Funding for Levelling Up

We are yet to see any evidence of sustained joint working between Departments, and the coordination of the various funding pots they control, which are intended to contribute towards the ambitions of the Levelling Up White Paper. The Department for Levelling Up, Housing and Communities is responsible for overseeing the delivery of the Levelling Up policy, but we have found that it does not appear have a clear understanding of which funds specifically contribute towards the four main objectives in the White Paper and what the totality of funding available is.

Local authorities’ revenue funding has reduced significantly since 2010. Levelling up funds generally do not replace grant funding because first they are capital not revenue and; second, because they cover specific projects rather than necessarily covering the priorities of the local authorities.

If Levelling Up is to remain the Government’s flagship policy, as it has described it, its delivery must involve greater co-ordination and oversight across Government where applicable. The Government must get to grips with setting out which funding streams are materially contributing to the Levelling Up policy. All Government departments must identify and assess those spending allocations which are being used to achieve the objectives set out in the Levelling Up White Paper. DLUHC, as the Department primarily responsible for delivering levelling up must make clear what funding is being provided to achieve which objectives and outcomes so that the progress of the policy can be clearly monitored, and delivery against ambitions accurately assessed.

As a starting principle, local authorities who most require prioritising within the Levelling Up policy should be allocated money through revenue to achieve objectives that are in line with their local circumstances and need, with the appropriate monitoring and expenditure in place. Local authorities must be given the flexibility to use allocated funds in the most effective way they can. Therefore, we recommend there is a change in approach across Government when it comes to funding for levelling up. The Department should move away from an overemphasis on bid and judgement- based funding pots which may impede effective local decision-making. (Paragraph 19) Competitive Funding

The Levelling Up White Paper committed the Department to simplify funding streams and reducing the requirements to access competitive bidding. Despite this, we have seen limited evidence that any progress has been made on these objectives to date. Furthermore, the evidence we received on competitive funding has indicated the challenges are far greater than those outlined in the White Paper.

It was made clear by our witnesses that competitive bidding is a resource intensive and costly activity. This can create barriers for stakeholders and communities in need of funding. Whilst limited funding was provided for some local authorities in the Funding for Levelling Up 37 Levelling Up Fund round one to assist with bidding costs, challenges remain. These include, but are not limited to, additional costs associated with planning, hiring consultants and costs associated with diverting employee time away from core tasks to put together bids. This is in addition to the financial strain already felt across local authorities. We have also heard that the competitive process is better suited to larger local government bodies with more ready access to resources which can create an uneven playing field. The evidence shows that those who are successful in bidding have a greater chance of success in subsequent rounds or other competitive bidding processes.

The Government must follow through on its commitment to simplify funding streams and reduce requirements to access competitive pots. The DLUHC must also seek to reduce the number of competitive funding pots. By reducing the number of such pots, by simplifying the funding landscape, and by making the process more accessible, the DLUHC can avoid unnecessary waste of both local and central Government resources. This would address some of the concerns regarding the resource intensive process surrounding competitive bidding. The Government must seek to ensure that those local authorities which need additional resources are supported through adequate essential core funding streams and supported in their applications. Competitive bids for additional funding should in no way be a replacement for the funding that local authorities have historically received and should continue to be allocated. In order to ensure competitive bidding does encourage collaboration and innovation, and is a worthwhile exercise, future competitive funds must be for unique ventures and the amount of funding available must be substantial.

We heard evidence which brought into question the extent of support provided to applicants or unsuccessful applicants by DLUHC. There is a wide gap in perception between the quality of feedback the DLUHC said it had provided and the quality of feedback applicants said they had received. DLUHC does not appear to have a department-wide process which allows for a consistent approach to delivering feedback.

We recommend that the DLUHC provides better guidance on how it will provide feedback on bids. The guidance must set out that feedback is timely, detailed, and consistent. This is especially important for levelling up funds as the quality of DLUHC’s feedback can hinder future applications which can be to the detriment of local communities. Feedback must also be made publicly available, where possible, so that communities can understand why bids are accepted or rejected. This new guidance should be widely disseminated and embedded in departmental practice so that in future those who have been unsuccessful in bidding are able to derive satisfactory material from what has otherwise been a dispiriting process.

We acknowledge that in certain circumstances competitive bidding can also foster collaboration across local government. However, it can also encourage local authorities to develop plans or projects it perceives Whitehall will value to secure funding, rather than to deliver what their local communities may have prioritised.

The nature of competitive bidding can result in resentment between communities and similar neighbouring authorities across the country. Communities and local 38 Funding for Levelling Up authorities should be encouraged to work together, and the Government should be mindful of any adverse effects caused by competitive bidding. It is important that competitive bidding does not pit communities or local authorities against one another for finite resources.

A further concern regarding the distribution of competitive funding was the additional metrics for success applied to once applications had closed in round two of the Levelling Up Fund. This was signally unhelpful for perceptions of trust and transparency and leaves the Government open to criticisms that it has not clearly explained how funding decisions have been made on the basis of need or merit.

Throughout all future competitive bidding processes, the Government must avoid introducing additional metrics for success once an application process has closed. If, for any reason, this becomes unavoidable, the DLUHC must communicate this change via official and public channels of communication before successful applicants are announced. Throughout any funding programme the Government must also ensure that they are able to adapt and respond to the possible impact of inflation through adequate financial support for successful projects.

We heard that an Investment Zone expression of interest costs in the region of £50,000 for one application. Since the Government’s Growth Plan 2022, little to no updates have been provided on the future of Investment Zones until the Budget in March 2023. Although we welcome the Government’s decision to re-open the application process, the DLUHC has limited who can apply. The regions eligible are all Mayoral Combined Authorities (MCA).This raises concerns about the opportunities to level up for areas that do not have an MCA. The Government has also significantly reduced the number of Investment Zones to 12 after receiving nearly 100 applications for the first iteration of the Investment Zone policy. The Government has also not provided any update or compensation for those who wasted resources applying for the original Investment Zones policy.

The Investment Zone policy geared local government up to the prospect of additional funding before the goalposts were moved. Whilst we appreciate that policies sometimes necessarily evolve over time, every effort must be made to ensure that a similar situation does not occur in the future, resulting in a waste of time, effort and money for many local authorities which are already hard pressed and likewise for civil servants within DLUHC. (Paragraph 54) Data and Metrics

The Index for Multiple Deprivation (IMD) has for a long time been widely considered to be the most efficient way of determining ‘need’. As such, we do not agree with the DLUHC’s decision to move away from the use of the long established IMD to determine priority areas one to three. We acknowledge that the DLUHC changed its use of metrics in the second round of the Levelling Up Fund. Nevertheless, it is still not clear what data sets were used for the amended process in round two or why they sought such a complicated process for round one, when local authorities have ample access to data and arguably understand their areas best. (Paragraph 63) Funding for Levelling Up 39

The DLUHC should not seek to fix something which is not broken. Rather than outsourcing the collection of new data sets, the Department should have called on the expertise of bodies such as the Local Government Association and offices within local government which have ample access to data on deprivation and measuring need and understand their local areas and communities best. This would have ensured that time and money was not spent on reframing and accessing data which has, most likely, already been collated elsewhere. Furthermore, the data and data sources the DLUHC chooses to use to determine the parameters for funds, such as the Levelling Up Fund, should always be clear and accessible. It is still not always clear what data sets the DLUHC is using. We suggest that transparent data collection processes and calling on the support of local government would have prevented the perverse situation of deprived areas such as Barnsley Metropolitan Borough Council missing out from the first round of funding.

We are concerned about the DLUHC’s lack of sufficient data on all aspects relating to levelling up. The Department has acknowledged that it lacks data of sufficient quality about Government department’s expenditure on the full range of levelling up funds. It also lacks data on combined authority income and expenditure. This raises the question about how the DLUHC measures success or failure in the levelling up policy, its initiatives and objectives. Taking the publication of the White Paper as a starting point, the levelling up policy has been live for over a year, and the ongoing absence of adequate data raises significant concerns about how the DLUHC can realistically take credible data-driven decisions within this policy. It further raises questions about the DLUHC’S future ability to determine whether its policy is a success.

One of our core tasks is to monitor the policy of the DLUHC and without sufficient data we are limited in our ability to do so. We are concerned that the lack of accessible data was not foreseen or resolved in a timely manner. As the DLUHC noted themselves that there is not “sufficient data” we recommend DLUHC remedy this problem as quickly as possible. Therefore, the Department must produce and make publicly available the data on departmental expenditure and data on combined authority income and expenditure so that our committee, local government, and communities are able to access and monitor the policy’s progress.

The DLUHC’s solution to its lack of data appears to have been the creation of the ‘Spatial Data Unit’ (SDU). The SDU was set up over a year ago and since then we have sought to understand the work of this unit and their forward plan. However, it remains unclear what data will be produced and by when.

The delay and lack of information regarding what the SDU is working on, what the Unit intends to produce and when these data sets will be available, is unsatisfactory. The DLUHC, via the SDU, must make clear at the start of every year what data it is planning to produce and when this information will be made available. At present, in the absence of clear information about the intended outputs, we cannot see how the SDU is a good use of public resources. Levelling up requires a long-term strategy, with long term funding plan, backed by data. This is currently not being demonstrated. (Paragraph 68) 40 Funding for Levelling Up

According to the Financial Times, concerns about the DLUHC’s ability to deliver ‘value for money’ have been raised by the Treasury. Despite DLUHC’s efforts to reassure us, the Treasury’s decision to remove DLUHC’s ability to sign off on capital expenditure is a significant concern. The DHLUC needs to make clear what impact this will have on the delivery of future DLUHC funded projects and in particular future funding under the levelling up policy. (Paragraph 69) The UK Shared Prosperity Fund

We have heard from representatives from the Welsh and Scottish Governments, officials from Northern Ireland, and from English local authorities, all of which have said that the UK Shared Prosperity Fund (UKSPF) was not a sufficient replacement for previous European funding. However, the DLUHC has assured us that the UKSPF is indeed a sufficient replacement. We have endeavoured to reconcile these differing views and better to understand what the reality of the funding situation is. the House of Commons Welsh Affairs Select Committee and the Scottish Affairs Select Committee have also spent time trying to get to the root of the disagreement between recipients and the Government on the sufficiency of these funds. However, all the evidence we have received has said that the UKSPF is not a sufficient replacement.

We do not have sufficient data regarding how calculations have been made, the information we do have from central and the Devolved Governments are also not comparable in their current form. However, the number of stakeholders and local government bodies which have told us UKSPF is not a sufficient replacement is significant. This view indicates that there has been a serious deficit of collaboration and communication between the DLUHC and recipients on this issue, resulting in the lack of a shared understanding of the methodology the Government has used to calculate UKSPF.

One criticism of the UKSPF, which has been reiterated is that funding is only allocated for 3 years. In comparison, previous EU funding was allocated over 7 years. The shorter time frame for this replacement fund has caused difficulties for many organisations who require a longer term in which to achieve the interventions for which they are seeking funding.

The Government needs to find a way to provide certainty of funding for a period of time which is more than the three years under the UKSPF. We have seen in the local government sector what a detrimental effect short-term financial funding settlements have had, and we receive repeated calls to press the Government for multi-year settlements. If the Government does not find a way to provide funding over a longer period, many organisations will find their programmes to be unviable, and a lot of important work will go undone. Therefore, we call on the Government to commit to a longer-term funding programme. (Paragraph 85) Funding for Levelling Up 41 Consultation with the Devolved Governments

The DLUHC has told us that it consulted with the Devolved Governments on the creation, compatibility, and implementation of the levelling up funds. However, we have heard from the Scottish and Welsh Governments, and officials from the Northern Ireland Executive, that they have not been satisfied with the level of consultation they have had with the Department. Based on the concerns and challenges that have been presented to us in relation to funding for levelling up by the Devolved Governments, we can only conclude that the consultation has for all involved. If the Department had taken a more detailed and comprehensive approach before and during their consultation, while taking on board concerns raised by the Devolved Governments, we believe it would have been able to avoid some of the challenges and criticisms it has encountered.

We have also heard from the Scottish and Welsh Governments, and officials from the Northern Ireland Executive, that levelling up funding was not always compatible with devolved policy and that the method of distribution was not appropriate. The Multiply fund is an example of the UK Government not providing value for money when it comes to matters under the UKIMA and devolved policy. Although the UK Internal Market Act 2020 provides the Government with powers to support economic and education development across the UK, we have heard that the method for distributing Multiply funding was wasteful and not done in the most efficient way.

Where the DLUHC is seeking to provide funding in [policy] areas that are generally understood to be devolved, it is critical that the Department works hand in glove with the Devolved Governments. As such, through good communication and close collaboration, the Department should ensure the distribution of funding reflects the knowledge, expertise, and preferences of the Devolved Governments so far as it compatible with the purpose and objectives of the funding, whilst acknowledging the provisions under the UK Internal Markets Act. We recommend that in future the DLUHC ensures there is ongoing and more detailed engagement with the Devolved Governments at a level deemed sufficient by Wales, Northern Ireland, and Scotland to allow for emerging challenges to be addressed in a timely and efficient manner.

The lack of consideration for the circumstances in which the Executive and its Officials in Northern Ireland operate is of even greater concern to us and speaks to an on- going theme we found throughout this inquiry regarding the extent of consultation carried out by the DLUHC with Devolved Governments and stakeholders. We heard that the parameters for engagement set out by the Department in their initial phase of consultation were not compatible with section 75 of the 1998 Northern Ireland Act. Officials from Northern Ireland told us that the Department did not use existing structures for engagement in Northern Ireland and, because their engagement was not in line with the 1998 Act, officials were at risk of legal proceedings if they did engage. We have not had a satisfactory explanation from the Department on this matter and this issue remains unresolved.

In the future, the DLUHC must make sure that its engagement with officials in Northern Ireland is compatible with section 75 of the 1998 Northern Ireland Act, so 42 Funding for Levelling Up that in the absence of an Executive, officials in Northern Ireland are able to engage with the DLUHC. For this reason, the DLUHC must avoid needlessly reinventing the parameters for engaging with stakeholders in Northern Ireland and instead engage with them through existing structures to avoid these challenges in the future. (Paragraph 106) Local growth

The Government’s flagship Levelling Up policy is one in a long line of local growth initiatives. The National Audit Office reported that since 2010 there has been the repeated introduction of ‘new’ local growth policies. The stop-start character of local growth initiatives has arguably slowed or even in some case prevented the development and provision in local areas of infrastructure to support individuals and communities through long and sustained interventions. International comparisons have been drawn with the longevity of funding associated with Germany’s reunification project which spanned several years. This policy has been referred to by some as a model of best practice when comparing the benefits of longer-term, substantive, growth initiatives and funding. We also note that the levelling up missions, as set out in the White Paper, are intended to be achieved or to have seen some progress by 2030, which only allows for under 10 years for the policy’s aims to be achieved.

Based on the evidence we have received and given the historic frequent churn of local economic growth initiatives, it can be argued that levelling up is unlikely to be successful in achieving the objectives it seeks to address. The challenges levelling up seeks to resolve are complex and cannot be remedied by one-off short-term initiatives. To change this, the policy requires a long-term and substantive strategy and funding approach, things this policy currently lacks. Without such, Levelling Up risks joining the short-term Government growth initiatives which came before it.

We note the significant cross-party consensus there appears to be for the challenges that the Levelling Up policy is seeking to solve. We recommend that future Governments take a more sustained and long-term approach to levelling up matched by ongoing and secure funding. This must avoid unnecessary duplication and not lead simply to the creation of more local growth initiatives. Only in this way can the policy begin to address the challenges outlined in the White Paper and ultimately find success in ‘levelling up’ the UK. (Paragraph 111) Funding for Levelling Up 43