In County of Poole v Information Commissioner  EA/2016/0074, the First-tier Tribunal (Information Rights) examined the application of the public interest balancing test when the prejudice to commercial interests exemption under section 43(2) of the Freedom of Information Act 2000 (FOIA) is engaged. The request in this particular case was for information about the charges made by a local authority for services provided schools. The arguments raised by the parties and the tribunal’s analysis of the issues, sheds further light on the impact of FOIA on the commercial realities for local authorities seeking to off-set the effects of local authority budget cuts by selling their services competitively.
FOIA gives any person, including foreign nationals and companies, access to any information held by public authorities, enabling the public to participate in the discussion of policy issues, improve the quality of government decision making, and hold government and other bodies to account. However it is recognised that FOIA has created new risks for business, as commercially sensitive information may become more easily available to competitors, customers, suppliers and interest groups. These risks also apply to local authorities who have a range of powers to trade commercially with private persons and bodies, as well as other public authorities (see Practice note, Local government: exercising the power to trade commercially).
Part II of FOIA sets out a list of information that is exempt from the requirement to disclose. Section 43 of FOIA applies to commercial interests and subsection (2) exempts information the disclosure of which would, or would be likely to, prejudice the commercial interests of any person, including those of the public authority holding the information. Even if the information is exempt, the duty to disclose it will still apply unless, in all the circumstances, the public interest in maintaining the exemption outweighs the public interest in disclosing the information (section 2, FOIA).
The case concerned an appeal by the Council of the Borough and County of the Town of Poole (council) against a decision notice of the Information Commissioner (IC) requiring the council to disclose to the requestor (who was not a party to the appeal), the names of all schools that were supplied with payroll and pensions services by the council, broken down by the actual service provided to those schools and charges made by the council for those services at each school. The council disclosed a list of schools, but did not provide details of the charges made at each school or the services that were provided. It argued that the information was exempt under section 43(2) FOIA, because disclosure of the information was likely to prejudice the council’s commercial interests.
The requestor complained to the Information Commissioner (IC) who considered the complaint and issued a decision notice ordering the disclosure of the information on the basis that section 43(2) of FOIA was engaged but that the public interest test favoured disclosure. Both parties accepted that section 43(2) was engaged, however the council appealed against the decision notice on the grounds that in undertaking the public interest balancing exercise under section 2(1)(b) of FOIA the IC had:
- Failed to have sufficient regard to, and failed to place sufficient weight on, the commercially sensitive nature of the information.
- Erred in its assessment of the public interest in the disclosure of the information, and in doing so, placed too much weight on the public interest in that disclosure.
The council presented evidence to the tribunal, explaining in some detail, the potential consequences for the council were it to lose the business that it had as a result of being forced to disclose this commercially sensitive information to a competitor. Interestingly the council also said that it had contacted more than 50 other councils about the proceedings a number of which had pressed the council to do all it could to fend off the pressure to disclose the information on the basis that they could foresee the difficulty it would also cause to them.
The council categorised their concerns in relation to the IC’s decision notice as follows:
Ground 1: Failure to have sufficient regard to, and place sufficient weight on, the commercially sensitive nature of the information
The council argued that there were three key factors that should be considered in assessing the weight to be ascribed to the public interest in maintaining the exemption:
- There was a public interest in public bodies, such as the council, being able to compete on a level playing field. If the council had to disclose its pricing strategies, and the private sector companies against which it competes do not, the playing field between private and public HR services providers would not be a level one. The IC had accepted that this factor added more weight in favour of maintaining the exemption.
- If, as expected, business was lost as a result of the release of the information, the impact on the council and its employees would be significant. If the council lost the business as a result of being forced to disclose the commercially sensitive information to a competitor the council’s HR budget would be cut by 20% and a commensurate number of its HR employees would have to be made redundant, or would not be replaced upon resignations, retirements, depending how swiftly the loss of business occurred. The reduced capacity and resources, would adversely affect the council’s ability to compete for external business, and ultimately its ability to fulfil its core functions for the council itself would be in question.
- Disclosure was inconsistent with the expectation from central government, that local authorities must raise funds and meet budget shortfalls by selling their services commercially.
- Requiring disclosure would create an uneven playing field for local authorities seeking to operate commercially, and was therefore inconsistent with government policy.
Taking these points together, the council argued that there was a strong public interest in maintaining the exemption.
The IC accepted that knowledge of the exact fee charged by the council could enable other providers to undercut that fee and harm the council’s commercial interests. IC also accepted that there would be some prejudice to the council, but argued that cuts were likely to be to HR and not front line services and that as such the prejudice was of a lesser nature.
Ground 2: The IC placed excessive weight on the public interest in disclosure
The council argued that:
- The IC’s assessment that the public interest in disclosure of the withheld information was weighty was premised on an assumption that release of the information would result in schools paying less for payroll and pension services across Poole and the surrounding area. From this the IC had made a finding that there was a public interest in creating an environment in which publicly maintained schools would be able to secure contracted services at a lower rate due to a competitive market. However the council argued that the risk was that if public authorities are forced to disclose information about its charges, and are consistently underbid, public authorities could be forced out of the market, and academy schools would end up paying more in real terms than if councils were able to continue to compete fairly for this business. Therefore in assessing the public interest in disclosure, little weight should be placed on the assumption that disclosure will necessarily result in reduced payroll and pension services fees for schools given the uncertainties associated with this assumption.
- The IC had assumed that some contracts which the council might lose in the future would be won by other public bodies. This was a key plank on which the IC had rested his finding that the public interest in disclosure outweighed that of maintaining the exemption, in that it allowed the IC to characterise the balancing act as, on the one hand, disclosure benefiting schools and other public authorities, and on the other, harming only one local authority. The council argued that this was “baseless conjecture and almost certainly wrong” since the council competed not only with local councils but also with private sector companies.
- There was no public interest in receipt of the withheld information in and of itself. It was not information which, for example, had been said to be of value in holding the council to account in terms for public spending. The council’s budget and accounts were published on its website annually. Information was therefore available to hold the council to account in terms of the money it obtains from these services.
The IC in response to these arguments relied upon the fact that the beneficiaries of lower prices would also be publicly funded bodies, namely schools and other public authorities competing against the council. In all cases, disclosure would be likely to lead to a savings in public funds as a result of schools being required to spend less to secure these services. In cases where the rival contractor that benefits by securing the contract is another local authority, there would be no loss to the public purse as a result of the contract going to the private sector. The public interest in disclosing the information therefore related to the commercial interests of a number of public bodies (namely, all the schools in the list disclosed to the complainant, and other local authorities that win contracts as a result of disclosure of the information in question).
The IC also challenged the supposition that prices would eventually go up as all local authorities were priced out of the market and said it was unlikely that the private sector firms would either act in concert or all adopt the same commercial strategy.
Decision of the FTT(IR)
The FTT(IR) unanimously upheld the council’s appeal (with the exception of certain paragraphs in the requested information that the council conceded that it was obliged to disclose), and held that that the cumulative weight of the factors favouring non-disclosure outweighed the weight of those favouring disclosure. The council was therefore entitled to rely upon section 43(2) of FOIA.
The tribunal noted that the correct approach to assessing the potential prejudicial consequences of disclosure is to only take account consequences that “can readily be anticipated as realistic possibilities”. If prejudice is considered a realistic possibility, the next step is to assess the likelihood of any such prejudice, (see London Borough of Camden v Information Commissioner and Voyias  UKUT 190). It also referred to the Upper Tribunal decision in Department of Health v IC and Lewis  UKUT 0159 (ACC) in which it was held that the public authority must apply the public interest by reference to the specific information which it seeks to uphold.
The tribunal found that the IC had not given adequate weight to the likely prejudice to the council’s commercial interests. In particular:
- The IC had not been aware that most of the competitors were from the private sector and was under the mistaken impression that the majority of the other providers were other local authorities.
- The IC had not given adequate weight to the impact of the loss of this source of income on the council’s wider services.
The tribunal observed that the “strikingly different aspect” to this appeal was that the council was acting here in the competitive market for the provision of services to others. The commercial interests at play were therefore those of the council itself, acting in a competitive market, not directly in the quest for value for money, but rather for the purpose of maximising income to the council.
The tribunal’s view was that although the short term impact of disclosure was likely to be a price cut which would be of benefit to the schools (and other public sector recipients of the services) and consequently the public purse, the IC had not presented evidence to substantiate that the long term position would remain so. The tribunal accepted the council’s reference to studies showing that long term privatisation did not guarantee price reductions and in many cases led to greater pressure on the public purse.
These findings led the tribunal to conclude that the IC had not given sufficient weight to the likely prejudice to the council’s commercial interest and had given too much weight to the likely benefit to other public authorities as a result of disclosure. Further, the IC had erroneously taken into account the likely long term effects of such disclosure on competitor local authorities.
The case is of particular interest for its analysis of the section 43(2) exemption and application of the public interest balancing test. The decision will no doubt be welcome for local authorities, bearing in mind the impact that disclosure of commercially sensitive information of this type could have on those authorities seeking to raise funds and off-set the effects of budget cuts by selling their services in the competitive market.
More information on the section 43(2) exemption can be found in our Practice note, Freedom of information and FOIA and EIR case tracker.