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QUEEN v. SECRETARY OF STATE FOR TRADE AND INDUSTRY SECRETARY OF STATE FOR ENVIRONMENT, TRANSPORT AND REGIONS MINISTRY OF AGRICULTURE, FISHERIES AND FOOD MINISTRY OF CULTURE, MEDIA AND SPORT ex parte ISLE OF WIGHT COUNCIL [2000] EWHC Admin 322 (7th April, 2000)
IN THE HIGH COURT OF JUSTICE Case no: CO/4077/99
QUEEN'S BENCH DIVISION
CROWN OFFICE LIST
Royal Courts of Justice
Strand
London WC2
Friday 7 April 2000
Before:
THE HON MR JUSTICE NEWMAN
__________________________________
THE QUEEN
- and -
THE SECRETARY OF STATE FOR TRADE AND INDUSTRY
THE SECRETARY OF STATE FOR THE ENVIRONMENT, TRANSPORT AND THE REGIONS
THE MINISTRY OF AGRICULTURE, FISHERIES AND FOOD
THE MINISTRY OF CULTURE, MEDIA AND SPORT
Respondents
- ex parte -
THE ISLE OF WIGHT COUNCIL
Applicant
----------------
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
----------------
Jeremy Lever QC and Hugh Mercer instructed by Sharpe Pritchard,
Solicitors for the Applicant
Christopher Vajda QC and Stephen Morris instructed by The Treasury
Solicitor, for the Respondents
----------------
Judgment
As Approved by the Court
Crown Copyright ©
THE HON MR JUSTICE NEWMAN
The applicant, the Isle of Wight Council, seeks judicial review of two measures
taken by the respondents containing proposals by the United Kingdom Government
(the Government) to the Commission of the European Communities (the Commission)
for the classification of areas within the United Kingdom for the purposes of
(a) the grant by the Government of a form of national state aid known as
regional selective assistance (RSA), ("the Assisted Areas Proposal") and
(b) the grant by the Commission of assistance, also made available on a
regional basis, from the structural funds of the European Community (EC) ("the
Objective 2 Proposals").
The proposals were published in the name of the Departments for which each of
the Respondent members are responsible. The Secretary of State for Trade and
Industry acted as the lead minister in submitting the proposals to the
Commission.
The Government's proposals for RSA were contained in "the Government's
proposals for new assisted areas dated l5 July l999. The Government's
proposals for structural funds were contained in the document entitled "EU
Structural Funds: the UK Government's Proposals for New Objective 2 areas"
dated 8 October l999.
THE LEGAL FRAMEWORK FOR RSA
The Government exercises power in connection with RSA pursuant to the
Industrial Development Act l982 (the Act) and in particular Section l, which
provides
"S.1(1) For the purposes of this Act, and any other enactment referring to the
development areas or intermediate areas under this Act, the Secretary of State
may by order specify any area of Great Britain as -
(a) a development area, or
(b) an intermediate area."
(2) ..........
(3) ..........
(4) ..........
The legal framework of the Act for the provision of financial assistance for
industry in assisted areas is set out in Sections 7 and 8. Section 7
provides:
"S.7:
(1) For the purposes set out in the following provisions of this section the
Secretary of State may, with the consent of the Treasury, provide financial
assistance where, in his opinion -
(a) the financial assistance is likely to provide, maintain or safeguard
employment in any part of the assisted area; and
(b) the undertakings for which the assistance is provided are or will be
wholly or mainly in the assisted areas.
(2) The purposes mentioned in sub-section l above are -
(a) to promote the development or modernisation of an industry;
(b) to promote the efficiency of an industry;
(c) to create, expand or sustain productive capacity in an industry, or in
undertakings in an industry;
(d) to promote the reconstruction, reorganisation or conversion of an
industry or the undertakings in an industry;
(e) to encourage the growth of, or the proper distribution of undertakings
in, an industry;
(f) to encourage arrangements for ensuring that any contraction of an
industry proceeds in an orderly way.
(3) ..........
(4) ..........
(5) .........."
Section 8(1) provides
"For the purposes set out in sub-section 2 of Section 7 above, the Secretary
of State may, with the consent of the Treasury, provide financial assistance
where, in his opinion -
(a) the financial assistance is likely to benefit the economy of the United
Kingdom, or any part or area of the United Kingdom; and
(b) it is in the national interest that the financial assistance should be
provided on the scale, and in the form and manner proposed, and
(c) the financial assistance cannot, or cannot appropriately be so provided
otherwise than by the Secretary of State.
.............."
It is obvious and not in dispute that these provisions confer wide
discretionary powers upon the Secretary of State in an area of government
involving complex judgments concerning economic, financial and social policy.
A change in policy, relevant to this application, appears from the statement of
the Secretary of State for Trade and Industry to the House of Commons on l0
November 1999. The Secretary of State announced an intention to re-focus RSA
in the future so that the minimum level of the RSA grant for which application
could be made would be £75,000. He stated:
"I intend to allocate £45M over three years for a new Enterprise
Grant Scheme for SMEs. This will complement the new assistance being made
available in this sector for venture capital under the Enterprise Fund.
Support will be targeted at both SMEs in Tiers l, 2 and 3 of the proposed new
assisted areas map currently under discussion with the European Commission and
due to come into effect on l January 2000. It will provide SMEs with the
opportunity of a selective grant of up to l5% of fixed capital investment on
projects of up to £500,000, with a ceiling of £75,000 on the maximum
assistance. The scheme will replace grants at this level currently available
under Regional Selective Assistance in the English regions. The priorities for
support will affect RSA economic strategies for the region. The scheme is
subject to approval from the European Commission."
Grants of RSA generally constitute a "state aid" falling within the rules
governing state aid in Articles 87 to 89 of the EC Treaty (prohibition on
distortion of trade) and thus require approval from the Commission. Two
categories of aid are eligible for approval and are specified in Article
87.3(a) and 87.3(c):
Article 87.3(a) "Aid to promote economic development of areas where the
standard of living is abnormally low or where there is serious unemployment:
Article 87.3(c) "Aid to facilitate the development of .... certain economic
areas where such aid does not adversely affect trading conditions to an extend
contrary to the common interest."
The Commission has issued Guidelines in relation to its approval of regional
aid. In particular they set a population ceiling for areas qualifying under
Articles 87.3 (a) and (c). Areas qualifying under Article 87.3(a) are selected
automatically, by the application of the Commission's criteria. As to areas
under Article 87.3(c), the Commission allocates between Member States the
balance of the overall ceiling. For the purposes of the present application it
is to be noted that from l January 2000 the population ceiling for Article
87.3(c) areas in Great Britain is ll.80 million. This represents a reduction
of approximately 20% from the previous ceiling. According to the Guidelines
Member States are required to submit to the Commission their draft regional aid
map giving a list of regions which they propose for approval under Article
87.3(c). The Guidelines set out certain conditions which the Member States'
proposals must meet in selecting the methodology and quantitative indicators
they wish to use to determine those regions. Paragraph 3.10.3 of the
Guidelines makes provision as to the nature and size of the areas proposed. If
a proposed area has a population of less than l00,000 a fictitious figure of
l00,000 is used as counting towards the population ceiling. But this deeming
provision does not apply to "NUTS III regions with a population of less than
l00,000, islands and other regions characterised by similar geographical
isolation". NUTS is an acronym for: Nomenclature for Units of Territorial
Statistics. A NUTS area is a geographical area defined for statistical
purposes. The validity of the Guidelines is not in issue. It is the
Government's proposal drawn up in accordance with Guidelines which is the
subject of challenge.
THE LEGAL FRAMEWORK FOR THE GRANT OF STRUCTURAL FUNDS
The Government exercises power in connection with structural funds pursuant to
Community law. The proposals relate to funding provided by the EC out of the
Community's structural funds and not by the United Kingdom, as in the case of
the RSA proposal. Community payments from the structural funds are made for
the following purposes:
Objective l - promoting the development and structural adjustment of
regions whose development is lagging behind.
Objective 2 - supporting the economic and social conversion of areas
facing structural difficulties.
Objective 3 - supporting the adaptation of modernisation of policies and
systems of education, training and employment.
The challenge is made to the proposal for Objective 2 areas.
Financial assistance under RSA is aimed specifically at encouraging investment
by industrial undertakings in appropriate locations, whereas payments from
structural funds are aimed at the development of regions for more general
purposes, including, for example, general training schemes and infrastructure
projects such as roads. For this reason, rural areas, which would not have a
high priority for assisted area status, are specifically included in Objective
2 areas.
The framework of Community Law is to be found in Articles l58 to l61 of the EC
Treaty, which provides as follows:
"Article l58 - In order to promote its overall harmonious development,
the Community shall develop and pursue its actions leading to the strengthening
of its economic and social cohesion. In particular, the Community shall aim at
reducing disparities between the levels of development in the various regions
and the backwardness of the least favoured regions or islands, including rural
areas.
Article l59 - Member States shall conduct their economic policies and
shall co-ordinate them in such a way as, in addition, to attain the objective
set out in Article l58. The formulation and implementation of the Community's
policies and actions and the implementation of the internal market shall take
into account the objectives set out in Article l58 and shall contribute to
their achievement. The Community shall also support the achievement of these
objectives by action it takes through the Structural Funds .... The Commission
shall submit a report to the European Parliament, the Council, the Economic and
Social Committee and the Committee of the Regions every three years on the
progress made towards achieving economic and social cohesion and on the manner
in which the various means provided for in this Article have contributed to it
....
Article 160 - The European Regional Development Fund is intended to help
redress the main regional imbalances in the Community through participation in
the development and structural adjustment of regions whose development is
lagging behind and in the conversion of declining industrial regions."
Article l6l is important (but it is unnecessary to set it out). It makes
specific provision for the Council to "define the tasks, priority objectives
and the organisation of the Structural Funds". The Council has so defined them
by Regulation l260/1999. The Regulation is the product of the Community's
"Agenda 2000" reform proposals and was under consideration in draft form for
some two years prior to its adoption in June l999. The Regulation sets out the
three objectives of the structural funds. Objective 2 is targeted at areas in
structural decline, unlike Objective l, which is aimed at areas that are
backward in terms of per capita GDP.
Chapter II of the Regulation sets out the geographic eligibility for the three
objectives. Objective l areas are automatically selected under Article 3:
NUTS II areas with a per capita GDP less than 75% of the Community average.
The Isle of Wight does not qualify because it is not a NUTS II area. Article 4
of the Regulations sets out the basis upon which geographic areas qualify for
Objective 2. The principal features of the regime are as follows:
(a) The identification of declining areas with structural problems, by
reference to four types or "strands" of area: industrial and service; rural;
urban; and fisheries.
(b) Provisions for setting of population ceilings for the Community and for
each Member State at a level substantially lower than that under existing
structural fund measures.
The overall population ceiling for the Community is l8% of the total Community
population, which itself is divided amongst the four "strands" of economic
activity, viz industrial and service, rural, urban and fisheries, as to l0%,
5%, 2% and 1% respectively. By operation of the safety net provision, the UK
population ceiling for Objective 2 areas is set at l3.8 million. That is a
reduction of one third from 20.5 million under the present regime.
Each Member State is required to propose to the Commission a list of areas to
be covered by Objective 2 in accordance with the criteria set out in the
Regulation and there are different criteria established under the different
four "strands". There is a requirement that the area or population of the
regions be sufficiently substantial. Areas in the industrial and service
sector and rural strands which meet the criteria set out in Articles 4.5 and
4.6 respectively are automatically selected by the criteria in the Regulation.
Areas in the urban and fisheries strands are determined under Articles 4.7 and
4.8 respectively and leave the Member States a limited discretion as to the
application of the criteria. Member States have a discretion to propose areas
under 4(9) pursuant to the criteria which are to be set by the Member State
within the parameters of the categories set out in Article 4(9).
The decision of the Government in relation to the Isle of Wight under the
structural funds proposal which is under challenge was taken by consideration
of Article 4(9).
The Isle of Wight
Prior to 3l December l999 the Isle of Wight enjoyed intermediate Assisted Area
status. As a result undertakings could get substantial RSA towards investment
on the island. The island did benefit during the period of its intermediate
Assisted Area status. The character, extent and manner in which it benefited
in this period and the inferences which it is proper to draw therefrom are a
matter of contention between the parties. The historical position in
connection with its aid during this period was assessed by the Government and
the conclusion it reached was a significant factor in leading it to conclude
that the Isle of Wight should not be included in the Assisted Areas map. The
Government's assessment and consideration of this material is challenged on the
basis that it was unfair and demonstrably inaccurate.
The Isle of Wight is a NUTS III and IV area, and together with Hampshire forms
a NUTS II area. In l997 the UK Office for National Statistics, with the
support of the Government, made a recommendation to the Commission's
Statistical Service that the Isle of Wight be shifted from NUTS level III to
NUTS level II status. If that proposal had been accepted, the Isle of Wight
would have automatically qualified for Tier 1 status as an assisted area,
because its average GDP per head, at only 69% of the EU average, was well below
the figure of 75% used for defining Tier 1 and Objective l areas. But the
Commission's Statistical Service would not accept the request. This refusal
has given rise to an appeal to the European Parliament's Ombudsman for a
special dispensation from its classification as a NUTS level III area, on the
basis of its insularity. The outcome of the appeal was not known when the
argument closed. If the appeal was successful it would render this application
unnecessary.
Since reserving my judgment I have been informed that the Ombudsman has made a
Draft Recommendation. I do not consider it necessary to refer to it in any
detail. It can broadly be described as a source of some hope for the claimed
case of dispensation but it is agreed that the Draft Recommendation is of no
legal relevance to this application. I have been reminded of the reliance
placed by the Applicant upon the "Report on the problems of island regions in
the European Union Committee on Regional Policy" ("the Viola Report") to which
report the Ombudsman refers. The reason for my attention being drawn to the
Report is that a feature common to the appeal to the European Parliament's
Ombudsman and to this court is that the Isle of Wight should have received
different treatment by reason of its insularity.
The Consultation Process for the Assisted Areas Proposal and the
Objective 2 Proposal
In March l998 the Government commenced a public consultation process to seek
views on the proposals to be made by the United Kingdom in respect of the
assisted areas map and it issued a Consultation Paper headed `Review of
Assisted Areas Map'. In March l999 the Government commenced a public
consultation process to seek view on the proposals to be made by the United
Kingdom in respect of Objective 2 areas and issued a Consultation Paper headed
`EU Structural Funds: Determining Areas for Objective 2 Eligibility'. The
Isle of Wight submitted a full response to the Assisted Areas Consultation
Paper in October 1998. The Respondents have submitted that the following
material points emerge from the response:
1. It sought inclusion for the whole of the Isle of Wight in the assisted areas
proposal. So far as the criteria in the Guidelines are concerned it made no
case that the criteria selected should be different by reason of it being an
island.
2. It recommended the adoption of five criteria for determining assisted areas,
of which the fourth was `insularity'.
3. It case for inclusion as an assisted area was founded on the first two
criteria, namely GDP per head and employment statistics, and not upon
insularity.
4. Although it referred to insularity, as a special factor in addition to the
other criteria, including peripherality, it did not propose a statistical, or
indeed any, criteria for measuring insularity or, more particularly, the
effects of insularity upon development.
5. It referred to Article l58 of the EEC Treaty but it made no reference to any
issue of interpretation of that Article.
6. It provided specific and detailed evidence setting out the history of grants
of RSA to the Isle of Wight in its period as an intermediate status area and it
pointed out that `a significant feature of the companies assisted by RSA grants
during that period was the predominance of small firms and the paucity of large
firms. The average RSA grant for all firms was £52,608.
While its case for Assisted Area status was based on (1) very poor GDP per head
and (2) its very high unemployment, its case was said to be supported, among
other things, by the exceptional problems of insularity. The terms of the
response in this regard were:
"The Isle of Wight's insularity is an extreme form of peripherality
which is exceptional for any existing or potentially assisted area in the South
East Region. This insularity is reflected in relatively low levels of
commuting between the island and the mainland and a consequently `captive'
labour market. This results in relatively low levels of earnings, a limited
variety of activities within the island's economy and a consequent dependence
on a few large firms in a few dominant sectors. The perceived insularity of
the Isle of Wight is a tangible disincentive to potential inward investors,
according to SERIL although the island regeneration partnership believes that
low land and labour costs on the island outweigh the additional transport costs
for business. The documentation from the Isle of Wight did show that
unemployment on the island has remained abnormally high and in the three years
l996 to l998 actually widened to a rate of l02% to l57% above the average for
the South East of England and included an abnormally high proportion of
long-term unemployed."
The consultation process was taken to another stage when on 24 February l999 a
delegation from the Isle of Wight had a meeting with Mr Wills MP, Parliamentary
Under Secretary of State at the Department of Trade and Industry, at which
meeting it advanced the island's case for inclusion within Article 87.3(c)
areas. It provided a summary of its case in writing for the purposes of the
meeting, and I draw attention in particular to the following:
* "Amsterdam Treaty requiring special needs of islands to be taken into
account
* New industrial and commercial sites have been brought
forward
* island now in a stronger position to seek to attract new
investment
* better site availability facilitating the growth and expansion of
existing companies."
The Response to the Objective 2 Consultation Paper
The Isle of Wight submitted a full response to the Objective 2 Consultation
Paper. The points to which my attention has been drawn are:
1. It sought inclusion for the whole of the Isle of Wight in the Objective 2
proposals. No case was made that part only should be included.
2. It relied cumulatively on six different criteria for selecting areas
eligible for Objective 2 funding: GDP per capita, average earnings,
unemployment rates, age of the population, lack of diversity in economic base
and peripherality/insularity. It did not advocate the sole use of unemployment
criteria.
3. It did not argue or suggest that the Isle of Wight should be designated an
Objective 2 area simply because it was an island.
4. Although it referred to insularity it did not propose a statistical
criterion for measuring insularity or its effects. It made passing reference
to a peripherality indicator but did not expand upon this. It did not suggest
what this indicator was in statistical terms, nor how it was to be applied
along with the other criteria which it was putting forward.
5. Although it referred to Article l58 of the EC Treaty, no case was made that
the criteria selected should be different in the case of an island. It made no
reference to the interpretation of that Article and appeared to place reliance
on an interpretation of Article l58 which is at odds with the one now advanced
in this application.
The Decision Making Process in Connection with Assisted Areas
In accordance with the Guidelines the Government had to select the geographic
unit which was to form the areas and the statistical indicators to be applied
to that unit. NUTS V (a ward), being the geographic unit most favoured in
responses to the consultation, was selected. It is the following stages of the
process which have come under closest scrutiny. According to the statement of
Mr Kenneth Kehoe, who had responsibility for the policy concerning assisted
areas in the Department of Trade and Industry, criteria or indicators were
settled on for the selection of wards including criteria related to labour
market weaknesses (unemployment, employment participation rates, residence
based unemployment rates, workforce based unemployment rates). These criteria,
and one related to local dependence on manufacturing and another based on a
composite averaging of labour market weakness statistics, it is said, reflected
the results of the public consultation and the Government's policy, that areas
of need, in particular those with labour market weaknesses, should be
identified and matched with neighbouring areas of opportunity where regional
aid might have the most effect in alleviating that need. There has been no
challenge to the criteria which the Government selected. The population of
those areas which qualified under the statistical criteria generated a
population figure which was well in excess of the population ceiling available
for the United Kingdom. As a result the areas had to be pared down. As part
of the paring down process, the Government considered the statistical criteria
and the representations made during the review. Further, it consulted
Government offices and regional development agencies on regional priorities for
Assisted Area Status. According to Mr Kehoe, although this exercise resulted
in a paring down, it nevertheless resulted in a population of up to 400,000
over and above the population ceiling.
At this point in the paring down process the Isle of Wight was still included.
The Government therefore embarked upon a further process of reduction to meet
the population ceiling. It was in this process that the Isle of Wight was
excluded. The factors taken into account at this stage of the paring down
process are set out in paragraph 25 of Mr Kehoe's first statement. They
were:
* "the Government's view on the appropriate regional balance of the
proposals;
* its desire, as set out in the Government's response to the Coalfields Task
Force Report of December l988, to "ensure that the assisted areas would include
strategic employment sites in the coalfield areas" and that "the needs of
coalfield areas are given prominence, particularly for new investment and
jobs;"
* the impact of change from the existing map;
* the availability of other forms of aid, particularly the new Enterprise
Grants Scheme; and
* the nature of the economy in the relevant area, bearing in mind the
Government's objective of identifying those areas where assistance is both
needed and regional industrial aid an appropriate policy response."
The principle reason for not including the Isle of Wight in the map was that
the Government took the view that it did not qualify as an appropriate area for
large scale industrial aid such as that which the revised RSA scheme was
designed to cover. It was not considered an appropriate form of support for
the Isle of Wight because it was concluded that the economy is characterised by
small and medium sized enterprises. The Government concluded from the
historical data comprising the assistance or aid to the Isle of Wight during
its intermediate status period, that almost 80% of offers made to firms
operating in the Isle of Wight (and accepted) had been for funding of
£75,000 or less. In view of this record and in the light of the proposed
re-focusing of RSA upon grants of £75,000 or more (House of Commons
statement 10 November 1999), it was considered that the Isle of Wight would be
unlikely to benefit to the same extent as other areas from the RSA grants which
it was the Government's policy to make available in the future. The
Government's evidence on this application has drawn a comparison between the
track record of the Isle of Wight and Isle of Thanet in support of its
conclusion on the unsuitability of the Isle of Wight. That comparison has been
described as unfair.
Having explained the Government's conclusion on the inappropriateness of the
Isle of Wight's inclusion as a Tier 2 area, Mr Kehoe went on to state
(paragraph 27) "Aid for small and medium sized enterprises will be available
under programmes for Enterprise Grant areas, although the amount of aid will
not equal the amount which would have been available to the island as a Tier 2
assisted area." It is not said that the reason for the Isle of Wight's
non-inclusion was because it was eligible to receive what has been termed Tier
3 aid, but having regard to the policy change, it having been excluded, that is
all that is left "on offer" for the Isle of Wight. It is said, with some
justification, that the bare statement that the "amount of aid will not equal
the amount which would have been available to the island" qualifies as a
significant understatement of the position, having regard to the fact that in
the next year under the Enterprise Grant Scheme only £930,000 would be
available for the whole of the South East. The observation has undoubtedly
"rubbed salt into the wounds" and the outcry was sufficient to excite the
Court's curiosity to be informed what the position will be. Hopes that
agreement could be reached on the various sources of aid which could be
available have not proved well founded. I should make it clear that, having
expressed curiosity, nothing turns on the true position whatever it might
be.
The Challenge to the Assisted Areas Proposal
Mr Jeremy Lever QC for the Applicant submitted that the proposal was vitiated
because
(1) the principal reason given by the Respondents for not including the Isle of
Wight was demonstrably incorrect in fact;
(2) that it was never put to the Isle of Wight for comment;
(3) that it was inconsistent with the approach that the respondents ought to
have adopted in the light of the Treaty of Amsterdam amendment;
(4) that the paring down process was flawed because it completely left out of
account the severity of the unemployment in the Isle of Wight compared with the
unemployment in other areas under consideration;
(5) that the paring down process was in breach of the requirement under the
first sentence of Article l59 of the EC Treaty, to `adopt measures of regional
policy giving specific consideration to mitigating island regions' structural
handicaps';
(6) that the Government, in the paring down process, took into account
non-quantitative criteria that were not relevant to the extent to which those
areas were less favoured or more backward than the Isle of Wight;
(7) that the Government erroneously interpreted the Commission's Guidelines as
precluding it from proposing parts of the Isle of Wight for Tier 2 status,
being parts with a population of less than l00,000.
The Treaty of Amsterdam Amendment
Since this point bears upon the challenge made to each of the proposals it will
be convenient to deal with it now.
Prior to the amendment effected by the Treaty of Amsterdam, which was signed
and ratified on 2 October 1997, Articles l58 and l59 of the EC Treaty appeared
as Article l30(a) and l30(b) respectively of the EC Treaty.
Article l30(a) in its English language version read as follows:
"In order to promote its overall harmonious development, the Community
shall develop and pursue its actions leading to the strengthening of its
economic and social cohesion.
In particular, the Community shall aim at reducing disparities between
the levels of development of the various regions and the backwardness of the
least favoured regions, including rural areas."
Article l30(b) read as follows:
"Member States shall conduct their economic policies and shall
co-ordinate them in such a way as, in addition, to attain the objectives set
out in Article l30(a)."
The amendment added the words "or islands" after the words
"the least favoured regions" in the second limb of Article l30(a)
(now Article l58). Mr Lever submits that it is to be presumed that the
amendment was intended to add something. As an aid to the meaning which should
be attributed he relies upon Declaration No.30 adopted at the conclusion of the
inter-Governmental Conference where the Treaty of Amsterdam was negotiated,
which contained the following:
"The Conference recognises that island regions suffer from structural
handicaps linked to their island status, the permanence of which impairs their
economic and social development. The Conference accordingly acknowledges that
Community legislation must take account of these handicaps and that specific
measures may be taken, where justified, in favour of these regions in order to
integrate them better into the internal market on fair conditions."
Additionally, but as a matter of confirmation rather than as an aid to
interpretation, he relies upon the Viola report made well after the amendment
date which, according to the Draft Recommendation of the Ombudsman,
demonstrates that "the European Parliament recognised that islands should be
given special treatment and recommended that a revision of NUTS should be made
to ensure that the true situation of islands is recognised at NUTS II level and
that statistically they are not joined with mainland regions, which are not at
all similar in terms of GDP, employment or structures". The Viola Report is
cited in the Parliament's Resolution of 28 May 1998. Though that Resolution is
not cited in the Parliament's Decision dated 6 May 1999, giving the
Parliament's final assent to the Structural Funds Regulation, the Parliament's
Resolution of 19 November 1998 is cited and this makes express reference to
Article 158 in the context of islands. Mr Lever has not relied upon the
Resolution as an aid to interpretation. He submits there are three
propositions which can be derived from the amendment:
(1) having regard to the terms of the declaration and the amendment the EC, and
(indirectly, by reason of the first sentence of Article 159) the Member States
in adopting measures of regional policy, are to give specific consideration to
mitigating island regions' structural handicaps that are linked to their island
status;
(2) that in the application of general rules to islands, it is arguable that
one cannot simply apply to islands rules devised for the purposes of applying
the rules to mainland regions;
(3) that islands should no longer suffer from a circular argument to the effect
that they are unattractive to employers and thus there is no point in
channelling substantial state aid or support from structural funds into such
locations. The argument should now be regarded as outlawed.
The Conflicting Arguments of Interpretation
There are obvious difficulties in approaching the interpretation of Article l58
as though it was an English Statute. The consequences of doing so are
illustrated by the following options of interpretation.
1. The words "least favoured" are to be taken as qualifying "regions" and
"islands".
2. "Regions or islands" could be taken to constitute a single class so that the
amendment would refer to the least favoured of that class, whether they were
(mainland) regions or islands.
3. "Regions" might constitute one class and "islands" another class and thus
least favoured members of the class of mainland regions and least favoured
members of the class of island regions would be referred to.
4. The words "least favoured" are to be taken as qualifying "regions."
There are objections to each. Option l would mean that the amendment clarified
but brought about no change to the position islands already enjoyed if they
qualified as a "least favoured region". Option 2 and Option 3 would lead to
islands being in a worsened position because they would be treated as the least
favoured of a generally handicapped class, viz, islands. Option 4 (which the
Applicant preferred) could lead to a prosperous island being given more
help than a "least favoured region".
In my judgment the proper approach of this Court to these issues is dictated by
the following considerations:
(1) The Applicant does not submit that Articles l58 and l59 have direct
effect.
(2) The particular aim of Article l58 is " ... reducing disparities between the
levels of development of the various regions", and the reducing of
"backwardness".
(3) Having regard to Article l59, which is the Treaty mechanism for attaining
the objectives in Article l58 and the breadth and complexity of actions which a
coherent policy for achieving these objectives requires, Article 158 must be
given a very broad purposive construction rather than a narrow legalistic
construction. It seems to me that an interpretation of Article l58 which leads
to islands being the declared, identified and distinct aim in a programme for
economic and social cohesion assumes too much about islands as a class and pays
too little regard to the criteria of "backwardness" and "disparities between
levels of development.
(4) The Court is concerned with the public law impact (on Wednesbury
principles) of Articles l58 and l59. The need for the Government to pay regard
to the fact that the Isle of Wight is an island, has not been in dispute. The
Applicant has not submitted that by reason of its insularity the Government was
required to include it in the map.
(5) The words "including rural areas" in Article l58 were added to the existing
version of Article l30(a) by the Treaty of Maastricht with effect from l
November 1993. This amendment was plainly meant to clarify the meaning to be
given to the Article and to regard the addition of the words "or islands" as an
act of clarification would be consistent with the purpose of the Maastricht
amendment.
(6) I consider there is much force in the submission that Article 158 is a
vires provision and that amendments aimed at clarification and certainty serve
a discrete legislative purpose, having regard to the breadth of the language of
the Treaty. I regard the legislative mechanism which is laid down for the
detailed working out of Article 158 to be of critical importance. The
amendment has its specific part to play in a continuity of legislative
provisions engaging Member States and designed to give Article 158 its
particular effect. The amendment serves to prevent jurisdictional differences
and readily facilitates the exercise of power under Article l6l. It also
serves as a starting point for consideration of the specific needs of
islands.
(7) Having regard to the above it is not necessary for this Court to subject
Article 158 to a further or final interpretation.
Had it been necessary for the purposes of this application to interpret the EC
Treaty, I would have had to give careful consideration as to whether this court
should make a reference to the European Court. In the circumstances I see no
need for a reference.
For present purposes I am content to regard the effect of the amendment as
emphasizing that rural areas and islands require special note as targets for
reducing backwardness and disparities between the different levels of
development of various regions.
Article 159
Mr Lever did not submit that Article l58 has direct effect, nor that it imposed
any obligation upon the Member State, but he does rely upon Article l59, which
he submits obliges Member States to:
" .... conduct their economic policies and shall co-ordinate them in such
a way as, in addition, to obtain the objectives set out in Article l58
...."
Having regard to the presence of the words "in addition", he does
not submit that the Article imposes an absolute obligation. He accepts that
consideration of the attainment of the objectives forms but part of a Member
State's formulation of economic policy and that it is for each Member State to
determine its policy, having regard to national considerations and "in
addition" Article l58 objectives which it considers it is appropriate to meet.
I accept that Article 159 placed an obligation upon the Government in
connection with the aims and objectives of its policy and proper consideration
of the Isle of Wight's position in connection with the Assisted Areas and
Objective 2 proposals required the Government to take into consideration all
the matters set out in Article l58.
The Wednesbury Challenge
It is not in dispute that, albeit Articles 158 and 159 provide a framework for
the detailed argument, the challenge is on pure Wednesbury grounds. In this
regard, the court's attention has been drawn to a number of cases, including
R v Secretary of State for the Environment ex parte Nottinghamshire
County Council l986 AC 240; R v Secretary of State for the Environment ex
parte Hammersmith & Fulham LBC 1991, l AC 521. In R v
Secretary of State for the Environment ex parte Nottinghamshire County
Council, in a passage with which all their Lordships agreed, Lord
Scarman stated:
"... 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 Commons. They are not for the judges or your Lordship's House
in its judicial capacity."
There has been no dispute on this approach and it is unnecessary to burden this
judgment with citation of authority on the point.
As Mr Vajda QC submitted, the issue from the standpoint of English
administrative law is whether the Government failed to take proper account of
its obligations under Article l59. I accept for the purposes of this
application the threshold of "unreasonableness" must be extreme because the
challenge is in respect of national economic policy. Indeed, having regard to
the importance of the proposals to the whole of the United Kingdom, it can be
said to be in respect of a highly critical aspect of national economic policy.
From the standpoint of Community law the decisions impugned involve complex
choices of economic and social policy and necessarily involve a wide margin of
appreciation. I accept that in such a case, the Court should only find an
infringement of Community law, where the Member State's administrative action
is manifestly inappropriate. R v Chief Constable of Sussex ex parte
International Traders Ferry Ltd. 1998 3 WLR 1260; Case
C-120/97 Upjohn Ltd v Licensing Authority [1999] 1 WLR 927-945. No
further citation of authority is necessary on this aspect.
THE RSA PROPOSAL
The Applicant's Arguments under Points (1) (2) and (3) above
Demonstrable Error
The Applicant's position can be conveniently taken from the second witness
statement of Mr Harold Rees, the Deputy Leader of the Applicant Council. He
complained that the Government's approach amounted to:
".... the proposition [is] that £2,700,000 of RSA funding attracted
so far and the £30,000,000 of inward investment are not appropriate
..."
The reference to £2.7M is a reference to offers. At the date when the
Government was considering the figures only one of the offers, worth
£500,000 had been accepted. The Government considered it appropriate to
pay regard to accepted offers rather than offers. The approach cannot be said
to be irrational, nor as stated was it inaccurate.
The figure of "£30M of inward investment" taken by Mr Rees, is a build up
based on offers and applications "in the pipeline". The figures are right but
it does not reflect the Government's approach. Mr Rees' figures are based
upon 1998 and 1999. The Government assessed the statistical information for
the period l August l993 to 10 December 1999. It is asserted, and not
contradicted, that the longer period is apt to produce results to which greater
statistical significance can be attached. The Isle of Wight's response to the
consultation paper (see above) stated that the average size of RSA grants in
the period 1993-1998 had been £52,600. Evidence available to the
Government disclosed that in 46 out of 57 RSA grants between July l995 and 1999
the grant was for less than £75,000. The Government were entitled to pay
regard to the need to obtain an optimal use of the population ceiling for Great
Britain and to make an assessment of the Isle of Wight's take up record. Mr
Lever has not submitted otherwise.
The momentum for the argument of demonstrable error appears to me to derive
from the difference in the respective approaches which the Government and the
Applicant have taken to the statistical information derived from the
Applicant's RSA take up. The assessment made by the Government is clearly
explained in the 2nd and 3rd statement of Mr Kehoe, and I find that the
Applicant fails to establish a demonstrable error of fact underlying the
Government's principal reason for not including the Isle of Wight. It follows
that the corollary to that complaint, namely that the opportunity should have
been taken, but was not, to put the facts right by referring to the Applicant,
also fails.
The Amsterdam Amendment and the Assisted Areas Proposal
Mr Lever also submitted that the Government's conclusion that the Applicant was
not an appropriate recipient of RSA, which constituted the principal ground for
not including it in the proposal, reflected the very approach which the
amendment to Article l58 had been designed to discourage. He submitted that
the reasoning was no longer permissible, because it led to a conclusion which
could only contribute to the gravity of problems affecting islands, rather than
the taking of measures which would mitigate the effects of the structural
handicaps linked to being an island. The argument has a beguiling simplicity
and I am confident echoes the conviction of the Applicant's members, as well
as, many of the population of the Isle of Wight, but in my judgment it ignores
the significance which is to be attached to the Government's entitlement to
assess where RSA is most likely to be effective, and any wider aspects of
policy which may be relevant (for example, the Coalfields Task Force Report
l998). On analysis, for this submission to come into play in the case it must
be regarded as either raising an argument that the Isle of Wight had to be
included because it is an island, or raising a challenge to the weight which
the Government attached to the factor of insularity. Although at times it
seemed Mr Lever came close to the former, he deftly left it as a submission
going to the latter. For the reasons I have given and which are consistent
with the rejection of the argument, neither Articles 158 or 159 of the EC
Treaty shed any light on the complex balancing exercise imposed upon Member
States in the formulation of their economic policy for regional aid. In my
judgment Mr Vajda QC was correct to characterise the powers exercised pursuant
to the Industrial Development Act l982 as embracing the creation of an
instrument of industrial policy in which the Government were entitled to give
high priority to the purpose of the aid, which is not a donation or a handout
of benefit, but "bait" to attract investment. It cannot be irrational to
exercise these powers so as to ensure, as far as possible, that assistance will
be made available where it is believed investment will take place and to carry
out a comparison between areas to reach a conclusion.
Having considered the evidence, I am left in no doubt that the Government did
pay regard to the fact that the Isle of Wight is an island and to the economic
consequences which the Applicant's response to the Consultation Paper
identified as being connected with its insularity. For the above reasons I
reject the submissions identified as Points (1) (2) and (3) above.
The Paring Down Process (Points (4) (5) and (6))
The central complaint in connection with the paring down process is that the
Government did not take account of the severity of unemployment existing on the
Isle of Wight. Presentation of the argument was made by reference to the
following contentions:
(1) its omission in the paring down process because of a mistaken perception
that double counting might occur;
(2) the apparent confusion or lack of certainty disclosed by the evidence of Mr
Kehoe as to when and how unemployment had been taken account of;
(3) there had been a failure to take account of the Applicant's insularity.
The statistical criteria adopted by the Government included criteria related to
labour market weaknesses or unemployment. The Isle of Wight met the criteria.
In its submission to the Government, the Applicant stated that "the extra
disadvantage of insularity should be included as a special factor in addition
to other more generally applicable criteria such as peripherality." But the
Isle of Wight did not formulate a statistical criterion for insularity. The
Government did not devise one and there is no evidence one could be
satisfactorily devised. The Government took the view that the selected
criteria already reflected unemployment and, as to peripherality, considered it
inappropriate to devise a specific criterion for two reasons:
(1) there was likely to be an overlap between the socio-economic factors within
the statistical criteria based on unemployment and the criterion used to
measure peripherality, giving rise to double counting; and
(2) peripherality applies to all regions and not just islands.
As to insularity, the Government took the view that it could only be taken into
account as a qualitative factor, namely by weighing it with other relevant
factors and making a judgment about the relative importance of these factors.
Mr Kehoe's first statement concluded in these terms:
"When considering the shape of that map (the Assisted Areas Map) the Government
took into account the Isle of Weight's submissions, which included, but were
not limited to, the issue of insularity, and was well aware of the
circumstances of the island."
The Government chose to take account of insularity in this manner for two
reasons:
(1) its insularity (and for that matter peripherality) was already reflected
in the criteria selected: and
(2) it is almost impossible to translate insularity into objective
criteria.
As the argument developed it became apparent that the momentum, if not the
origin, for the formulation of these submissions, derived from a close textual
analysis of paragraphs 24 and 25 of Mr Kehoe's first witness statement, and
paragraphs 10-13 of his fourth witness statement. Mr Lever suggested that the
inconsistency and confusion was sufficient to justify the grant of an order for
discovery. I was not persuaded then and further deliberation has not changed
my view. That should not be taken as an indication that Mr Lever had no
grounds for making his application for the evidence does have an intractable
quality.
Paragraph 11 of the fourth statement states:
"The paring down process was done by reference to the factors mentioned in
paragraphs 24 and 25. These factors included the statistical indicators
referred to above, largely concerned with unemployment. The seriousness of the
Isle of Wight's unemployment was a factor in the paring down process, weighed
against other factors such as the appropriateness of regional industrial
assistance as a response to a particular area's need."
Immersed within paragraphs 24 and 25 is a paring down process which took place
by two stages. At stage 1, statistical criteria and the representations
made during the review (thus the inclusion of unemployment) and consultation
were considered. At stage 2, the five factors in paragraph 25 which
included the "nature of the economy of the relevant area" and areas "where
assistance is both needed and regional industrial aid an appropriate response"
were considered.
In my judgment it cannot be said that it was irrational for the Government to
take account of unemployment at the first stage by reference to the selected
criteria or at the second stage as part of a balancing exercise as to whether
the nature of the economy led to the conclusion regional aid was appropriate.
In my judgment there was no requirement that unemployment should be taken into
account and applied to identify the most disadvantaged area by reference only
to severity of unemployment. Areas with more severe unemployment had not met
the statistical criteria.
For the above reasons I reject the Applicant's arguments under Points (4) (5)
and (6).
Point 7
Mr Lever acknowledged the difficulties with this argument derived from the
Applicant's case for designation as a TIER 2 area. It has always argued for
designation of the whole island. For that reason it is difficult to see how,
even if there were merit in the contention that the Guidelines had been
misinterpreted, it could give rise to relief. I do not regard the argument as
requiring further attention.
THE OBJECTIVE 2 PROPOSAL
Council Regulation (EC) No. 1260/1999 (the Structural Funds
Regulation)
The European Regional Development Fund (ERDF) has the purpose of reducing the
gap between the levels of development of the various regions and the extent to
which the least favoured regions and islands, including rural areas, are
lagging behind: see Recital l to Regulation EC (No 126l/1999). For the
purposes of the use of the Structural Funds, the Structural Funds Regulation
has defined two objectives:
(a) promoting the development and structural adjustment of regions whose
development is lagging behind (Objective l); and
(b) supporting the economic and social conversion of areas facing structural
difficulties (Objective 2).
The identification of Objective l regions is automatic and governed by the same
criteria as those application to Tier l areas. Objective 2 regions are (as
summarised in the first witness statement of Julia Johnson):
"..... those with structural problems whose socio-economic conversion is
to be supported in accordance with Article 1(2) and whose populational area is
sufficiently substantial. They shall include in particular areas undergoing
socio-economic change in industrial and service sectors, declining rural areas,
urban areas in difficulty and depressed areas dependent on fisheries (Article
4.l).
As in the case of national state aid, the Commission sets a population ceiling
for each Member State and the aggregate population of the Objective l and
Objective 2 regions in a Member State must not exceed the population ceiling
for that Member State. Three factors are specified as the basis for
calculating the ceiling (see Article 4.2). The resulting population ceiling
for Objective 2 regions in the United Kingdom is l3.8 million.
Article 4.3 of the Regulation provides that:
"Subject to [the population ceilings] the Member States shall propose to
the Commission a list of significant areas representing:
(a) the NUTS level 3 regions, or the most seriously affected areas within
those regions which satisfy either the criteria set out in paragraph 5 or those
set out in paragraph 6;
(b) the areas satisfying the criteria referred to in paragraphs 7 or 8,
or Member States' specific criteria referred to in paragraph 9"
Paragraph 9 of Article 4 provides as follows:
"Community assistance may extend to areas whose population or area is
significant which fall into one of the following categories:
(a) .......
(b) .......
(c) areas facing or threatened by serious structural
problems on account of relevant, verifiable characteristics, or a high level of
unemployment arising from an ongoing or planned restructuring of one or more
activities in the agricultural, industrial or service sector."
The Government participated in the formulation of Regulation l260/1999 and in
the course thereof argued for the inclusion within Article 4 of a wider range
of criteria for selection as Objective 2 areas than employment and unemployment
data, such as GDP and peripherality. But the United Kingdom was not successful
in obtaining this. The Respondents emphasize that the review constituted by
the new Regulation was not prompted by a need for specific consideration to be
given to islands. According to Article l6l of the EC Treaty, the adoption of
the Regulation required the positive assent of the European Parliament and this
was given on 6 May l999. As I have already noted in this judgment, Objective l
areas are automatically selected under Article 3 of the Regulation, being NUTS
II areas with a per capita GDP less than 75% of the Community average (see
further the reference to the Ombudsman).
The regime established by Article 4, which is the relevant Article under which
geographic areas qualify for Objective 2, has the following principal
features:
(1) The identification of declining areas with structural problems, by
reference to four types, or strands, of area: industrial and service; rural;
urban; and fisheries.
(2) Provision for the setting of population ceilings for the Community and for
each Member State at a level substantially lower than that under existing
Structural Fund measures. The overall population ceiling for the Community is
l8% of the total Community population, which itself is divided amongst the four
strands of economic activity, viz industrial and service, rural, urban and
fisheries, as to 10%, 5%. 2% and 1% respectively. By operation of the safety
net provision the United Kingdom population ceiling for Objective 2 areas is
set at l3.8 million (a reduction of one third from 20.5 million under the
present regime).
(3) The requirement for each Member State to propose to the Commission a list
of areas to be covered by Objective 2 in accordance with criteria set out in
the Regulation, with different criteria established under the different
strands: (see Article 4(3)).
(4) The requirement that the area or population of the regions be sufficiently
substantial: (Article 4(1)).
(5) Areas in the industrial and service sectors and rural strands which meet
the criteria set out in Articles 4.5 and 4.6 respectively are automatically
selected by the criteria in the Regulation.
(6) Areas in the urban and fisheries strand are determined under Articles 4.7
and 4(8) respectively and leave the Member States a limited discretion as to
the application of the criteria.
(7) Member States have a discretion to propose areas under Article 4(9)
pursuant to the criteria which are to be set by the Member State within the
parameters of the categories set out in Article 4(9).
Whilst the Member States put forward their proposed Objective 2 areas, the
decision as to the Objective 2 areas is taken by the Commission. As I have
already indicated the Government instituted a consultation process in
connection with its Objective 2 proposals. The Isle of Wight responded in May
l999 and the Respondents submit the following points can be identified from the
response:
(i) It sought inclusion for the whole of the Isle of Wight in the Objective
2 proposals; no case was made that part only should be included.
(ii) It relied cumulatively on six different criteria for selecting areas
eligible for Objective 2 funding: GDP per capita, average earnings,
unemployment rates, age of population, lack of diversity in economic base and
peripherality/insularity. It did not advocate the sole use of unemployment
criteria.
(iii) It did not argue or suggest that the Isle of Wight should be designated
an Objective 2 area simply because it is an island.
(iv) Although it referred to insularity, it did not propose a statistical
criterion for measuring insularity or its effects. It made passing reference
to a peripherality indicator, but did not expand upon this, did not suggest
what this indicator was in statistical terms, nor how it was to be applied
along with the other criteria which it was putting forward.
(v) It referred to Article l58 EC Treaty, but no case was made that the
criteria selected should be different in the case of an island; it made no
reference to the interpretation of that Article, which the Isle of Wight now
relies upon in these proceedings.
The Government sent its Objective 2 proposals to the Commission on 8 October
l999, having received 44l submissions in response to the Consultation Paper.
The following points are material to the application:
(1) About one third (4.5 million) of the UK population limit of l3.8 million,
qualified automatically under Articles 4(5) and (6). Areas under Articles 4(7)
and (8) accounted for a further 4.1 million, which left a further 5.2 million
to be allocated under Article 4(9).
(2) As to the requirement of Article 4(1) that the area or population of the
regions be sufficiently substantial, upon the basis of indications from the
Commission, the Government decided that, to meet this requirement, regions
proposed have a population of at least l00,000, or possibly 50,000 in the urban
or fisheries strand. However, its approach did not exclude an area within
Article 4(9) with a population well below l00,000 combining with adjacent areas
qualifying under a different strand also well below l00,000, which together
would meet the overall l00,000 requirement.
(3) Areas under Article 4(9)(c) were identified under two distinct strands,
industrial and rural. Criteria for industrial areas were unemployment combined
with statistics, identifying dependence upon, and a decline in, industrial
jobs. The criteria based on industrial jobs was intended to reflect the
"industrial" strand on Objective 2. The criteria based on decline in
industrial jobs reflected the intention of targeting declining industrial
areas.
(4) The geographical unit for Articles 4(7) and 4(8) and the industrial areas
under Article 4(9)(c) was NUTS V. NUTS V was chosen because it enabled areas
to be more precisely targeted than under NUTS III.
(5) Certain areas were included in the Objective 2 proposal by combining wards
qualifying under different strands.
I have limited my recitation of the detail in relation to these criteria, for
Mr Lever does not challenge the selection of the criteria.
The Government's Decision with regard to the Isle of Wight
The Isle of Wight was not included within the proposed areas. The reasons
appearing from the evidence are as follows:
(1) The Isle of Wight did not meet the criteria under any of Articles 4(5) to
4(8)
(2) As to the criteria selected for industrial areas under Article 4(9)(c),
only four isolated wards on the Isle of Wight met the criteria established by
the Government. These four wards have a population of l7,000 (out of a
population of the Isle of Wight of more than l00,000), a long way short of the
l00,000 population criterion that the Government took in order to satisfy the
sufficiently substantial requirement in Article 4(l). The Isle of Wight had no
other wards that could qualify under Article 4(7) or 4(8). Thus neither the
Isle of Wight as a whole, nor any part of it, could be put forward by the
Government.
(3) As to the fact that the Isle of Wight is an island, although the Government
did not consider including the Isle of Wight solely on the ground that it is an
island, it did take account of the factors resulting from the fact that it is
an island (that is, insularity).
(4) The Government did consider whether it could make a special case to the
Commission for the inclusion of the Isle of Wight, or even part of it, even
though it fell well outside the statistical criteria set by the Government and
even though in the Government's view there is no provision in the Regulation
itself provide for a special case. A special case, it is said, is of necessity
based on non-statistical factors, which are not capable of precise measurement.
Those factors include questions of regional priorities. Further, it was for
the Government to decide whether or not a persuasive case could in fact be made
out, taking account of the very great degree of departure from the statistical
criteria which the position of the Isle of Wight presented.
However, the Government, after taking account of these factors and all the
points made by the Isle of Wight in its response (which specifically included
reliance, but not sole reliance, upon the effects of insularity) on balance
decided that it could not make a special case for the inclusion of the Isle of
Wight.
The Applicant's Submissions
Mr Lever submitted as follows.
1. That there was nothing to prevent the Government using the data which it had
used for the purposes of the Assisted Areas proposal, namely the four labour
market weakness criteria, for the purpose of proposing a NUTS level III region
as part of the Objective 2 proposal. These criteria demonstrated the extreme
severity of unemployment on the island. Had it done so, there was some reason
to believe it would have been favourably received by the Commission. He relied
upon the terms of a letter dated 4 June l999 from an official in
Directorate-General XVI (Regional Policy and Cohesion) of the European
Commission to members of the applicant Council to the following effect:
"The Commission's proposals seek to establish a fair, transparent and flexible
basis, applicable to all Member States, before deciding eligibility for
Objective 2. One of the main concerns in your letter is that the mixed rural
and industrial economy of the Isle, coupled with insularity, is that it is
unlikely to fit neatly within the new Objective 2. Let me assure you that one
of the aims of the new Objective 2 is precisely to enable an integrated
approach to such mixed conditions in a region."
2. That even if there had been an objection, such objection would have been
misconceived and the amendment to Article l58 of the EC Treaty would have
underpinned the invalidity of the objection.
3. That the Government failed to recognise that the rules for mainland areas
cannot be applied fairly to islands and although there was nothing wrong with
the criteria which had been adopted, the problems and backwardness of the Isle
of Wight required adjustment in their application to the island. Such an
approach, he submitted, was called for by reason of the amendment to Article
158.
4. That the Government took too narrow a view of the discretion conferred by
Article 4(9)(c).
It will be apparent from the summary I have already made that the Isle of Wight
in the preparation of its case on the application, and Mr Lever, in the course
of his submissions, recognised that the criteria adopted by the Government
could not lead to the inclusion of the Isle of Wight in the Objective 2
proposal. Although Mr Lever disavowed any challenge to the selection of the
criteria, his argument at times came very close to constituting such a
challenge. By way of argument in reply he submitted that he was not contending
that the Isle of Wight was entitled to be an Objective 2 region. He was not
contending that the Government were obliged to formulate criteria to permit the
Isle of Wight to be included in the proposal. He directed his complaint to the
conclusion, to which the Government came, namely that they could not include
the Isle of Wight, even though it did not meet the criteria. In essence,
therefore, his submission on this part of the case became a submission that the
Government should have made the Isle of Wight a special case. That they can be
criticised for having failed to do so because they misunderstood the extent of
their power to do so under Article 4(9)(c) which, in his submission, provided
them with a wide discretion. He submitted that having regard to the
statistical data which was available to them as to the severity of unemployment
in the Isle of Wight, and having regard to its status as an island, to which
latter factor the Commission were bound to accord significance, the Government
misinterpreted and underestimated the range of discretion which it had to
present the island as a special case for inclusion in an Objective 2 proposal.
Further, he submitted that pursuant to Article l59 the Government was obliged
to pay regard to the insularity of the Isle of Wight, which it should have
known the Commission would recognise as a powerful factor. It should have
formulated its policy to take account of the expectation to which the amendment
to Article l58 has given rise.
In my judgment these arguments face insurmountable difficulties having regard
to the Respondent's evidence as to the reasons why it did not make a special
case for the Isle of Wight. In its view, in order to make a special case
outside the statistical criteria it would have been necessary to take into
account a number of factors which did not admit of precise measurement. The
Government's view was that the greater the departure from statistically
verifiable criteria, the more difficult it would be to make a special case. It
was well aware of all the points made by the Isle of Wight, which had been put
to it in its response. It was well aware of the circumstances of it being an
island, and having considered all the points for and against the making of a
special case, on balance the Secretary of State did not propose inclusion, and
in agreement with other Ministers it was not included. The Respondents
submitted that having regard to the size of the four wards identified,
producing a population of some l7,000, the degree of departure from the
statistical criteria was too great. The Respondent submitted (i) that they had
a discretion as to whether to make use of Article 4(9) at all, (ii) a
discretion in setting the criteria, (iii) a discretion to decide on the degree
of departure that there should be from them, (iv) in exercising a discretion as
to whether or not to make a special case they were entitled to have regard to
the precedent that it might establish for other regions or areas and (v) that
the Secretary of State was entitled to form own views as to the likelihood of
the Commission accepting the special case and to give effect to those views.
In my judgment these points taken together comprise a formidable construct of
discretionary power. Obviously the fabric of such decision making is open to
public law challenge but the individual integrity of the points has not been
subjected to attack. In my judgment, rightly so, because these weighty
discretionary considerations cannot be impugned as irrelevant and the factors
to which Mr Lever referred went to questions of the overall balance and not to
the integrity of the decision. Further, I do not accept that a true
assessment of the Government's position is that they concluded that they
could not make a special case. Undoubtedly under Article 4(9)(c) the
Government had a large and wide measure of discretion, but insofar as it saw
the making of a case for the inclusion of the Isle of Wight would constitute
such a departure from the ambit of discretion envisaged by Article 4(9)(c) as
to amount to the making of a special case, it cannot be said to be so wrong in
its view that its conclusion not to present it is to be treated as being based
upon a perceived incapability as opposed to a discretionary decision not to
present it.
Further, I accept the submissions for the Respondent that the argument advanced
in support of the submission that greater weight should have been placed on
unemployment, which was advanced by reference to the statistical criteria and
the extreme severity of unemployment they presented, proceeded upon a
misunderstanding. The population available for the application by the
Government of discretionary criteria under Article 4(9) was not, as suggested,
l3.8 million, but 5.2 million. Secondly, it was not correct that the Isle of
Wight fell within the worst l2.2 million of the population, applying the
Assisted Areas employed based criteria. Thirdly, the Government cannot have
been said to be legally obliged to apply the employment based statistical
criteria to the Article 4(9)(c) areas, nor to use NUTS III regions as a
relevant geographical unit.
For all the above reasons, in my judgment the challenge to the Government's
Objective 2 proposals must fail. It follows that the Applicant's application
for a judicial review in respect of both proposals is dismissed.
© 2000 Crown Copyright
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