United Kingdom House of Lords Decisions

Parliamentary Archives,
HL/PO/JU/18/245

Nottinghamshire County Council (Respondents) v. Secretary of

State for the Environment (Appellant) and City of Bradford
Metropolitan Council (Respondents) v. Secretary of State for

the Environment (Appellant)

JUDGMENT

Die Jovis 12° Decembris 1985

Upon Report from the Appellate Committee to whom was
referred the Cause Nottinghamshire County Council against the
Secretary of State for the Environment and the City of
Bradford Metropolitan Council against the Secretary of State
for the Environment, That the Committee had heard Counsel on
28th, 29th, 30th and 31st October and 4th, 5th and 7th
November last upon the Petition and Appeal of the Secretary
of State for the Environment of Marsham Street, London, SW1
praying that the matter of the Order set forth in the
Schedule thereto, namely an Order of Her Majesty's Court of
Appeal of 3rd October 1985, might be reviewed before Her
Majesty the Queen in Her Court of Parliament and that the
said Order might be reversed, varied or altered or that the
Petitioner might have such other relief in the premises as to
Her Majesty the Queen in Her Court of Parliament might seem
meet; as also upon the Cases of the Nottinghamshire County
Council and the City of Bradford Metropolitan Council lodged
in answer to the said Appeal, and due consideration had this
day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and
Temporal in the Court of Parliament of Her Majesty the Queen
assembled, That the Appeal be Allowed, and the said Order of
Her Majesty's Court of Appeal of the 3rd October 1985
complained of in the said Appeal be, and the same is hereby,
Set Aside: And it is further Ordered, That the Order as to
Costs of Mr. Justice Kennedy of 15th March 1985 be, and the
same is hereby, Restored: And it is further Ordered, That the
Respondent Councils do each pay or cause to be paid to the
said Appellant one half of the Costs incurred by him in the
Court of Appeal and also of the Costs incurred by him in
respect of the said Appeal to this House, the amount of such
last-mentioned Costs to be certified by the Clerk of the
Parliaments if not agreed between the parties: And it is
also further Ordered, That the Cause be, and the same is
hereby, remitted back to the Queen's Bench Division of the
High Court of Justice to do therein as shall be just and
consistent with this Judgment.

Cler: Parliamentor:




HOUSE OF LORDS

NOTTINGHAMSHIRE COUNTY COUNCIL
(RESPONDENTS)

v.

SECRETARY OF STATE FOR THE ENVIRONMENT

(APPELLANT)

CITY OF BRADFORD METROPOLITAN COUNCIL

(RESPONDENTS)

v.

SECRETARY OF STATE FOR THE ENVIRONMENT

(APPELLANT)

Lord Scarman
Lord Roskill
Lord Bridge of Harwich
Lord Templeman
Lord Griffiths




LORD SCARMAN

My Lords,

In December 1984 the Secretary of State for the
Environment laid before the House of Commons the Rate Support
Grant Report (England) for the year 1985-86. In due course the
report was approved by resolution of the House. The Secretary of
State included in the report (additionally to the matters which he
was required by law to specify therein) expenditure guidance to
local authorities for that year.

He was empowered to issue guidance by section 59 of the
Local Government, Planning and Land Act 1980 ("the Act") as
amended by the Local Government Finance Act 1982 and he would
have power to enforce the guidance by the mechanism of a
multiplier if he reported to and obtained the approval of the
House of Commons: section 59(1)(4)(5)(6) and section 60(6)(7)(8). It
is this guidance which the respondent authorities, the
Nottinghamshire County Council ("Nottingham") and the City of
Bradford Metropolitan Council ("Bradford"), challenge as unlawful.
They make two submissions.

First, they submit that the guidance does not comply with
subsection (11A) of section 59 of the Act in that it was not
"framed by reference to principles applicable to all local
authorities." This submission was rejected by the trial judge
(Kennedy J.) but accepted on appeal by the Court of Appeal
(Lawton, Slade and Dillon L.JJ.). In his speech to your Lordships
my noble and learned friend, Lord Bridge of Harwich, considers the
Act as amended, and advances his reasons for holding that on the
true construction of the subsection the Secretary of State's
guidance was framed by reference to principles applicable to all
authorities. I agree with him. Accordingly, I confine my speech
to the respondents' second submission to which I now turn.

Their second submission is that, even if the guidance
complies with the words of the statute, it offends a principle of
public law in that the burden which the guidance imposes on some
authorities, including Nottingham and Bradford, is so
disproportionately disadvantageous when compared with its effect
upon others that it is a perversely unreasonable exercise of the
power conferred by the statute upon the Secretary of State. The
respondents rely on what has become known to lawyers as the
"Wednesbury principles" - by which is meant the judgment of Lord
Greene M.R. in Associated Provincial Picture Houses Ltd, v.
Wednesbury Corporation [1948] 1 KB 223, 229.

Neither the trial judge nor the Court of Appeal accepted
the second submission. But much has been made of it in the
courts below and in your Lordships' House. The respondents' case
is that the guidance is grossly unfair, some authorities doing
disproportionately well and others being hit undeservedly hard.
Your Lordships have been taken through the detail and have been
invited to hold that no reasonable Secretary of State could have
intended consequences so disproportionate in their impact as
between different local authorities. The House is invited in its
judicial capacity to infer from these consequences that the
Secretary of State must have abused the power conferred upon him
by the Act.

The submission raises an important question as to the limits
of judicial review. We are in the field of public financial
administration and we are being asked to review the exercise by
the Secretary of State of an administrative discretion which
inevitably requires a political judgment on his part and which
cannot lead to action by him against a local authority unless that
action is first approved by the House of Commons.

The Secretary of State's guidance which is challenged was
included in the Rate Support Grant Report for 1985-86 which was
laid before and approved by the House of Commons: no payment
of grant, and no reduction in the amount of grant by the
Secretary applying a multiplier pursuant to section 59 of the Act,
can be made unless covered by the report or by a supplementary
report and approved by the House of Commons. I am not
surprised that the trial judge and Court of Appeal declined to
intervene.

My Lords, I think that the courts below were absolutely
right to decline the invitation to intervene. I can understand that
there may well arise a justiciable issue as to the true construction
of the words of the statute and that, if the Secretary of State has
issued guidance which fails to comply with the requirement of
subsection (11A) of section 59 the Act of 1980 the guidance can
be quashed. But I cannot accept that it is constitutionally-
appropriate, save in very exceptional circumstances, for the courts
to intervene on the ground of "unreasonableness" to quash guidance
framed by the Secretary of State and by necessary implication
approved by the House of Commons, the guidance being concerned
with the limits of public expenditure by local authorities and the
incidence of the tax burden as between taxpayers and ratepayers.
Unless and until a statute provides otherwise, or it is established
that the Secretary of State has abused his power, these are
matters of political judgment for him and for the House of



- 2 -

Commons. They are not for the judges or your Lordships' House
in its judicial capacity.

For myself, I refuse in this case to examine the detail of
the guidance or its consequences. My reasons are these. Such an
examination by a court would be justified only if a prima facie
case were to be shown for holding that the Secretary of State had
acted in bad faith, or for an improper motive, or that the
consequences of his guidance were so absurd that he must have
taken leave of his senses. The evidence comes nowhere near
establishing any of these propositions. Nobody in the case has
ever suggested bad faith on the part of the Secretary of State.
Nobody suggests, nor could it be suggested in the light of the
evidence as to the matters he considered before reaching his
decision, that he had acted for an improper motive. Nobody now
suggests that the Secretary of State failed to consult local
authorities in the manner required by statute. It is plain that the
timetable, to which the Secretary of State in the preparation of
the guidance was required by statute and compelled by
circumstance to adhere, involved him necessarily in framing
guidance on the basis of the past spending record of authorities.
It is recognised that the Secretary of State and his advisers were
well aware that there would be inequalities in the distribution of
the burden between local authorities but believed that the guidance
upon which he decided would by discouraging the high spending and
encouraging the low spending authorities be the best course of
action in the circumstances. And, as my noble and learned friend
Lord Bridge of Harwich demonstrates, it was guidance which
complied with the terms of the statute. This view of the
language of the statute has inevitably a significant bearing upon
the conclusion of "unreasonableness" in the Wednesbury sense. If,
as your Lordships are holding, the guidance was based on principles
applicable to all authorities, the principles would have to be either
a pattern of perversity or an absurdity of such proportions that
the guidance could not have been framed by a bona fide exercise
of political judgment on the part of the Secretary of State. And
it would be necessary to find as a fact that the House of
Commons had been misled: for their approval was necessary and
was obtained to the action that he proposed to take to implement
the guidance.

In my judgment, therefore, the courts below acted with
constitutional propriety in rejecting the so-called "Wednesbury
unreasonableness" argument in this case. The trial judge, Kennedy
J., rightly reminded himself of an observation made by Lord
Diplock in Secretary of State for Education and Science v.
Tameside Metropolitan Borough Council [1977] AC 1014, 1064:

"The very concept of administrative discretion involves a
right to choose between more than one possible course of
action upon which there is room for reasonable people to
hold differing opinions as to which is to be preferred."

And he concluded, after giving more attention to the
detailed arguments as to the financial consequences of the
guidance than they were strictly entitled to receive:

"In my judgment, although the Secretary of State could, of
course, have set different guidance which would perhaps not

- 3 -

have caused the applicant authorities to complain, it cannot
be said that the approach which he has adopted was
unreasonable in the Wednesbury sense."

The Court of Appeal adopted the same approach. After
referring to section 59(6)(cc) of the Act of 1980 which requires
the Secretary of State, when deciding what guidance to issue, to
do what he thinks necessary having regard to general economic
conditions, Lawton L.J. observed with constitutional propriety:

" Parliament has left him to decide what he thinks necessary.
He has to make a political and economic judgment. He
may make a sound one or a bad one. This court might
have been able to make a better one than he made; but we
must remind ourselves that Parliament, no doubt for good
reason, has not entrusted guidance to us."

The other members of the court had no doubt that no case was
made out that the [Secretary of State] had acted with Wednesbury
unreasonableness or perversity.

"Wednesbury principles" is a convenient legal "shorthand"
used by lawyers to refer to the classical review by Lord Greene
M.R. in the Wednesbury case of the circumstances in which the
courts will intervene to quash as being illegal the exercise of an
administrative discretion. No question of constitutional propriety
arose in the case, and the Master of the Rolls was not concerned
with the constitutional limits to the exercise of judicial power in
our parliamentary democracy. There is a risk, however, that the
judgment of the Master of the Rolls may be treated as a
complete, exhaustive, definitive statement of the law.

The law has developed beyond the limits understood to apply
to judicial review as practised by the courts in 1948. The ground
upon which the courts will review the exercise of an
administrative discretion by a public officer is abuse of power.
Power can be abused in a number of ways: by a mistake of law in
misconstruing the limits imposed by statute (or by common law in
the case of a common law power) upon the scope of the power; by
procedural irregularity; by unreasonableness in the Wednesbury
sense; or by bad faith or an improper motive in its exercise. A
valuable, and already "classical," but certainly not exhaustive
analysis of the grounds upon which courts will embark on the
judicial review of an administrative power exercised by a public
officer is now to be found in Lord Diplock's speech in Council of
Civil Service Unions v. Minister for the Civil Service [1985] A.C.
374.

In an earlier case, in which this House ruled that the Inland
Revenue Commissioners were "not immune" from judicial review,
Lord Diplock made the comment that they were accountable to
Parliament

"so far as regards efficiency and policy, and of that
Parliament is the only judge; they are responsible to a court
of justice for the lawfulness of what they do, and of that
the court is the only judge": Reg, v. Inland Revenue
Commissioners, Ex parte National Federation of Self-
Employed and Small Businesses Ltd. [1982] AC 617, 644.

- 4 -

In the same case I indicated, at p. 650, that the judges had
consistently recognised that they could provide a remedy for abuse
of power on the principle that the improper or capricious exercise
of a power is was unlawful. And I went on, at pp. 652-653, to
stress the existence in the case of the commissioners of a legal
duty of fairness owed to the general body of taxpayers.

This approach with its distinction between accountability to
Parliament and review by the courts of the lawfulness of the
exercise of administrative power was further developed and
confirmed by the House in two recent decisions: Reg, v. Inland
Revenue Commissioners, Ex parte Preston [1985] 2 W.L.R. 836 and
Wheeler v. Leicester City Council [1985] 3 W.L.R. 335. In
Preston's case my noble and learned friend, Lord Templeman,
delivered the leading speech with which their other Lordships
agreed. He declared the principle of law to be that the courts
may intervene to review a power conferred by statute on the
ground of unfairness but only if the unfairness in the purported
exercise of the power be such as to amount to an abuse of the
power. Wheeler v. Leicester City Council is a striking illustration
on its facts of circumstances in which the courts may intervene on
the ground of abuse of power arising from an improper motive in
its exercise.

The present case raises in acute form the constitutional
problem of the separation of powers between Parliament, the
executive, and the courts. In this case, Parliament has enacted
that an executive power is not to be exercised save with the
consent and approval of one of its Houses. It is true that the
framing of the guidance is for the Secretary of State alone after
consultation with local authorities: but he cannot act on the
guidance so as to discriminate between local authorities without
reporting to, and obtaining the approval of, the House of
Commons. That House has, therefore, a role and a responsibility
not only at the legislative stage when the Act was passed but in
the action to be taken by the Secretary of State in the exercise
of the power conferred upon him by the legislation.

To sum it up, the levels of public expenditure and the
incidence and distribution of taxation are matters for Parliament,
and, within Parliament, especially for the House of Commons. If
Parliament legislates, the courts have their interpretative role:
they must, if called upon to do so, construe the statute. If a
minister exercises a power conferred on him by the legislation, the
courts can investigate whether he has abused his power. But if,
as in this case, effect cannot be given to the Secretary of State's
determination without the consent of the House of Commons and
the House of Commons has consented, it is not open to the courts
to intervene unless the minister and the House must have
misconstrued the statute or the minister has - to put it bluntly -
deceived the House. The courts can properly rule that a minister
has acted unlawfully if he has erred in law as to the limits of his
power even when his action has the approval of the House of
Commons, itself acting not legislatively but within the limits set
by a statute. But, if a statute, as in this case, requires the
House of Commons to approve a minister's decision before he can
lawfully enforce it, and if the action proposed complies with the
terms of the statute (as your Lordships, I understand, are
convinced that it does in the present case), it is not for the



- 5 -

judges to say that the action has such unreasonable consequences
that the guidance upon which the action is based and of which the
House of Commons had notice was perverse and must be set aside.
For that is a question of policy for the minister and the
Commons, unless there has been bad faith or misconduct by the
Minister. Where Parliament has legislated that the action to be
taken by the Secretary of State must, before it is taken, be
approved by the House of Commons, it is no part of the judges'
role to declare that the action proposed is unfair, unless it
constitutes an abuse of power in the sense which I have explained;
for Parliament has enacted that one of its Houses is responsible.
Judicial review is a great weapon in the hands of the judges: but
the judges must observe the constitutional limits set by our
parliamentary system upon their exercise of this beneficent power.

My Lords, for the reasons which I have developed coupled
with the reasons developed in the speeches of my noble and
learned friends, Lord Bridge of Harwich and Lord Templeman, I
would allow the appeal of the Secretary of State. I would propose
that the order for costs made by the trial judge should be restored
and that the Secretary of State be granted an order that his costs
in the Court of Appeal and in your Lordships' House be paid as to
one half by Nottingham and as to the other half by Bradford.
There should be a certificate for three counsel for the Secretary
of State.

LORD ROSKILL

My Lords,

I have had the advantage of reading in draft the speeches
of my noble and learned friends Lord Scarman and Lord Bridge of
Harwich. The former speech deals with the issue of judicial
review. In agreement with my noble and learned friend Lord
Scarman and with both courts below I am of the opinion that
guidance issued by the Secretary of State which the respondents
seek to challenge is in no way susceptible of attack by this route
for the reasons which my noble and learned friend gives.

The latter speech deals with the construction of the
relevant legislation. In agreement with my noble and learned
friend Lord Bridge of Harwich and Kennedy J. but in respectful
disagreement with the Court of Appeal, I am of the opinion that
the submissions of the Secretary of State as to the true
construction of the relevant legislation are correct for the reasons
which my noble and learned friend Lord Bridge of Harwich gives in
that speech. No useful purpose would therefore be served by
adding any observations of my own upon on either issue. In my
opinion the appeal should be allowed and the order of Kennedy J.,
dated 15 March 1985, refusing the relief sought by the respondents
be restored.

- 6 -

LORD BRIDGE OF HARWICH

My Lords,

These appeals raise questions of importance to central and
local government under the Local Government, Planning and Land
Act 1980 ("the Act of 1980") as amended by the Local Government
Finance Act 1982 ("the Act of 1982").

As required by section 60(2) of the Act of 1980 the
appellant, on 20 December 1984, made for the financial year
1985/86 the Rate Support Grant Report (England) 1985/86 ("the
1985/86 Report") which was laid before, and in due course
approved by resolution of, the House of Commons pursuant to
section 60(7) and (8). Although not one of the matters formally
required by the relevant statutory provisions to be included in the
Rate Support Grant Report, the appellant in fact included in the
1985/86 Report, as he had in previous years, the guidance which
he is empowered to issue under section 59(6)(cc) of the Act of
1980 as amended by the Act of 1982, setting expenditure targets
for all local authorities for the coming year which, as will be
explained, they may only exceed at risk of suffering a reduction in
the amount they will receive by way of grant from central
government funds.

Three local authorities, the Derbyshire County Council and
the two present respondents, thought their expenditure targets had
been set at unfairly low levels. All three made applications for
judicial review, asking the court to make orders of certiorari or
declarations condemning the guidance as ultra vires. The two
broad grounds of attack were (1) that the guidance had not been
"framed by reference to principles applicable to all local
authorities" as required by section 59(11A) of the Act of 1980; (2)
that the appellant had exercised his power unreasonably in what, in
current legal jargon, is commonly called the "Wednesbury" sense
(Associated Provincial Picture Houses Ltd. v. Wednesbury
Corporation [1948] 1 KB 223).

The applications were heard together and dismissed by
Kennedy J. The present respondents appealed to the Court of
Appeal (Lawton, Slade and Dillon L.JJ.) who allowed both appeals
on the first ground. The appellant now appeals in each case by
leave of your Lordships' House.

As is well known, it has been government policy since 1979
to reduce or restrain the level of public expenditure, which
includes, of course, expenditure by local authorities. Local
authorities' revenue expenditure is funded from three main sources,
namely central government grants, rates, and fees and charges for
services provided. Part VI of the Act of 1980 entitled "Rate
Support Grant" and Part II of the Act of 1982 entitled "Block
Grant" establish elaborate statutory mechanisms clearly designed to
encourage efficiency and economy on the part of local authorities
by providing, to put the matter in the broadest and necessarily
over-simplified terms, for variations in the level of block grant to
any local authority depending on the level of that authority's
expenditure in relation to a given base-line. To over-simplify
again, the result is that the proportion of a local authority's total
expenditure which it must raise from the rates is higher if it is



- 7 -

extravagant, lower if it is economical. The block grant system
thus contains elements of both the carrot and the stick, but stops
short of giving central government any direct control over local
authority finance. The further step of empowering the government
to exercise such control was taken by the Rates Act 1984 which
introduced the system commonly referred to as "rate-capping." I
mention this at the outset only to make clear that your Lordships
are not concerned in these appeals in any way with rate capping.
True, it was argued for the appellant that we should look at
certain provisions of the Act of 1984 as aids to the construction
of the Acts of 1980 and 1982. Even assuming that to be
permissible, which I doubt, I do not find it helpful and accordingly
I dismiss the Act of 1984 from consideration as irrelevant.

Before 1980 the government, save in relation to specific
services supported by specific grants, could only influence local
authority spending, otherwise than by exhortation, by varying the
amount of rate support grant available to all local authorities. It
suffices to say of the old statutory system that it contained no
effective mechanism in relation to the distribution of the rate
support grant for discriminating between high-spending and low-
spending authorities. As already indicated, the Act of 1980 was
designed to provide just such a mechanism and the Act of 1982
undoubtedly introduced an additional discriminating element which
Parliament must have thought necessary to make the mechanism
more effective.

The statutory provisions under which the distribution of
grants is regulated are highly complex and sophisticated. The
manner in which the statutory powers have been exercised in
successive Rate Support Grant Reports has been no less so. It is
perhaps not surprising that there should have been a number of
challenges to the Secretary of State in judicial review proceedings
by local authorities aggrieved by the way in which his exercise of
the powers has affected them. The earliest case, and so far as I
know the only one to reach the law reports, was Reg, v. Secretary
of State for the Environment, Ex parte Brent London Borough
Council [1982] Q.6. 593. Since then there have been a number of
unreported decisions of which your Lordships have been provided
with transcripts. Nearly all the judges who have had to grapple
with the subject have found it necessary for the purpose of
deciding the particular point before them to attempt an exposition
of the system at some length.

Some introductory outline of the system is essential to any
understanding of the subject. But in pursuit of the almost
unattainable objective of reasonable brevity combined with
intelligibility it may be legitimate once again to run the risk of an
over-simplified sketch of the system's main features.

The aggregate rate support grant for any year is the total
amount estimated by the Secretary of State to be available from
central government funds in support of local government
expenditure apart from specific grants in support of certain
specific services. Whatever is received by a local authority by
way of rate support grant is allocated and expended at the
discretion of that local authority as between the various services
it provides. Rate support grant is divided into two elements,
domestic rate relief grant and block grant. Domestic rate relief



- 8 -

grant is a direct subsidy to domestic ratepayers who pay at a
lower rate poundage than others. No question arises in these
appeals with respect to it.

The critical provisions of the statutory system under
consideration are those which govern the distribution of the block
grant between local authorities. It is essential to appreciate at
the outset that the aggregate amount available for distribution as
block grant is a fixed sum determined by the Secretary of State,
so that adjustments of grant to any one or more authorities must
affect the grant to others.

One key concept in the distribution system is that of grant-
related expenditure (GRE). This is defined by section 56(8) of the
Act of 1980 as meaning "in relation to each authority to whom
block grant is payable for any year, . . . the aggregate for the
year of their notional expenditure having regard to their
functions." This "notional" expenditure has been used in successive
Rate Support Grant Reports as an estimate of the expenditure
which each authority would need to incur if all authorities
provided the same standard of service with the same degree of
efficiency at a level consistent with the government's aggregate
spending plans for local government. Assessments of GRE relate
spending need to the cost of providing services to each "client" in
need of them or "unit" of service provided. To reflect
differences, not only between authorities' functions and the size of
populations for which they must provide relevant services, but also
between all other identifiable factors which may affect the cost of
their provision (e.g. the make-up of the population, the physical
features of the area, local social and environmental problems), an
elaborate table of "indicators" is used (see Appendix 1 to Annex K
to the 1985/86 Report).

The second key concept is grant-related poundage (GRP).
The basic yardstick used is GRP at GRE. What this means is the
rate poundage which a local authority in any given class (county
councils, district councils, London borough councils, etc.) would
need to levy, having regard to the aggregate rateable value of the
properties in its area, to finance expenditure at GRE level. The
actual GRP of each individual authority is then determined by a
complicated formula which depends on the authority's total
expenditure. If an authority spends at GRE level its GRP will be
determined by the basic yardstick of GRP at GRE. But if an
authority's expenditure is above or below GRE level, the formula
will determine the appropriate increase or decrease in its GRP.

GRP is the key determinant in fixing an authority's block
grant, which is calculated by deducting from an authority's total
expenditure the product of its GRP multiplied by the gross
rateable value of the property in its area. The formula for
determining GRP according to the relationship between an
authority's total expenditure and its GRE is thus all-important in
its effect on the distribution of block grant.

The statutory definition of GRP in section 56(8) is:

"a poundage related - (a) to a given ratio between [a local
authority's] total expenditure and their grant-related
expenditure; or (b) to a given difference between their total



- 9 -

expenditure divided by their population and their grant-
related expenditure so divided." This leaves the formula to
be determined in the Rate Support Grant Report. But an
important constraint is imposed by section 58(2) and (3)
which provide as follows:

"(2) Where an authority's total expenditure is at a level
equal to or less than their grant-related expenditure, a given
decrease in their total expenditure must produce the same
decrease in their grant-related poundage as would be
produced by the same decrease in their total expenditure if
it were at any other level which is less than their grant-
related expenditure. "(3) Where an authority's total
expenditure is at a level equal to or more than their grant-
related expenditure, a given increase in their total
expenditure must produce an increase in their grant-related
poundage not less than the increase that would be produced
by the same increase in their total expenditure if it were at
any lower level."

The effect of these provisions is accurately and lucidly stated in
an affirmation of Peter Francis Owen, an Under Secretary in the
Department of the Environment, as follows:

"(a) so long as an authority is spending at less than its GRE
the cost to the ratepayer of each unit of increase in
expenditure must be the same; (b) if an authority is
spending more than its GRE, the principles for determination
of [GRP] may provide that the cost to the ratepayer of
each unit of increase in expenditure shall be higher, and
must provide that it shall not be less, than would have been
the case had the authority been spending at any lower level;
(c) it is possible for the principles to specify a threshold at
which the tapering mechanism that I have described above
begins to take effect."

This tapering mechanism provides the primary means under the Act
of 1980, as originally enacted, of applying a disincentive to
extravagant spending by local authorities and has been used in
successive Rate Support Grant Reports to set a threshold at 10
per cent. above GRE, beyond which the formula for calculation of
GRP results in a lower proportion of excess expenditure being
centrally funded and consequently a higher proportion failing on
the ratepayers.

The Act of 1982 added the important new power of
abatement of block grants to high-spending authorities with which
these appeals are concerned. It empowered the Secretary of State
to set expenditure targets for local authorities and to adjust the
amounts of their block grants in the light of their performance by
reference to those targets.

It will be convenient at this point to set out the essential
provisions of the legislation on which the point of construction
raised in the appeals principally depends. Section 59 of the Act
of 1980 as amended by section 8 of the Act of 1982, so far as
material, provides as follows:

"(1) Subject to the following provisions of this section, the
Secretary of State may provide in a Rate Support Grant



- 10 -

Report that the amount of block grant payable to a local
authority for a year shall be calculated by deducting from
their total expenditure, instead of the product of their
grant-related poundage and the gross rateable value of their
area, the product of those sums multiplied by a multiplier
determined by the Secretary of State. ...(4) The power
conferred by subsection (1) above may be exercised so as to
determine different multipliers for different authorities. (5)
Except as provided by subsection (7) below, the power - (a)
may only be exercised - (i) in accordance with principles to
be applied to all local authorities; or (ii) in accordance with
principles to be applied to all local authorities belonging to
the appropriate class; and (b) may only be exercised for any
such purpose as is specified in paragraphs (a) to (d) of
subsection (6) below. (6) The purposes mentioned in
subsection (5) above are - (a) limiting the change in the
amount of block grant payable to an authority for the year
from the amount payable in the previous year; (b) taking
account of less than the gross rateable value of an authority
or group of authorities in calculating the amount of block
grant payable; (c) reducing, whether in whole or in part,
disparities in the rates levied in different rating areas of
Greater London other than the Temples; (cc) making, in the
amount of block grant payable to an authority, adjustments
by reference to guidance issued by the Secretary of State
and designed to achieve any reduction in the level of local
authority expenditure (or any restriction on increases in that
level) which he thinks necessary having regard to general
economic conditions; and (d) any such other purpose as the
Secretary of State may determine. . . . (11A) Any guidance
issued for the purpose of subsection (6)(cc) above shall be
framed by reference to principles applicable to all local
authorities; and before issuing any guidance for those
purposes the Secretary of State shall consult such
associations of local authorities as appear to him to be
concerned and any local authority with whom consultation
appears to him to be desirable."

The amendments introduced into this section by section 8 of the
Act of 1982 are subsection (6)(cc) and subsection (11A). Section S
of the Act of 1982, so far as material, provides as follows:

"(3) The powers conferred by ... section 59 [of the Act of
[1980] - . . . (c) shall be exercisable for the purpose
specified in paragraph (cc) of [subsection (6)] so as to
increase or decrease the amount of block grant payable to a
local authority according to whether or the extent to which
they have or have not complied (or have or have not taken
steps to comply) with the guidance referred to in that
paragraph. (4) If representations in that behalf are made to
him by any association of local authorities or by any local
authority the Secretary of State may - (a) in the Rate
Support Grant Report made for any year under section 60 of
the said Act of 1980; or (b) in a supplementary report
made for any year under section 61 of that Act, provide
that expenditure of any description or amount shall be
disregarded for the purposes of paragraph (cc) of subsection
(6) of the said section 59 and in determining under
subsection (3)(c) above whether or the extent to which local



- 11 -

authorities have or have not complied (or have or have not
taken steps to comply) with the guidance referred to in that
paragraph. ... (6) The powers conferred by the said section
59 ... shall not be exercised for the purpose specified in
subsection (6)(cc) of that section except in accordance with
principles to be applied to all local authorities; and
accordingly [subsection] (5)(a)(ii) ... of that section . . .
shall not apply to any exercise of those powers for that
purpose. (7) A supplementary report made for any year
under section 61 of the said Act of 1980 may specify a
determination under the said section 59 ... in relation to a
local authority notwithstanding that no such determination
was specified in relation to that authority in the Rate
Support Grant Report made for that year under section 60
of that Act. (8) No determination made for the purpose
specified in subsection (6)(cc) of the said section 59 and
specified by virtue of subsection (7) above in a
supplementary report shall be such as to decrease the
amount of block grant payable to a local authority in any
year to any greater extent than is permissible in accordance
with principles specified in that behalf in the Rate Support
Grant Report made for that year. . . . (10) This section has
effect in relation to block grant for any year beginning on
or after 1 April 1981 . . . . (11) In relation to the year
beginning on 1 April 1981 or 1 April 1982 references in this
section to guidance issued by the Secretary of State include
references to guidance issued by him before the passing of
this Act . . . ."

The guidance issued under section 59(6)(cc) of the Act of
1980 in the 1985/86 Report, so far as relevant for present
purposes, is found in paragraphs 11 and 12 of the main text of the
Report and in paragraphs 2 and 3 of Annex D. These paragraphs
read as follows:

"11. The Government remains concerned about the level of
spending by local authorities, and believes that present
economic circumstances necessitate further restraint. As
for 1984/35, the Secretary of State has therefore decided to
issue guidance to each local authority about its level of
expenditure in 1985/86. He circulated provisional guidance
figures to all authorities on 24 July 1984. He has
considered all the representations made to him since then by
local authorities and their associations, and has now issued
expenditure guidance, or targets, for 1985/86 to all local
authorities. Some changes have been made to the
provisional targets proposed earlier, affecting a number of
low-spending authorities. No authority's target is lower than
its provisional target. 12. Compliance with the guidance
requires most restraint from authorities budgeting in 1984/85
to spend above both their grant-related expenditure
assessment and guidance for the year and least restraint
from those budgeting in 1984/85 to spend at target and at
or below GRE. The effect of the guidance is to allow most
low-spending authorities an increase in spending in line with
the Government's best estimate of inflation. An explanation
of the principles on which the guidance has been framed is
at Annex D. The sum of the guidance is equal to estimated
total expenditure, as defined for block grant purposes (see



- 12 -

Annex A). ... ANNEX D ... 2. The guidance is as
follows: if an authority's budgeted total expenditure for
1984/85 is less than or equal to that authority's grant-
related expenditure (GRE) for 1984/85, the guidance is 3.75
per cent. above its 1984/85 adjusted GRE; otherwise the
guidance is 3.75 per cent. above its adjusted expenditure
guidance for 1984/85; in either case it is subject to the
constraints described in paragraph 3, and in all cases further
adjusted as described in paragraph 4. 3. The constraints
mentioned in paragraph 2 are as follows: (a) the maximum
percentage increase from an authority's 1984/85 adjusted
budget is 4.5 per cent., unless: (i) that gives a figure less
than is given by a 4.625 per cent. increase on the
authority's 1984/85 adjusted expenditure guidance, and (ii)
the authority's budgeted total expenditure for 1984/85 is less
than or equal to its GRE for 1984/85, in which case the
constraint is a 4.625 per cent. increase on whichever is the
lower of the authority's 1984/85 adjusted budget and its
1984/85 adjusted expenditure guidance, and (b) the
maximum percentage reduction from an authority's 1984/85
adjusted budget is 1.5 per cent."

To summarise the effect of this, local authorities are given
targets for expenditure in 1985/86 based either on their 1984/85
targets or on their 1984/85 GRE, subject to maximum limits on
the percentage by which the application of the formula in
paragraph 2 of Annex D may increase or reduce their expenditure
targets for 1985/86 above or below their budgeted expenditure in
1984/85.

It is important to realise, and it is, I think, now common
ground, that the exigencies of the timetable, having regard both to
the various requirements of consultation and to the need to allow
local authorities sufficient time to prepare their budgets for the
coming year, constrained the Secretary of State, when he issued
his guidance in December 1984, setting targets for expenditure in
1985/86, to look to 1984/85 budgets as the latest indication of
authorities' spending levels, and so far as he wished to take GRE
levels into account, to base himself on GRE levels in 1984/85. It
is also common ground that, while GRE is designed to provide a
theoretical norm to which ideally it would be appropriate for local
authority expenditure to conform, in practice levels of expenditure
have in the past varied widely in relation to GRE, some
authorities spending well above it, others well below it. The
consequence of this is that any part played by the notional GRE
level of expenditure in determining expenditure targets must be
subordinate to historical levels of actual expenditure by different
authorities in recognition of the reality that to require a large and
sudden down-turn in a local authority's expenditure would be
impracticable, while conversely to permit a large and sudden up-
turn in a local authority's expenditure would be unnecessary.

I hope this introduction sets the scene sufficiently to enable
me now to turn to the respondents' primary attack on the
guidance. The submission, which found favour with the Court of
Appeal, is that paragraph 2 of Annex D, in that it distinguishes
between local authorities who budgeted in 1984/85 to spend below
and those who budgeted to spend above GRE and sets their 1985/86
targets at a percentage increase above different base-lines



- 13 -

(1984/85 GRE and 1984/85 targets respectively), is not "framed by
reference to principles applicable to all local authorities" and
therefore contravenes section 59(11A) of the Act of 1980.

The submission for the respondents is that section 59(11A),
on its true construction, requires that each and every principle by
reference to which the guidance is framed must be capable of
being applied equally to all local authorities. The submission for
the appellant is that one set of principles must be applied to all
local authorities, but that those principles may, where different
circumstances affect different authorities, identify and reflect
those differences accordingly.

The new machinery introduced by the Act of 1982 for
adjusting block grants operates at two stages. At the first stage,
the Secretary of State gives guidance, or in other words sets
expenditure targets, for all local authorities. This has no
immediate effect on grants. At the second stage, the power to
determine a multiplier under section 59(1) of the Act of 1980 is
exercisable under section S(3)(c) of the Act of 1982 to increase or
decrease block grants by reference to authorities' expenditure
performance in relation to their targets. This second stage power
would, I apprehend, normally only be exercised after the end of
the relevant financial year when authorities' actual expenditure is
known. The power must be exercised by a supplementary report
made under section 61 of the Act of 1980 and subject to the
limitation on decreases in grant imposed by section 8(S) of the Act
of 1982. It must also, be it noted, be exercised, as required by
section 8(6), "in accordance with principles to be applied to all
local authorities."

The Court of Appeal placed great emphasis on this contrast
between the two stages. They recognised inevitably that at the
second stage there is express power to discriminate between
authorities by reference to their spending record. They reached
the conclusion, expressly in the judgments of Lawton and Slade
L.JJ, and I think by necessary implication in the judgment of
Dillon L.J., that there was no power to take account of, or at all
events to discriminate by reference to, local authorities' past
expenditure records at the stage of giving the statutory guidance.
The point is dealt with most comprehensively in the judgment of
Slade L.J. who said:

"Provided that it is linked to the future conduct of the
respective authorities' affairs and not to their past conduct,
a set of principles specified in a Rate Support Grant Report
in relation to expenditure guidance and hold back of block
grant can properly be said to be 'applicable to all local
authorities,' even though these principles may or will in the
subsequent event have different effects on different
authorities. Nevertheless, totally different considerations
from those relevant to the determination of the multipliers,
in my opinion, govern the framing of expenditure guidance
in the Rate Support Grant Report itself. If, in so doing,
the Secretary of State adopts a number of principles which
vary according to the past conduct of the respective
authorities' affairs, inevitably some principles will fall to be
applied to some authorities, others will fall to be applied to
others, but all cannot fall to be applied to all."

- 14 -

This was a central theme of the reasoning of the Court of Appeal
leading them to construe section 59(11A) in the manner for which
the respondents contended and as designed precisely to safeguard
authorities against any discrimination based on past expenditure
records.

This approach, if it is correct, involves two consequences
which are, to my mind, very startling in the context of this
legislation and in the light of its evident purpose. The guidance
issued by the Secretary of State must be "designed to achieve any
reduction in the level of local authority expenditure (or any
restriction on increases in that level) which he thinks necessary
having regard to general economic conditions": section 59(6)(cc)
The first startling consequence of the Court of Appeal's view is
that, as I understand it, it would only permit guidance to be issued
requiring an overall reduction or restricting the overall increase of
local government expenditure across the board by a given
percentage. It must be obvious that the scope for reduction varies
greatly between different local authorities and it is to be
remembered both that the Secretary of State already controls the
overall amount of the rate support grant and that the Act of 1980
itself, with its built-in discriminatory taper mechanism, was
designed to replace a system under which central government's
only effective influence over local government expenditure was by
reducing or limiting the aggregate rate support grant with an
effect across the board on local authorities.

Mr. Schiemann, in arguing the point of construction for the
City of Bradford Metropolitan Council, was, I think, conscious of
the difficulty of maintaining the position that the guidance could
not reflect local authorities' previous expenditure records in any
differential way. If, for example, paragraph 2 of Annex D had set
expenditure targets exclusively by reference to GRE, this would
certainly have applied a single principle to all local authorities,
but it would at the same time have discriminated severely between
high spending and low spending authorities. The second startling
consequence of the Court of Appeal's view is that it would then
have been illegitimate to mitigate the severity of that
discrimination by applying such constraints as are in fact applied
by paragraph 3 of Annex D, limiting the increase or decrease in
any local authority's expenditure in 1985/86 as compared with
1984/85 to 4.5 per cent (exceptionally 4.625 per cent) and 1.5 per
cent respectively. Constraints of that character are only capable
of applying to those local authorities whose target expenditure,
calculated by reference to whatever basic formula is used, would,
apart from the constraints, rise above or fall below the limits set
by the constraints. Accordingly on the construction of section
59(11A) urged for the respondents and accepted by the Court of
Appeal, the constraints themselves cannot have been "framed by
reference to principles applicable to all local authorities."

The recognition of this second consequence of adopting the
respondents' construction is of central importance to the argument.
It means if the respondents are right, either that the guidance
must be based on a flat reduction or limited increase in existing
expenditure levels across the board or that it must set a new
notional expenditure level for all which cannot be adjusted to take
any account of existing expenditure levels at all.

- 15 -

I recognise that, if the statutory language leads inescapably
to these consequences, they must be accepted. But it would be
wrong to construe the words "principles applicable to all local
authorities" in section 59(11A) without regard either to the
apparent scheme of the legislation or to the use elsewhere in the
Act of the same phrase or of the very similar phrase "principles
to be applied to all local authorities."

The first example of the latter is found in section 56 of the
Act of 1980. Section 56(8) contains a definition of "total
expenditure" as embracing certain categories of expenditure
"adjusted by the addition or subtraction of such descriptions of
expenditure or receipts as the Secretary of State may direct, . . .
" Section 56(11) then provides: "Any such direction shall be given
in accordance with principles to be applied to all local
authorities." The next example is in section 57(1) which provides:

"A local authority's grant-related poundage and grant-related
expenditure shall be determined by the Secretary of State in
accordance with principles to be applied to all local
authorities."

Further examples are to be found in the provisions, which I have
already set out earlier in this opinion, of section 59(5)(a) of the
Act of 1980 and section 8(6) of the Act of 1982. All these
instances, I note in passing, relate to the exercise of a power by
the Secretary of State to give a direction or make a determination
"in accordance with principles to be applied to all local
authorities." In all these instances it is perfectly clear from the
context that the principles will not necessarily be equally capable
of application to ail local authorities. This is not disputed by the
respondents. The sense of the provision in each case is, as it
seems to me, that the Secretary of State is required to exercise
the relevant power in accordance with principles of general
application, not on an ad hoc or case by case basis.

It is contended for the respondents, however, that the
phrase "principles applicable to all local authorities" conveys a
crucially different meaning from the phrase "principles to be
applied to all local authorities." The former, it is said, requires
that every principle should be capable of universal application, the
latter only that the same principles should be applied to
authorities whose relevant circumstances are the same. As we
listened to the argument, I could not help feeling, in common I
believe with others of your Lordships, that we were back among
the medieval schoolmen debating nice theological differences about
angels dancing on the head of a pin. I should be extremely
reluctant to accept that the draftsman of the legislation by so
small a difference of language intended to achieve so fundamental
a difference in legislative effect with consequences which, as I
have already pointed out, seem to me out of accord with the
scheme and underlying purpose of the two Acts.

The argument for the respondents stressed the principle that
a difference of language in two similar contexts in the same
statute, a fortiori in the same section, is presumed to indicate a
difference of legislative intent. I recognise the force of this.
Sometimes, however, it may be that a slight difference in the
context explains a merely grammatical difference in the form in



- 16 -

which a word is used. As I have pointed out, the provisions to
which I have drawn attention which require the same principles "to
be applied" to all local authorities relate to the exercise by the
Secretary of State of a power to give a direction or make a
determination. The operation of such a direction or determination
in relation to block grants to those local authorities whom it
affects will be immediate. In this context it may be thought
grammatically correct to speak of the direction being given or the
determination made "in accordance with principles to be applied to
all local authorities." But when the Secretary of State issues
guidance it must be framed, not "in accordance with principles to
be applied to all local authorities" but "by reference to principles
applicable to all local authorities." The guidance has no
immediate effect on the amount of block grant to any local
authority. The effect, if any, on grants will come at the second
stage when the Secretary of State determines multipliers

"so as to increase or decrease the amount of block grant
payable to a local authority according to whether or the
extent to which they have or have not complied (or have or
have not taken steps to comply) with the guidance"

under section 8(3)(c) of the Act of 1982 and is once again required
by section 8(6) to act "in accordance with principles to be applied
to all local authorities." I think it is at least possible that this
subtle difference in the context in which the phrase "principles
applicable to all local authorities" is used in section 59(11A) as
compared with the phrase "principles to be applied to all local
authorities" which is used elsewhere, explains the difference in the
language. A purist grammarian might say that the principles
underlying the guidance are applicable to all local authorities, in
the sense, not that they are capable of universal application,
simply that they are potentially to be applied, but do not fall to
be applied in fact to any local authority so as to affect the
amount of its grant until it is known whether or the extent to
which that authority will not comply with the guidance.

I have to recognise, however, that this theory is quite
irreconcilable with section 61(5) of the Act of 1980. But that
subsection likewise, if it is to be given any significance at all, is
wholly destructive of the respondents' argument that the draftsman
uses the word "applicable" to signify a different intent from the
phrase "to be applied."

Section 61 empowers the Secretary of State, after a Rate
Support Grant Report has been made for any year, to make one or
more supplementary reports for that year. Subsections (3) and (5)
provide as follows:

"(3) Subject to subsections (4) and (5) below, a
supplementary report may specify fresh determinations in
place of all or any of those specified by the Rate Support
Grant Report.

(5) The power conferred by subsection (3) above shall be
exercisable only in accordance with principles applicable to
all local authorities and specified in the supplementary
report."

- 17 -

In this context I see no way to avoid the conclusion that the
draftsman is using the phrases "in accordance with principles to be
applied to all local authorities" and "in accordance with principles
applicable to all local authorities" as completely interchangeable.
A single example will, I hope, suffice to make this clear. In the
original Rate Support Grant Report the Secretary of State
determines GREs under section 57(1) "in accordance with principles
to be applied to all local authorities." In a supplementary report
the Secretary of State makes a fresh determination of GREs under
section 61(3) and (5) "in accordance with principles applicable to
all local authorities." It is surely inconceivable that one approach
is called for when making the original determination but a
different approach when making a fresh determination. It is, in
any event, rightly and inevitably conceded by the respondents that
their suggested construction of the phrase "principles applicable to
all local authorities" in section 59(11A) would be wholly inapt in
relation to the determination of GREs, which must necessarily
distinguish between different classes of authority according to their
different functions.

I am led by this examination of section 59(11A) in its wider
context and by a comparison of its language with the same or
similar language used elsewhere to the conclusion that the
subsection is capable of bearing either of the meanings which the
parties urge your Lordships to put upon it. I am clearly of the
opinion that a purposive approach and the avoidance of the
consequences implicit in the respondents' construction to which I
have earlier drawn attention point in favour of the appellant's
construction.

There is, however, one further consideration to throw in the
scales, which, to my mind, would be sufficient to bring them down
on the appellant's side even if they were more evenly balanced
than I think they are. The effect of section 8(10) and (11) of the
Act of 1982, the relevant parts of which I have set out earlier, is
to enable the Secretary of State to exercise the power to adjust
block grants under section S(3)(c) retrospectively with reference to
guidance issued for the financial years 1981/82 and 1982/83. The
Act of 1982 received the royal assent on 13 July 1982. The Rate
Support Grant Report for the year 1982/83 had been submitted to
the House of Commons on 5 February 1982 and in due course
approved by resolution of the House. That Report referred to the
anticipated enactment of section 8 of the Act of 1982, then
embodied in a Bill before Parliament (see paragraph 9). It
contained the guidance for 1982/83 in paragraph 8 of Annex G,
which, so far as material, reads:

"The expenditure guidance given to each authority will be in
the form of a target expenditure derived from authorities'
budgeted expenditure for 1981/82 .... These figures are
scaled up to the levels of expenditure applying to 1982/83.
They are then adjusted in the following way: (i) For each 1
per cent by which an authority's rescaled 1981/82 planned
expenditure is below (or exceeds) its 1982/83 grant-related
expenditure, the figure is increased (or reduced) by 0.2
percentage points; (ii) For each 1 per cent by which an
authority's volume of planned current expenditure in 1981/82
is below (or exceeds) the expenditure target set for that
year the figure is increased (or reduced) by 0.2. percentage



- 18 -

points; (iii) The resulting figure is subject to the following
limitations: (a) the difference between the resulting figure
and the 1982/83 budgeted figure (expressed in estimated
1982/83 outturn prices) must not be less than 0 per cent nor
greater than 7 per cent.; (b) any authority whose
expenditure at (i) is less than its grant-related expenditure
for 1982/83 and whose expenditure at (ii) is less than its
target for current expenditure for 1981/82 must not have a
difference in expenditure as described at (iii)(a) greater than
1 per cent.; (iv) . . .

The limitations imposed at (iii) by this guidance are, if the
respondents are right, open to precisely the same objections as the
guidance under attack in the 1985/86 Report.

Now I recognise that if the Act of 1982 when it reached
the statute book purported to give retrospective statutory force to
guidance contained in a report already approved by the House of
Commons which, on the true construction of the Act, it was not
within the power of the Secretary of State to issue, the prior
approval of the report in which the guidance was contained could
not save it. But it is another thing to say, as the respondents do,
that, even if the statute be ambiguous, the guidance contained in
the prior report cannot be looked at to help resolve any ambiguity
in the provisions to which retrospective force is given.

The point is a novel one and must, therefore, be determined
by resort to principle. There is no question here of looking at
travaux preparatoires. The reality is that the Rate Support Grant
Report for 1982/83, which contained the relevant guidance and
secured the approval of the House of Commons, was submitted to
the House by the Secretary of State whose department was
concurrently promoting the money Bill which became the Act of
1982. Is there any principle which requires us to put on blinkers
and ignore this reality? I know of none. If we can regard the
reality, then it seems to me that, to the extent that the meaning
of provisions given retrospective force is open to doubt, the nature
of the guidance by reference to which those provisions will
operate, having been set out in a report submitted to and approved
by the House of Commons before the enactment of the statute, is
available as a contemporanea expositio of the drafstman's purpose.

For all these reasons I have reached the conclusion on the
issue of the construction of section 59(11A) of the Act of 1980
that the appellant is entitled to succeed.

On the other issue raised in the appeals I have had the
advantage of reading in draft the speech of my noble and learned
friend Lord Scarman and I entirely agree with it.

I would accordingly allow the appeals. I concur in the
orders proposed by my noble and learned friend Lord Scarman with
respect to costs.

- 19 -

LORD TEMPLEMAN

My Lords,

Local authorities are too small to be self-financing and too
large to be managed by central government. More than 50 per
cent. of local government revenue expenditure has in recent years
been met by central government grants. Local authorities' current
and capital expenditure amount to about one-quarter of all public
expenditure and comprise a significant part of the national
economy. Increases in local government expenditure either
increase the total tax burden on the economy or contribute to the
public sector borrowing requirement. Rates levied by local
government are a significant factor in the costs faced by industry
and commerce which in turn have implications for inflation and
employment. No government can, therefore, ignore local

government expenditure in framing either its general economic
strategy or its more detailed policies for public expenditure and
the consequences for taxation and borrowing.

This situation is fraught with differences of opinion and
conflicts of interest as between central and local authorities
generally, between central government and individual local
authorities, between taxpayers and ratepayers, between different
classes of ratepayers, between the supporters of direct taxation
and the supporters of indirect taxation and between politicians who
disagree about the relevant roles of public enterprise and private
enterprise. The inevitable differences of opinion between central
government and local authorities are exacerbated when the
political persuasion of the elected majority of the House of
Commons differs from the political persuasion of the elected
majority of a local authority, but any government of whatever
political complexion will be concerned to ensure some control over
the volume of Local authority expenditure.

These conflicts are resolved by policy enactments by
Parliament exercising the supremacy of power conferred on
Parliament by the unwritten constitution of the United Kingdom,
subject to quinquennial democratic control and to the daily force
of public opinion. The policy decisions of Parliament in relation
to local government expenditure are implemented by advice
delivered by central government to local authorities and by the
method of distributing central government grants which take into
account the success or failure of each local authority in following
the advice of central government.

The House of Commons retains some supervisory control
over the advice and over the distribution of central government
grant by requiring an annual Rate Support Grant Report to be laid
before and approved by the House.

By the provisions of the Act of 1980, as amended by the
Act of 1982, considered in detail by my noble and learned friend,
Lord Bridge of Harwich, Parliament authorised the Secretary of
State to issue to each local authority every year guidance as to



- 20 -

the aggregate amount of expenditure which that local authority
ought not to exceed. If the local authority exceeds the guidance
expenditure then the Secretary of State is empowered to reduce
the amount of the central government grant made to the local
authority. A reduction in the amount of central government grant
automatically increases the amount of rates which must be levied
by a local authority. Thus the elected representatives of a local
authority are encouraged to keep expenditure within the guidance
target set by the Secretary of State in order to obtain the
maximum proportion of central government grant and to avoid
placing increased burdens on their ratepayer electorate. A
separate guidance target of a fixed amount is issued by the
Secretary of State to each local authority annually. The statute
under which guidance targets are set requires that any guidance
"shall be framed by reference to principles applicable to all local
authorities" (Section 59(11A)).

For the purpose of determining the amount of the guidance
target appropriate to be issued to a particular local authority, the
Secretary of State has three measuring rods. First, there is the
estimate known as "GRE" of the expenditure which each authority
would need to incur if all authorities provided the same standard
of service with the same degree of efficiency at a level consistent
with the government's aggregate spending plans for local
government. GRE is only a rough guide because it embraces a
number of imponderables. Every local authority differs from every
other local authority in its expenditure needs which depend on
matters of history and geography and on its resources which
depend on the value of the rateable properties within the area of
the local authority. Secondly, some guide to future expenditure
can be obtained by considering past expenditure. This also is only
a rough guide because high expenditure in one year does not
necessarily justify an increase or decrease in the next. Thirdly,
the Secretary of State can take into account the guidance which
he has set in past years and the success or failure of the
authority in following that guidance. But this also is only a rough
guide because an excess of expenditure over guidance might be due
to imperfections in the guidance.

For the year 1985/36 the Secretary of State took into
account GRE, past expenditure as evidenced by the local
authority's budgeted expenditure for 1984/85 and success or failure
in complying with guidance in 1984/85. He formed the view that
if in 1984/85 a local authority budgeted to spend less not more
than GRE it was in the current jargon "a low spender" and could
be set guidance for 1985/86 at GRE plus an inflation factor of
3.75 per cent. If on the other hand a local authority budgeted in
1984/85 to spend more than GRE it was a "high spender" and
should be set guidance for 1985/86 at 1984/85 guidance plus 3.75
per cent. At the same time the Secretary of State recognised
that these general formulas might result in a reduction in the
amount of central government grant of a magnitude which in some
cases it would not be reasonable to impose on the ratepayers of a
particular authority. He therefore provided that the guidance for
1985/86 should not in any event be less than the 1984/85 budgeted
expenditure by the local authority less 1.5 per cent. The general
principles to be deduced from the expenditure guidance made by
the Secretary of State for 1985/86 are that the aggregate of local
authority expenditure should be contained, that the guidance for



- 21 -

each local authority should be set at a level which would
encourage that local authority to contain expenditure, that high
spending authorities needed more encouragement and possessed
more scope for economy than low spending authorities, and that
high spending authorities can be identified by reference to their
1984/85 budget, the 1984/85 GRE, and the 1984/85 guidance.
These principles are applicable to all authorities although the
effect of the principles will differ as between different local
authorities. But no one contends that the Secretary of State could
only issue guidance which produced for 1985/86 the same
percentage increase on 1984/85 GRE or 1984/85 guidance. It is
recognised that such a principle which would apply to all
authorities equally in percentage terms would be most unfair and
inequitable. Once this is conceded it seems to me that the
Secretary of State was entitled to formulate a set of principles
which were fair to all local authorities and gave encouragement to
those authorities who could properly be identified by the principles
as possessing scope for economies. Of course the Secretary of
State must not pick and choose and did not pick and choose
between authorities. He laid down a set of principles which are
applicable to all local authorities, but which produce consequences
which differ according to the different spending patterns of
different local authorities.

The minister gave guidance based on the principle that to

each local authority there should be given a grant according to Its

needs and from each local authority there should be exacted an
economy according to its abilities.

The relevant statutory provisions are analysed in detail in
the speech of my noble and learned friend, Lord Bridge of
Harwich. I gratefully accept his analysis, his reasoning and his
conclusions.

The speech of my noble and learned friend, Lord Scarman,
deals with the alternative contention by the respondent councils
that the guidance issued to each of them was "unreasonable." The
speech of my noble and learned friend contains a timely reminder
and perceptive analysis of the principles applicable to judicial
review and of the role of the courts in administrative law. The
courts will not be slow to exercise the powers of judicial review
in order to strike down illegality or abuse of power. The
accusation of illegal conduct fails for the reasons given by my
noble and learned friend, Lord Bridge of Harwich. No objective
reader of the evidence filed on behalf of the department for which
the Secretary of State is responsible could convict the minister of
abuse of power. The principles inspiring the 1985/86 guidance
were carefully considered and evolved in the light of experience
and with the obvious desire to carry out in an even handed and
equitable manner fair to all local authorities the task imposed on
the minister in the national interest of securing overall economies.
Nottingham's guidance increased from £263,897,000 in 1981/82, to
£311,234,000 in 1982/83, to £345,240,000 in 1983/84, to
£350,332,000 in 1984/85, and, finally, to £362,390,000 in 1985/86.
Nottingham's GRE for 1984/85 was £356,883,000 and its budget for
that year was £357,569,000. In the two preceding years
Nottingham had exceeded both GRE and guidance. Nottingham's
budget for 1985/86 exceeded their guidance for 1984/85 by
£7,200,000. And Nottingham had overspent their guidance in the



- 22 -

two preceding years. Out of 413 local authorities there were only
10, including Nottingham and Bradford, whose 1984/85 budgeted
expenditure exceeded GRE where GRE itself was above target.
Nottingham's complaint is devoted solely to the 1985/86 guidance
and amounts to a retrospective regret that they did not budget
below GRE. In that event, they say, their 1985/86 guidance would
have been £6,752,000 higher. But the Secretary of State had
decided as a matter of principle applicable to all authorities that
those authorities which budgeted below GRE should not be
discouraged from incurring expenditure, subject to limitations, up
to GRE, and he also decided that authorities which budgeted above
GRE should be discouraged, subject again to limitations, from
incurring expenditure in excess of their 1984/85 guidance. The
courts have no authority to interfere with the principles enunciated
by the Secretary of State by awarding Nottingham a consolation
prize for only budgeting to exceed GRE by a modest sum, ignoring
the fact that Nottingham had, not for the first time, budgeted to
exceed their guidance. Judicial review is not just a move in an
interminable chess tournament. Although I do not blame
Nottingham or Bradford for instituting these proceedings, I hope
that in future local authorities will bite on the bullet and not seek
to persuade the courts to absolve them from compliance with the
Secretary of State's guidance. If for any particular city or for
any group of cities guidance is set too low, having regard to their
peculiar needs, then persuasion should be offered not to the judges,
who are not qualified to listen, but to the department, the
minister, all members of parliament and ultimately to the
electorate.

For these reasons and for the reasons given by my noble
and learned friends, I would allow these appeals.

LORD GRIFFITHS

My Lords,

I agree that these appeals should be allowed for the reasons
appearing in the speeches of my noble and learned friends Lord
Scarman and Lord Bridge of Harwich.

- 23 -