by successful appeals. To do so would be unfair to authorities and would introduce uncertainty and complexity to the scheme …

For the purposes of LABGI, the effects of appeals are ignored since they were outside an authority's control. LABGI will therefore work on adjusted rating lists."…

12. There was an extensive consultation period which ended on 31^st October 2003 and an administrative "dry run" which was taken into account in 2004. The dry run involved 40 local authorities. It recorded that the majority of these local authorities had raised concerns about the accuracy and validity of estimating growth in rating values. In allaying those concerns, the Secretary of State advised that the effect of appeals would be ignored and explained why empty and partially occupied properties would be taken into account:

'… because they reflect real growth or decline, which authorities can influence …'

Under the heading Worked Example of the Scheme it stated:

'At the end of the first year a new list of rateable values will be produced as at 31 December 2005 adjusted for empty and partially empty property relief. These will be compared with the starting list to calculate the growth rates'."

8. Paragraphs 15-17 of the second consultation paper dealt with the "floors/scaling factors." This is relevant to the baseline to be used both to calculate the growth during the calendar year and, as particularly relevant to the present application, how that growth is to be taken into account in the second. Paragraph 17 stated:

"The Government has decided that the National Adjustment Factor [the assumed growth] will be set at 1.4% and the scaling factor will be set to allow authorities to keep 70% of revenues above the floor. In order to ensure that the scheme is managed prudently, it may be necessary to change the National Adjustment Factor ("NAF") whilst the scheme is in operation."

9. Paragraphs 18-20 set out the "ceilings" that were to apply. The ceiling:

"…determine[s] the maximum revenues an individual local authority can gain from the scheme [during the calendar year]."

10. At paragraph 21, under the heading "re-based floors," it stated:

"The original consultation stated that floors would be cumulative- that gains would be measured from a fixed starting point, and that gains from one year in excess of the ceiling would be able to count against the following year's target. In order not to weaken the incentive to sustain growth, the Government will continue to reward authorities that are successful in this way."

11. There was a "worked example" of the scheme. First, the VOA:

"…will provide the starting rateable value …"

12. Second, the "floor" was calculated. That was said to be:

"… the rate of growth in rateable value that authorities must exceed in order to be eligible to gain money is the assigned baseline growth rate minus the … NAF. Authority X has grown at an average 3.5% over the 8 years used to determine growth rates. As such it is in baseline group 6, which has a weighted average growth of 3.4%. With a NAF of 1.4%, authority X must exceed a floor of (3.4%-1.4%) = 2% in order to gain any money from LABGI.

[It] must raise rateable value by £1m (0.02x £50m) in order to gain."

13. Third, the growth beyond the floor was calculated:

"At the end of the first year a new list of rateable values will be produced as at 31 December 2005 [year one] adjusted for empty and partially empty property relief. These will be compared with the starting list to calculate the growth rates …"

14. Fourth:

"The scaling factor of 70% is applied to all revenues above the floor, in order to calculate the amount eligible locally."

15. On 21 July 2005, the final details were announced. As Mr. Justice Newman put it:

"13. On 21 July 2005, in a written statement to Parliament, the Minister for Local Government announced the final details of the LABGI scheme. The statement set out five principles for the scheme, which included:

" - that the distribution of benefits must be fair, reflecting relative performance not relative circumstances; and

- that the scheme should be as intelligible and transparent as possible…

Business growth is measured in terms of the increase in a local authority's rateable value during a calendar year.

... A public announcement from the Minister stated, inter alia:

'A single payment will be made to each local authority in the final quarter of the financial year. It will be based on actual changes to rateable values in the previous calendar year, provided by the Valuation Office Agency'.

… At the same time, the ODPM issued a Note for Local Authorities on the Local Authority Business Growth Incentives Scheme which stated:

'Business growth will be measured in terms of the increase in a local authority's rateable value during a calendar year. LABGI revenue will be paid as a single payment to each local authority in the final quarter of each financial year so the first payment will be made around February 2006. This will be based on actual changes to the rateable values in the previous calendar year, provided by the Valuation Office Agency.'

Under the rubric "Measuring growth", the statement provided:

'At the end of the first year the VOA will provide a new list of rateable values as at 31 December 2005 (gross of appeals, and net of empty and part-empty property reliefs). These will be compared to the starting list (From 31 December 2004) to calculate growth rates. Growth above the floor is then multiplied by the business rate multiplier.'

A worked example at the back of the document was to the same effect.

'… It became clear [during the course of the hearing] that the Secretary of State had at no time during either the lengthy consultation period or "the dry run" addressed what should happen under the scheme when actual rateable values increased in a calendar year because of increases and expansions to existing properties. The VOA has a duty to compile and maintain the business rating and council tax valuations lists, but it was not set up for the purpose of the LABGI scheme and in its calculations it takes into account all its recognised change codes including, in particular, code 20. Its calculations are made by various local valuation officers upon the basis of data supplied by local authorities.

… On the evidence … it is likely that no detailed attention was given to the procedures and processes which the VOA would adopt for the purposes of making its calculations under the scheme until, at the earliest, the 7^th December 2005. The Minister described the final version of the scheme to Parliament in a written statement on 21 July 2005. I have already referred to the content of the statement…but, for convenience, the following parts are repeated:

'… The starting point for each authority is their rateable value at 31 December 2004. An authority's rateable value figure will not be reduced by successful appeals. Empty and part-empty property reliefs will be netted off, using the most recent set of audited data from the authority's normal National Non Domestic Rates (NNDR) return.

At the end of the first year a new list of rateable values will be produced by the Valuation Office Agency, as at 31 December 2005, not including appeals, but net of empty and part-empty property reliefs. This will be compared to the starting list from 31 December 2004 to calculate each local authority's growth rate ...'

…The approach was repeated in a Note for Local Authorities on the scheme issued by the ODPM [Office of the Deputy Prime Minister] in July 2005. It stated:

'… Business growth will be measured in terms of the increase in a local authority's rateable value during a calendar year … This will be based on actual changes to rateable values in the previous calendar year, provided by the Valuation Office Agency (VOA) … An authority's RV figure will not be reduced by appeals, whilst empty and part-empty property reliefs will be netted off, using the most recent set of audited data from authorities' normal NNDR returns … At the end of the first year the VOA will provide a new list of rateable values as at 31 December 2005 (gross of appeals, and net of empty and part-empty property reliefs). These will be compared to the starting list (from 31 December 2004) to calculate growth rates …'."

16. The written statement to which Mr. Justice Newman referred set out the NAF at 1.4%. It stated that a new list of rateable values would be produced by VOA as at 31 December 2005, not including appeals, but net of empty and part empty property reliefs. That would be compared to the starting list from 31 December 2004. Any growth above the floor would be multiplied by the business rate multiplier. A scaling factor of 70% would then be applied to all revenues above the floor.

"Each authority has a "ceiling"- the maximum revenue that can be kept in any year- with money above the ceiling being passed back to the central rates business pool for distribution between all authorities. An authority's gains in one year in excess of the ceiling will be counted against the following year's target …

To prevent authorities that fail to gain money in one year having an unrealistic growth target the next year, their floor will be re-based and a new lower floor will be calculated. This will maintain the incentive effect of the scheme for all authorities. Feedback from the recent consultation suggested that re-basing the floors was a positive modification to the scheme …

The scheme will be reviewed following the first year to test both how it is delivering against the design principles the government set out and which were agreed in consultation and the level of spend from the scheme."

17. Mr. Sheldon rightly submitted that it should have been understood that in the light of the outcome of the review the scheme could change from year one to year two.
18. The "Note for Local Authorities on…LABGI" (also published on 21 July 2005), under the heading "Re-basing rateable value for year two and three of LABGI" stated:

"An authority's starting rateable value is normally cumulative, with floor values being added every year to the starting rateable value. This will maintain the incentive effect of the scheme. However, in order to prevent authorities that fail to gain from the scheme being unable to gain in future years, rateable value for these authorities will be re-based only by the amount of growth that year. Feedback from the recent consultation suggested re-basing was a positive modification to the scheme."

19. There was a worked example of re-basing too.
20. Mr. Coppel rightly submitted that these documents set out how, in accordance with the scheme, the benefit of year one growth was to be carried forward and benefit year two. There was to be a diminishing cumulative benefit.

What happened regarding the first determinations

21. As Mr. Justice Newman found, at no time had the Secretary of State addressed what should happen when rateable values increased during the calendar year because of increases and expansions to existing properties. It was not realised until after 7 December 2005, that by asking the VOA to provide the information, such growth would be excluded. When the first determinations were made on 7 February 2006, in year code 20 growth was not included.
22. Slough's case exemplified the problem. There was a supermarket with a rateable value of £2 million. It was re-developed during the year. Its rateable value increased to £3.9 million. The growth of £1.9 million was recorded under code 20. It was not therefore taken into account. No grant was paid.
23. As the Secretary of State put it in a letter sent by her department to Corby on 11 July 2006 (when it was appealing its nil award):

"Alterations to hereditaments which are not deleted are recorded under change code 20. As this code does not distinguish changes due to recent successful appeals against the 2000 list, a decision was made not to use this code. As a result, business expansions/contractions were not counted as growth/reductions for LABGI purposes."

24. Mr. Justice Newman said (paragraph 39) that:

"I am satisfied on the evidence…that at no time prior to the respective determinations…did the Secretary of State state that growth in rates, arising from part occupied hereditaments becoming fully occupied, expansions and redevelopments, would be ignored under the scheme. It is therefore necessary to consider whether the scheme was promulgated in terms which are sufficiently wide to include such growth factors as part of the scheme."

25. He was clear that such expansions and re-developments did fall within the scheme. That was the effect of the documents promulgated by the Secretary of State regarding the scheme. Mr. Justice Newman said that:

"40. Two of the five principles mentioned to Parliament by the Minister were:

[4] that the distribution of benefits must be fair, reflecting relative performance not relative circumstances; and

[5] that the scheme should be as intelligible and transparent as possible.

Business growth was to be based 'on actual changes to rateable values in the previous calendar year, provided by the Valuation Office Agency'.

41. It was stated that actual changes in rateable values were to be used, save in two identified respects, namely that the rateable value would be:

… gross of appeals; and

… net of empty and part-empty property reliefs.

The effects of appeals were ignored 'since they are outside an authority's control …'

42. In my judgment, it is clear that the scheme as promulgated was in terms which extended to the actual growth achieved by the Claimants. I reject the fundamental submissions to the contrary advanced on behalf of the Secretary of State. It is said the Minister made it clear that the scheme would rely upon the rateable values provided by the VOA. He did. But that cannot provide an answer to the Claimants' contentions. It was for the Minister to implement the scheme in accordance with the policy he had promulgated. He failed to instruct the VOA to calculate growth which qualified under the scheme because, after discussion with the VOA, he limited the calculation to the use of four change codes, not including change code 20. In stating that actual changes "provided by the Valuation Office Agency" would be the basis of an award, he did not state he would delegate the assessment to the VOA, nor did it leave the Minister with freedom to rely upon the VOA's calculations as the actual determination, which it was for the Minister to make. The suggestion also runs flatly contrary to the principle that the scheme was to be 'intelligible and transparent'. What in effect is now relied upon 'as an intelligible and transparent' aspect of the scheme was not known to the Minister himself until 7 December 2005 (at the earliest) and probably not until the early months of 2006.

By an argument, somewhat similar in character, it was submitted that because it had been made clear that the calculation would be gross of appeals and administrative steps were put in place to give effect to this aspect, that was enough to comply with the policy. With respect, it is a hopeless contention. The fact that the appeals policy was implemented by a method which failed to implement another aspect of the policy is an explanation for what occurred but no more.

44. In my judgment, the scheme as promulgated gave rise to a substantive legitimate expectation on the part of the Claimants that their actual rateable growth recorded (gross of appeals and net of empty and part-empty property reliefs) would be rewarded…"

26. Mr. Justice Newman rejected a submission that it was appropriate and lawful for the Secretary of State to have acted inconsistently with the policy. The Secretary of State's excuse that the work in including the code 20 data would be administratively burdensome was not borne out by the evidence. It would not be disproportionate for the Secretary of State to do what was necessary to comply with the claimants' legitimate expectation. He said at paragraph 49:

"In my judgment, the Secretary of State's excuse is not factually founded and is legally ineffective to excuse the undisputed departure from the published scheme. I accept that "considerations…that an amended scheme would be more complex and more costly to administer" are not irrelevant (Esfandiari v Secretary of State for Work and Pensions [2006] EWCA Civ 282). But it is clear that no overriding interest sufficient to neutralise the need for fairness and transparency in rewards under the scheme has been made out."

27. Finally, on this aspect, Mr. Justice Newman said (at paragraph 51):

"It has been submitted that, the scheme being discretionary, there existed a sufficient degree of flexibility for the Secretary of State to act as [she] did. The submission is hopeless. Having exercised his discretion to promulgate a scheme, until notice of change in the policy is given, he is bound to implement the scheme."

28. In short therefore, Mr. Justice Newman found, that, absent any statement prior to the determinations excluding such growth as fell under code 20, what was published by the Secretary of State about the scheme gave rise to a substantive legitimate expectation on the part of the claimants that any such growth during the calendar year would be rewarded; that the excuses advanced by the Secretary of State for departing from that published scheme were insufficient to outweigh the claimants' legitimate expectation.
29. Mr. Sheldon accepted that what Mr. Justice Newman said in paragraph 39 was not limited to year one, although he emphasised that nothing was said about year two. The order made by the court reflected that. However paragraph 39 envisaged that different considerations might apply to year two. Paragraph 44 had to be seen in the context of paragraph 39. In paragraph 51 Mr. Justice Newman accepted that notice of a change of policy would affect the position.
30. Mr. Justice Newman's reasoning was plainly relevant to subsequent years. He was inevitably only dealing in terms with the first calendar year. The challenges related to that year. The claimants' substantive legitimate expectation regarding code 20 growth during that year arose from what was published. What was published included how the second year's re-basing was to be calculated. What gave rise to the legitimate expectation regarding the first year's code 20 calendar year growth applied equally to what was said about re-basing for the following year. Absent sufficient subsequent notice by the Secretary of State to the contrary, it must in my view inevitably follow from Mr. Justice Newman's judgment that there arose a similar expectation regarding re-basing for subsequent years.

The second year's determination

31. The second year's determination was made in February 2007. Mr. Sheldon submitted that prior to that determination two documents published by the Secretary of State affected what the claimants could legitimately expect under the scheme in respect of year two and subsequent years. Each document, he submitted, made it clear that code 20 growth was not to be taken into account.

The document of 19 July 2006

32. On 19 July 2006 the Secretary of State published a document entitled "YEAR ONE: Technical Frequently Asked Questions (last updated on 19 July [2006]. Paragraph 4 was headed "What is my starting rateable value in year two?" It said:

"Under the current scheme, please refer to p9, p10 of the note to local authorities [of 21 July 2005] for an explanation of how year two's starting rateable value is calculated (and see Q5 below).

As announced by Phil Woolas in his written statement to Parliament [of 21 July 2005], an end of year one review is taking place to review the success of the scheme in year two."

33. Question 5 gives an "Example of re-basing under the current scheme." It sets out the scheme as previously set out.
34. Question 9 is headed:

"Year one rateable value…data explanation: Why does the LABGI start-(31.12.04) and end- (31.12.05) year data differ from the VOA's normal data? Updated July 2006 …

The use of changes to the VOA ratings list for LABGI purposes is an approximate measure of economic growth. This is because rating lists were not designed for LABGI purposes."

35. Under the heading "End year RV data," the effect of not taking account of the code 20 data is set out (although code 20 is not mentioned in terms). The "Implications" are said to be:

"As the VOA coding [code 20] that records expansions/contractions in existing hereditaments, does not distinguish appeals against the 2000 ratings lists, changes recorded against this code were not included in the year end RV calculation."

36. In paragraph 10 of his statement, Mr. Duncan, the Deputy Director of Strategy, Revenue and Payments Division in the Local Government Finance Directorate, suggests this amounted to a departure from the originally published scheme. Mr. Sheldon submitted that such a change was within the broad discretion enjoyed by the Secretary of State and removed the basis of Mr. Justice Newman's finding of legitimate expectation. The document of 19 July 2006 made it clear that code 20 changes were not taken into account. It was not something that Mr. Justice Newman could take into account because it post-dated the first determination.
37. Mr. Coppel submitted that this document was not enough to change the claimants' substantive legitimate expectation. It was a technical paper. It did not purport to change anything. Any change had clearly to be spelled out. It reflected what Mr. Justice Newman found to be unlawful. It reflected that flawed approach.

The Review of September 2006

38. The review took place during the summer of 2006. In September 2006 there was published the "LOCAL AUTHORITY BUSINESS GROWTH INCENTIVES SCHEME: details of year two." Under the heading (taken from the scheme as originally published), that "the scheme should be as intelligible and transparent as possible," it stated:

"Some authorities have made representations that calculation of the grant and the scheme's technicalities are complex. This complexity was in part a result of a number of variables involved in calculating LABGI- the ceiling, the scaling factor, the national adjustment factor and the floors. It was also in part a result of final details of how "special" end year RV data would be calculated, which was not possible to let local authorities know in advance of the February payment announcements and which may have led to budgeting problems for some authorities."

39. The "special year end RV data" was a reference to code 20 data.
40. "Details of year two" are set out. Two things were said to be "changes" to the scheme: the abolition of ceilings and of the 70% scaling factor. The calculation for the starting rateable value for year two was in identical terms to that of the worked example of July 2005. It was also said that:

"The end of year 2 RV will be calculated in the same way as in year 1 … The VOA will provide a 'gross of appeals figure at 31.12.06 (Q9 of the year 1 technical FAQs [of 19 July 2006] explains…[the calculation]

…

… Given the uncertainties involved in predicting LABGI end of year RV (and the possibility that payments could be scaled), caution should be exercised by local authorities in making any LABGI grant predictions in their budget-setting processes. Year 2 grant payments will be announced in February 2007 and no certainty can be provided until then."

41. That, submitted Mr. Sheldon, made explicit the change of policy, alternatively, it was implicit from what was there said, the policy had changed. The second year's determination in February 2007 was based on this approach. That was not challenged by the claimants. The claimants could not in the circumstances have had by then a substantive legitimate expectation.
42. Mr. Coppel submitted that the announcement of the proposed review did not defeat the substantive legitimate expectation. The review was for a particular object: to test how the scheme was delivering against its design principles and to check the level of spend. It spelled out the changes. They did not include any changes to the basis of calculation for year two except to the ceiling and the scaling factor. The basis of calculation, both for the calendar year and in respect of the starting rateable value for the next year, was unchanged. The original worked example was used. Again, this document amounted to a reflection of an approach later found to be flawed.

Substantive legitimate expectation: my conclusion

43. In neither the document of 19 July 2006, which was a technical paper, nor the Review of September 2006, which in terms was said to relate to year two, was it said the scheme was to change as far as code 20 growth. What was said reflected, until Mr. Justice Newman's judgment, what was thought by the Secretary of State to be an acceptable approach to code 20 growth. What, as it seems to me is important however, is whether in the face of both these documents, and particularly the Review, any council could legitimately have expected that code 20 growth would be included in the Secretary of State's calculations for year two.
44. As the Councils knew, the Secretary of State had a wide discretion as to the amount of grant she might pay. Again, as the Councils knew, the scheme was subject to review after the first year's determination. The Review document, as was plain on its face, dealt with what would happen in year two. What it said was clear and unequivocal. Code 20 growth would not be included. It does not seem to me to matter that what was said about code 20 growth was not described as a change from year one. Neither does it seem to me that in deciding what councils could legitimately expect under the scheme for year two, the terms of the Review as announced by Mr. Woolas, should be subjected to close textual analysis. A sensible and reasonable reading of these documents as a whole would lead to the understanding that code 20 growth would not be included in the scheme for year two. In short, it seems to me, that in the face of these documents the claimants could no longer legitimately expect code 20 growth to be included in the year two determination.
45. It follows that the impugned decision cannot be successfully challenged. However, in case I am wrong about that, I shall go on to consider the second aspect of the case: whether, assuming there was a breach of the claimants' substantive legitimate expectation, the Secretary of State can show compelling and proportionate reasons for not honouring it.
46. As I have said, the second year's determination was made in February 2007.
47. On 30 July 2007 an embargoed copy of Mr. Justice Newman's judgment was made available to the Secretary of State. The Secretary of State received advice as to what should be done in order "to give effect to the court judgment." It was said also to be urgent because of an impending consultation document on the reform of LABGI. The options were set out. One issue was whether the benefit of the judgment should be extended to other councils. Another was how the code 20 data should be used. Because of the complexity of the alternative, it was recommended that only positive code 20 data would be used.
48. "Option 2a" was to change the whole scheme. "Option 2b," the recommended option, was to:

"Change the whole scheme by going right back to the start and including positive code 20 data for all authorities but not including code 20 in the rebasing. This would effectively mean that year 1 and 2 grant payments would only be affected by code 20…

We concluded that it would be fairer to award all relevant local authorities an additional payment on the basis of additional code 20 growth for years 1 and 2 without rebasing…

…This option would avoid the "winners and losers" situation…and would be fairer to all authorities. No authority would lose out as a result of including additional growth."

49. The Secretary of State agreed with that approach. As Mr. Coppel rightly submitted, the die was cast.
50. On 6 September 2007 the decision was promulgated. It is that decision, the Local Authority Business Growth Incentive Scheme Grant Determination 2007 (No 2), which is impugned in the present application. The amounts of the grant for each authority were set out in an annex.
51. On the same date the minister, in a written statement, said, among other things:

"Although the court ruling was confined to Corby and Slough…the Government was keen to give effect to the ruling by benefiting the broadest number of authorities in the simplest and fairest way possible to ensure that no authority saw a reduction in earlier payments."

52. This was important, submitted Mr. Sheldon, because councils would have budgeted for receipts.
53. The consequence was that many local authorities had additional payments. Corby received £226,175 for year one, £9168 for year two. Slough received £933,304 for year one, nothing for year two. The total additional payment for years one and two for all authorities was £92,152,514. The claimants believed they should have had more if the published scheme were adhered to; the rebasing provisions applied to code 20.

Events after the decision

54. After the decision, and in the light of Corby's complaint, there was, on 14 September 2007, a further submission to the minister. Its possible relevance is to help explain the thinking behind the impugned decision. It may be relevant to the Secretary of State's fall back position: that she acted proportionately and in a way which justified overriding any expectation the claimants had. The "Recommendation" was in the following terms:

"2. …We still think that the decision to respond to the judgement (sic) as we did- via an "add on" for the Code 20 data rather than rerunning the scheme- was the right one in policy terms …

5. The arguments in favour of [the response] were that it is a reasonably simple scheme and fairer to all authorities…In the discussion you stressed the importance of minimising disruption for all authorities, securing a consistent, understandable approach across the three years, and ensuring that the chose solution should not have an unjustifiable impact on Y3. We have kept these considerations to the fore…

8. Corby's suggestion would entail a different approach to the option of "rerunning the whole scheme."…

9. Corby's argument is that our chosen option doesn't provide, for the new Code 20 data, for the year-on-year cumulative effect in the same way as for growth previously counted within the main scheme. Of course, compared to Option 2b, it does not…but it does provide an alternative way of building the Code 20 data into the base scheme…which unlike [option] 2a does provide for cumulative rewarding of the Code 20 growth through later years of the scheme. This would be more consistent with the existing base scheme…

10. Corby's approach- "Option 2c"- is based on rewarding authorities with additional Code 20 growth up to their ceiling in Year 1 and then recalculating the starting position of Year 2 by either their growth if they did not receive a payment in Year 1 or their floor if they did receive a payment. In Year 2 authorities are rewarded with any additional Code 20 growth above their floor from Year 1 and again in Year 2, provided they reach their floor in Year 2."

55. Estimates of the financial implications of the different options were set out.
56. The decided course (option 2b) resulted in the year two payments to Corby and Slough respectively of £337,128 and nil, and would result in (estimated) year 3 payments of £771,109 and £1,475,400. The total Corby sum would be £1,334,412, that for Slough £2,408,704. To keep the payment as a whole (the "national payment") into its limit of £935,000,000, the scaling factor (the percentage of overall growth) is 0.70 for years one and two, 0.47 for year three.
57. The course proposed by the Corby would result in year two payments to Corby and Slough respectively of £575,059 and £1,036,200, and year three payments of £717,163 and £1,679,613. The total Corby sum would be £1,518,397, that for Slough £3,649,118. The scaling factor for year three would have to be less, 0.32 for year three.
58. The impact on different regions of the alternative schemes is set out. At paragraph 16 of the paper, it is said:

"Corby have argued that "the growth in Corby's RV in year 1 resulting from the Max Park warehouse should have been reflected properly in…[the grant]…it is true that their own suggested approach…mirrors, to a degree which [our suggested]…option does not, the methodology we have used up until now within he main scheme. But that view takes no account of other parameters which have to be borne in mind, such as the implications for other authorities and the scheme as a whole; the implications for Y3; the quantum of resources at stake. Corby argue that our solution does not properly reward them, on a cumulative year-on-year basis, for their Code 20 growth in Y1, but it is important for us not to skew the system unfairly towards giving too much weight to Code 20 changes given that we are only factoring in positives not negatives: we have to bear in mind the wider impact of the scheme. And as the data [on the impact of the different options on the different schemes] show, as well as emphasising the cumulative effect of the scheme (which is arguably not a desirable thing to do given the addition of the Code 20 growth) there are two other disadvantages. First, whilst all three options are marginally more advantageous to the NE and NW compared to original Year 2 payments (those before any adjustments for Code 20 increases), [Corby's option] disadvantages both the NE and the NW compared to…[ours]. Second, it is more costly, so it reduces the Y3 pot still further and hence requires even heavier scaling in that year. That means that the effects of the general tax base growth in Y3 carry proportionately less weight within the scheme as a whole, being further crowded out by the cumulative effect of the Code 20 increases in Y1 and Y2…

"… 17. If we had included Code 20 data from the start it is unlikely we would have chosen to provide within the scheme for the cumulative effect in the way Corby suggest. Indeed the scheme might well have been designed differently…there is no "right" answer to the question what would LABGI have given authorities if Code 20s had been included from the start.

… 18 … you should be aware that [the Corby option]…does not result in any authorities losing out …

…19. On balance we think that [the Corby option]…is less attractive…in pure policy terms, because the cumulative effect of the Code 20 data produces too great a distortion in the balance of the scheme viewed as a whole…

…20. For all these reasons we continue to believe that your original decision was and remains sound and justifiable in pure policy terms. And the option of reversing the…decision now would raise practical and presentational issues. Amongst other things, [the Corby option] costs an additional £40 million…there is a risk that if you agree to stick with your decision they will take us back to court…

…30. We believe that [our approach]…remains fundamentally justifiable in policy terms, and that consideration of options based on "rerunning the scheme" is (or should be) viewed as hypothetical, since there is every chance that if we had included Code 20 data from the outset we would have run the scheme differently."

59. Mr. Sheldon submitted that these are all relevant and important considerations for the minister when the proportionality of the response is assessed. Corby's contentions were carefully considered. Careful consideration was given as to how to give effect to the judgment of Mr. Justice Newman. Only growth under code 20 was being taken into account (whereas a full application of code 20 would have resulted in negative growth being taken into account). All authorities would benefit. Under the Corby option any new build in year three would receive less reward. More would have been spent in years one and two. There would be an impact on the regions. There would be a disproportionate benefit derived from code 20 growth if the Corby option were followed. Adding in cumulative code 20 growth would distort the effect of the scheme. There would be practical difficulties in now following it. It would be unfair to authorities generally to make one adjustment without also factoring in what else might have been different. Disruption must be minimised. The Secretary of State has to have regard to the bigger picture. While Mr. Justice Newman was entitled to find, as he expressed it in paragraph 49 of his judgment, that the Secretary of State's excuse was not factually founded and was legally ineffective and that there was no overriding interest sufficient to neutralise the need for fairness and transparency in rewards under the scheme, that is not the case on the present facts. Mr. Justice Newman accepted that it was relevant that "an amended scheme would be more complex and more costly to administer." See Esfandiari v Secretary of State for Work and Pensions [2006] EWCA Civ 282. The Secretary of State was entitled in all those circumstances to act inconsistently with the published scheme.
60. Mr. Sheldon too relied on Mr. Duncan's statement that because of the present (and other) legal challenges, and the inherent uncertainty as far as the remaining pot of money is concerned, the Department announced on 7 January 2008 that a portion of the year three fund would need to be retained as a contingency. In all, £101 million has been set aside to cover all the issues. As Mr. Duncan put it in paragraph 41 of his statement:

"Departmental analysis indicates that, assuming all other aspects of the scheme remain unchanged, but including both positive code 20 and all the new codes positively and cumulatively would cost an additional £136 million on top of the payments which have now been made for years 1-3 of the scheme, exceeding the remaining contingency by around £35 million. Rewarding rateable value growth…under code 20 all the new codes cumulatively but taking account of contractions and ensuring that nobody is made worse off as a result of notional overpayments would cost just over £10m on top of the payments which have now been made for years 1-3 …"

61. In short, Mr. Sheldon submitted that the Secretary of State had an overriding and proportionate reason to defeat any substantive legitimate expectation of the claimants. He submitted too that there was no failure to take into account any relevant consideration or that there was any inconsistency in the decision or that it was irrational.
62. Mr. Coppel accepted that if it transpires that the scheme would be so costly as to result in a "complete blowout," that is a relevant consideration for the Secretary of State. He submitted that was not so. The overall cost was the same. The scaling factor, as was always anticipated, would ensure that the sum available would not be exceeded. The use of the scaling factor is predictable and uniform. There would always be some uncertainty regarding year three.

My conclusion on this aspect

63. It seems to me Mr. Sheldon's submissions have substance. As she was entitled to, the Secretary of State took the factors to which Mr. Sheldon referred, into account. In particular:

(1) She considered how calendar year code 20 data should be taken into account. A fundamental question was whether only positive code 20 data should be used, or both positive and negative. Because of the cost implications of taking negative data into account, there were, as she could conclude, compelling reasons to take only positive data into account. That was more generous to councils than was required by the published scheme. In the case of Slough, for example, taking positive and negative data into account would result in a nil payment on the Corby option for year two. (It might result in a council having been overpaid).

(2) She considered whether code 20 calendar year growth should benefit only the claimants, or those councils which had not brought applications for judicial review. It was, as it seems to me, proportionate and reasonable for the Secretary of State to conclude that all councils should benefit.

(3) Taking only positive data into account and benefiting all councils had very significant financial implications as far as the money available under the scheme was concerned. Good administration meant that there could be no question of reducing payments already communicated or made to councils. Substantial additional payments had to be made to several councils. As a result, code 20 growth played a very significant part in the scheme.

(4) As is obvious, applying the Corby option would have a significant impact on councils which were not party to the decision. While the Corby option could not affect the overall sum available, it would have a profound consequence, particularly after contingencies were taken into account, on what was available for year three, as she could conclude. That would affect those councils which did not have much new build in years one and two, but did in three. The fact that it was always anticipated that scaling might change in year three does not alter that; the greater the scaling factor in year three, the less the incentive for that year. The Corby option too meant that code 20 growth would play a disproportionate role in the payments made to councils. I can in short understand how the Secretary of State could conclude that the Corby option would skew or distort the scheme.

64. While I accept that policy was a significant factor in the decision, it does seem to me, when viewed in the round, the Secretary of State had an overriding and proportionate reason to defeat any substantive legitimate expectation the claimants might have had as far as code 20 and the starting valuation for years two and three.

Timing

65. I should briefly mention a point Mr. Sheldon took for the first time during the hearing. He submitted that the second determination was in February 2007. That is when it became plain to the claimants how code 20 was being dealt with. They could have brought the present challenge then. While they could, it was entirely reasonable in my view for the claimants to await the outcome of the year one challenges, in respect of which proceedings had by then been brought.

Conclusion

66. For the reasons I have given I would refuse this application for judicial review.