PFI funding is not forever

 In one of a number of recent judicial review challenges to UK Government spending cuts, the Administrative Court has dealt another blow to the Government's plans.  Although the Court Highlighted the difficulties of establishing a substantive legitimate expectation, it held that Government departments and other public bodies may be required to consult those affected before changing policy, even if they have no statutory duty to consult.  R (Dudley) v Secretary of State concerned a change in government policy on how funding for a local authority PFI scheme was to be provided.   The scheme was for a 10 year period, but annual grants were initially paid on a "declining balance basis", which meant that they were calculated as a fixed percentage of the scheme's capital cost, and normally paid over 100 years.  The balance of the capital cost was funded by the local authority in the short term, in the expectation that they would continue to receive government funding long after the PFI scheme had ended.   Towards the end of the life of the PFI scheme, the Government, in light of the fiscal climate, decided to change the basis of calculating grants to an "annuity based system", which reflected the true capital costs of the PFI scheme but would not continue after the scheme had ended.   The local authority, which believed that this decision would entail adverse financial consequences for it, brought a judicial review challenge.  The local authority argued, among other things, that they had a substantive legitimate expectation that the basis on which the Government provided funding would not change or, at the very least, that they had a legitimate expectation that the Government would consult them about the change.  The court held that, in order for the Government to be bound for 100 years, it would have to have given some commitment, guarantee, or assurance to the local authority akin to a promissory note.  On the facts there was no such promise, and therefore the local authority's argument was unsuccessful.  The case highlights the high hurdle that a claimant must overcome to establish a substantive legitimate expectation, particularly where a change in government policy is concerned, and is something of which PFI contractors and finance parties should be aware when presented with letters of comfort or policy statements about funding.  However, the Court did find in the local authority's favour on the question of consultation.  The judge confirmed that there was no general duty to consult on a change of policy, but in exceptional circumstances such a requirement could arise from the common law duty of fairness.  Where the impact of the decision on the claimant was "pressing and focussed", and where there was a limited, identifiable, class of affected persons, an authority may be required to consult.  On the facts, the Court held that the Government should have consulted with the local authority before changing its policy, which it failed to do. This is one of a number of cases in which the Court has criticised the process by which Government cuts have been implemented, often very rapidly.

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