Scottish government milk and snack funding scheme for nursery children ruled unlawful by Outer House

Lord Braid

About this case:

• Citation:
  [2022] CSOH 11
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Braid

The School and Nursery Milk Alliance Ltd objected to the funding method of the scheme, asserting that it had led to funding cuts for many settings that had a detrimental effect on its members, who specialised in providing milk and dairy alternatives to young children. It sought reduction of parts of the scheme relating to the new funding mechanism. 

The petition was heard by Lord Braid in the Outer House of the Court of Session. MacGregor QC appeared for the petitioner and Crawford QC and McKinlay, advocate, for the Scottish Ministers.

Local Serving Rate

Prior to August 2021, pre-school children in Scotland received a publicly funded 189ml serving of milk under the UK-wide Nursery Milk Scheme, which reimbursed the costs of providing the milk. However, on 1 August 2021 the Scottish Ministers replaced the scheme in Scotland with the Milk and Healthy Snack Scheme, which allowed for the provision of non-dairy alternatives in place of milk as well as a healthy snack.

The new scheme featured a different funding mechanism to the old one, under which the Scottish Ministers would set a Local Serving Rate for each local authority area. Periodic payments would then be made in advance by local authorities based on the LSR. It was averred by the petitioner that this funding mechanism reduced the ability of its members to compete in the market and thus reduced competition.

One of the respondent’s aims in promoting the new scheme was to increase access to the scheme by reaching more children than the previous scheme. An incidental policy aim was to reduce the administrative burden on settings. However, witnesses for the petitioner stated that, under the old scheme, settings were relieved of the administrative burden of submitting claims, as they were collated by milk suppliers who would submit claims to the Nursery Milk Reimbursement Unit on their behalf.

It was submitted for the petitioner that there had been failures in the consultation exercise preceding the new scheme. It had not been told about the proposal to base payments on LSRs until it was too late for it to make any meaningful representations of the topic. As the funding was key to the operation of the scheme, there was no good reason for why it was not disclosed earlier.

Further grounds of challenge advanced by the petitioner were that the respondent had failed to undertake a proper inquiry before setting the levels at which the LSRs were to be fixed, and that they had acted irrationally in setting those levels. It was assumed that prices paid by local authorities were also representative of the prices paid by private settings; and that there would be no impact on competition, despite there being no adequate empirical basis for the making of this conclusion.

Departed from assurances

In his decision, Lord Braid said of the role of the LSR: “The LSR is the very cornerstone of how the scheme will operate in practice. It is the LSR which determines how much funding a setting will receive. Since the amount which a setting will receive will in turn impact on its ability to purchase milk, or indeed its willingness to register in the scheme at all, it is supremely important to the operation of the scheme as a whole.”

He continued: “Given the statements consistently made about the content and likely impact of the scheme, and the assurances given that the petitioner would be afforded the opportunity to participate as the scheme was developed, it was not fair for the respondent to depart from those assurances, and remove from the petitioner the opportunity to make informed and intelligent comment about the proposal, particularly where what had been said in the correspondence about how the scheme would operate was either not the full picture, or was to be departed from.”

Lord Braid commenting on the reasoning behind the fixing of the LSRs: “I have come to the view that the respondent’s approach here, too, is irrational both in the sense that no reasonable minister could have adopted it, and in the methodology used. This is not a criticism of the respondent’s high level approach of basing the LSR on an average figure; rather, at a more micro-level, it is a criticism of the means adopted of going about that task.”

He explained further: “What the respondent was not entitled to do was to select a subset of all settings, leaving out of account prices paid by all other settings, in the knowledge that the latter were higher. Such an approach is illogical, irrational and a manifest error. The respondent is not saved by saying, as its senior counsel did, that the majority of settings are local authority settings. That is an observation of fact, rather than a justification. It is not a legitimate reason for excluding the minority when calculating the average.”

It was therefore decided that the new scheme was unlawful insofar as the respondent did not undertake a proper consultation on the issue of LSRs and had fixed them irrationally.

Lord Braid concluded: “The petitioner’s senior counsel was at pains to stress that the petitioner has no desire to interrupt the supply of free milk (and a snack) to pre-school children. As agreed, I shall put the case out by order to discuss what orders ought to be made in light of this opinion.”