A judge in the Administrative Court has found (in R (on the application of Corby Borough Council & Slough Borough Council) v Secretary of State for Communities and Local Government [2007] EWHC 1873) that the Secretary of State, in deciding not to award a grant to 2 local authorities, acted in breach of their legitimate expectation. Newman J held that the reasons given by the Secretary of State for his departure from stated policy were not sufficient to override the frustration of the Claimants' expectation. The Secretary of State was therefore ordered to reconsider the grant determinations in accordance with the terms of the judgment. The case is worthy of note as a relatively rare example of a substantive legitimate expectation being upheld by the court and provides an insight for public bodies and other decision makers amenable to judicial review into the circumstances which might give rise to such an expectation.

Background

The Local Authority Business Growth Incentives scheme ("LABGI") was introduced in 2005 and allows local authorities to earn a financial reward in return for increasing business rate receipts over a target level during the calendar year. According to the guiding principles set out in consultation documents preceding its implementation, the scheme was to operate so that "the distribution of benefits must be fair" and the scheme should be "as intelligible and transparent as possible."

The level of growth in business rate receipts for the purposes of the scheme is measured by comparing a list of rateable values produced by the Valuation Office Agency ("VOA") at the end of a year with the equivalent list from the end of the previous year. From the early stages of the scheme's development, it was decided that the effect of appeals against valuations would not be taken into account when measuring the level of growth. In other words, if a valuation decreased by £50,000 following a successful appeal, that decrease would be ignored for the purposes of the scheme so the higher figure would be used. The rationale for this was that valuations were outside the control of local authorities and so it would be unfair and introduce unnecessary uncertainty to the scheme to take account of appeals.

The Secretary of State made a grant determination (the first under the scheme) for the year 1 January 2005 to 31 December 2005. During this time, both Claimants considered that they had secured significant growth in business rates to take them over the target. However, the Secretary of State determined the grant for each of them to be nil.

In a claim for judicial review of the Secretary of State's decision, the Claimants argued that the grant determination was a clear departure from the stated purpose of the scheme and that there was a failure to adhere to the stated policy which defeated their substantive legitimate expectation.

Decision

Newman J quashed the nil grant determination made in each of the Claimants' cases, finding that the scheme as promulgated gave rise to a substantive legitimate expectation on their part that their actual rateable growth (gross of appeals) would be rewarded. The expectation arose from the repeated statements during the scheme's development and its final announcement, to the effect that its purpose was to reward increased business growth. There was no doubt that each of the Claimants had achieved such growth. In failing to ensure that growth due to alterations was taken into account, the Secretary of State had departed from the stated scheme and in so doing had acted to defeat their expectation.

Newman J rejected the Secretary of State's argument that the departure from the stated policy was appropriate and lawful because untangling the data for changes to existing properties from the data relating to the effects of appeals would have been administratively burdensome. In seeking to establish an overriding interest sufficient to neutralise the need for fairness and transparency in rewards under the scheme, the onus was on the Secretary of State to adduce evidence to demonstrate the effort that would be required to separate out the data. No such evidence was adduced.

The Secretary of State also attempted to rely on the discretion conferred on him by section 31 Local Government Act 2003, which gives Ministers power to pay a grant to a local authority. Section 31(3) states that the amount of such a grant and the manner of its payment are to be "such as the person paying it may determine". However, Newman J rejected the argument that as the scheme was discretionary, there was a sufficient degree of flexibility for the Secretary of State to act as he did. Having exercised his discretion to promulgate a scheme, the Secretary of State was bound to implement that scheme until notice of a change in policy was given.

Commentary

The notion of recognising an expectation to a substantive benefit (as opposed to an expectation of being treated in accordance with a certain process) has been criticised. This is because it can be argued that a public authority's discretion might be fettered if an individual were able to rely on the initial statement or representation of that authority. It is difficult to establish substantive legitimate expectations, and even where it is possible to do so, there will often be justification for them to be overridden.

It is interesting to note the standard of review applied by Newman J in this case in undertaking the balancing act between the Claimants' right to a benefit and the decision-maker's interest in administrative convenience. The standard was higher than bare irrationality and approached a proportionality test. It was not sufficient for the Secretary of State merely to cite an administrative burden as justifying a departure from policy, without adducing evidence to that effect. However, the court recognised that considerations of cost and complexity are not irrelevant. The case therefore suggests that where a departure from policy may frustrate a substantive legitimate expectation (even of only one or two persons among many), decision-makers should protect themselves by being able to give a reasoned justification for the departure, supported by evidence.