Supporting local economic growth

The Department does not yet have a strong understanding of what works for local growth but we welcome its belated commitment to evaluating local growth interventions. It is disappointing that, despite billions spent on local growth over many decades, government does not yet have a strong understanding of what works. In 2019, the committee highlighted how the Department did not understand what impacts its £12 billion Local Growth Fund had had on local economic growth and yet had also decided not to evaluate it. While we are pleased that it has now reversed that decision, designing an evaluation at the end of a scheme is not ideal. Activities, such as establishing a baseline against which to assess impact, will be extremely difficult. It is inherently complicated to understand the impact of place-based policies and central government funding is only one part of the wider levelling up agenda. But understanding what part these policies play will be essential to ensuring continued improvement and value for money. It is encouraging that evaluation features prominently in government’s Levelling Up White Paper and that the Department is committed to improving its track record in this area, but it is disappointing that it has not yet developed the promised overarching monitoring and evaluation framework for local growth. 6 Local economic growth Recommendation: The Department should update us on progress with its local growth evaluation commitments (including for the Local Growth Fund) and set out how it intends to feed evaluation findings back into its ongoing local growth activity and to the wider levelling up agenda.

We are concerned that optimism bias has meant realistic bids to the Levelling Up Fund have missed out at the expense of ‘shovel-ready’ projects that have since been beset with delays. The Department told us that, four weeks from year end, it had paid out around £100 million of the “up to” £600 million it made available in 2021–22 for the first round of the Levelling Up Fund. Since deliverability was one of the criteria for the first round (£1.7 billion) and the Department required bidders to be able to spend some funding in the 2021–22 financial year (through a pass/fail gateway criteria), this figure should be higher. We are concerned that some bidders may have got through the selection process by being overoptimistic about how ‘shovel ready’ their projects were, while other—more realistic—bidders may have missed out. Local authorities unused to presenting bids in this way, such as those in the devolved administrations, may have been at a particular disadvantage. Recommendation: The Department should set out: • Spending profiles for the first round of funding, confirming how much have spent in 2021–22 against the £600 million it anticipated paying; and • Its assessment of optimism bias in authorities’ deliverability plans.

There remains considerable uncertainty for Local Authorities around funding, structures and responsibilities for local economic growth. The Department extols the virtues of local plans for coordinating and achieving value for money from central government funding. However local authorities’ attempts at long-term planning have been frustrated by the timing, co-ordination, and unpredictability of the “alphabet soup” of funding pots to support regeneration in recent years. Unlike Whitehall departments, local authorities do not know what is coming next and have to dedicate time and resource to respond piecemeal to each new announcement, with no guarantee of success. Further uncertainty arises from delays in awarding some of this funding, and the patchy integration of Local Enterprise Partnerships (LEPs) into existing structures. While the Department is now consolidating funding and says there are now “indicative allocations” for the UK Shared Prosperity Fund, the scheme itself has yet to be announced. The Department plans to introduce Levelling Up Directors to improve relations between central and local government. However there is, as yet, no clarity on when they will be in place, and limited information on what they will be doing. Recommendation: In its Treasury Minute response, the Department and HM Treasury should set out how they intend to provide greater certainty to Local Authorities to enable them to plan the integrated capital, skills and community investment needed to drive growth in their areas.

It is unclear how the Department is reconciling tensions between devolved responsibilities and administering local growth funding on a UK-wide basis. Economic development is a devolved power but the Department is administering the Levelling Up and UK Shared Prosperity funds (UKSPF) on a UK-wide basis. We Local economic growth 7 are concerned that decisions were taken without sufficient consideration of devolved governments’ priorities. These include on how much to allocate, what the criteria were, when to open and close bidding, and how to score bids,. The Department assures us that it is expecting significant collaboration with the devolved governments and with the local bodies responsible for delivery. However, it has not yet convinced us that that this collaboration will be effective in ensuring that priorities of the devolved administrations are adequately taken on board. Recommendation: The Department should set out: • How it will ensure that the processes for awarding funding for future rounds of Levelling Up Fund and the UKSPF will address the prioritisation of devolved nations. • How it plans to ensure ongoing engagement with the devolved administrations.

Accountability for levelling up outcomes remains unsatisfactory. This Committee has reported before that government’s accountability arrangements had failed to keep pace with increasingly complex ways of delivering policies and services. and that this had weakened accountability to Parliament for the use of public funds. The cross-government nature of the levelling up ambition makes accountability more complicated, and the Levelling Up outcomes (or ‘missions’) in the White Paper relating to pay, productivity, and employment are inherently cross-cutting. While accountabilities for the Levelling Up fund and UK Shared Prosperity fund are clear, the Department told us that those for the 12 Levelling Up missions are still being worked through. Recommendation: HM Treasury and the Department should write to the committee alongside the Treasury Minute response to clarify departmental accountabilities for levelling up outcomes and in particular for cross-cutting missions.

The Department does not yet know how it will measure performance on a consistent basis across different geographical areas and timescales. We are concerned that data availability and quality is not yet adequate to track progress against the Levelling Up missions, either at a local level or to allow comparison across the UK’s nations. For example, it is not clear how the Department will measure sub- regional productivity, as an outcome measure around living standards, since Gross Domestic Product data is not available at a local level. We welcome the steps the Department is taking to improve its data quality, but we are not convinced that there is sufficient capacity at a local level to make the data quality improvements needed there. We are also concerned that data quality improvements may not be delivered in time to allow year-on-year comparisons or to establish a baseline against which to measure progress. Recommendation: The Department should clarify how it intends to provide performance information on a consistent basis (both year on year and across different geographical areas) and how, in the absence of good quality local data, it intends to establish a baseline against which to measure progress. 8 Local economic growth 1 Design and Delivery

On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Levelling Up, Housing & Communities (the Department), HM Treasury, the Department for Transport and the Department for Business, Energy & Industrial Strategy about Supporting local economic growth.1

LEPS, the business led-partnerships that have been an important part of the local growth landscape over the past decade, will take a back seat going forward as government delivers more funding through local authorities. The Department told us it is encouraging the integration of LEPs and their business boards into mayoral combined authorities, the Greater London Authority and county deals where they exist. We heard they will continue to play a role where devolution deals are not in place, but the Department did not expand on what that role would be.22 The Department told us that Levelling Up Directors within the Department will improve coordination between central and local government. They will sit in the department alongside area-based teams, though the Department provided no clarity on when they will be in place, indicating only that they would be “advertising for the roles soon”. The Department described an important role for them in: strengthening the Department’s presence in different parts of the country; championing local government within central government and vice versa; contributing to discussions around performance measures; and mediating between local authorities and the Department.23 It did not provide further clarity on the day to day role. Devolved responsibilities

Economic development is a devolved power and, since the late 1990s, local growth funding in the devolved nations has been managed by the Scottish and Welsh Governments and the Northern Ireland Executive.24 Since 2020 however, central government’s principle local growth programmes have been UK-wide. The Towns Fund, announced in July 2019, was for England only but the Levelling Up Fund, the UK Community Renewal Fund and the UK Shared Prosperity Fund are all UK-wide.25 The Freeports programme, announced in August 2019, is also UK-wide and while the Chancellor announced Freeport locations in England at the March 2021 Budget, it has taken longer to agree Freeports in Scotland. On 25 March 2022, the UK and Scottish Governments opened bidding for two Scottish Green Freeports.26

We asked the Department how the part played by the devolved governments on the UK Shared Prosperity Fund compared to their part in deciding the allocation of the European funds it is replacing. The Department explained that for the European Structural Funds, the Devolved National Governments had been the “managing authorities” but that decision-making for the UKSPF will be for the UK Government. We raised concerns that 20 Q 79, 80 21 Q 79 22 Q 80 23 Qq 90, 119–122 24 C&AG’s Report, para 4 25 C&AG’s Report, para 3.2; Committee of Public Accounts, Selecting towns for the Towns Fund, Twenty-Fourth Report of Session 2019–21, HC 651, 11 November 2020, para 2 26 Q 103,C&AG’s report, para 3 and Figure 2; Department for Levelling Up, Housing & Communities, Freeports programme: accounting officer assessment, March 2022; Green Freeports in Scotland: bidding prospectus, March 2022 Local economic growth 11 the arrangements meant that where the Scottish Government, for example, had previously been able to allocate funds to local authorities using its priorities, the equivalent decision for the UKSPF would now be taken by the UK Government and based entirely on UK Government’s assessment of priorities.27 We noted that decisions such as those around how much to allocate, what the criteria were, when to open and close bidding and how to score bids, were taken by the UK government, whereas previously devolved governments would have had significant input.28

The Department reassured us that it was expecting to work very closely with each of the devolved Governments and with the individual local authorities responsible for delivery. We were, however, sceptical about how close past cooperation with devolved Governments had really been and the extent to which it enabled national priorities to be accommodated, though we acknowledged that co-operation between officials appeared to have improved.29 The Department considered the recent experience with Scottish Green Freeports a “really good example” of collaboration between the UK and Scottish governments. We noted, however that Scottish Green Freeports took a long time to agree and suggested that may have been because the Scottish Government eventually secured requirements that it wanted to include but that hadn’t featured in the UK government’s requirements.30 Decision-making when awarding funds

We questioned the Department on whether the way in which it was awarding funding might mean some areas missed out multiple times across the various funding pots while others were given several opportunities to get funding.31 The Department explained that successful bidders from round 1 of the Levelling Up Fund would not be able to bid again in round 2, though it said it had made an exception for transport authorities which could bid for a transport project on top of another successful bid.32 We heard that the Department’s decision on which towns it had selected as eligible for the Towns Fund had been driven by need and so it hoped that any areas that were benefiting from the Towns Fund and had the opportunity to bid for the Levelling Up fund would be places in greatest need of local investment. The Department acknowledged that there were some ‘challenges’ to the competitive approach and told us that it had decided to award UKSPF by formula to ensure that there would be funding in every part of the country.33

We reminded the Department that when we reported previously on the Towns Fund we had raised concerns over the opacity over some of its decision making.34 In November 2020, we reported that the selection process for awarding the Towns Fund had not been impartial. We said that a lack of transparency over the selection process, which had relied upon Ministers selecting which towns had received funding from a ranked list prepared by officials, had fuelled accusations of political bias.35 At March’s evidence session, we 27 Qq 101–102 28 Q 104 29 Qq 103–105 30 Qq 103–104 31 Qq 45, 49, 50, 53 32 Q 49 33 Q 53 34 Q 54 35 Committee of Public Accounts, Selecting towns for the Towns Fund, Twenty-Fourth Report of Session 2019–21, HC 651, 11 November 2020 12 Local economic growth explained that there were still lots of MPs who still did not understand why their area did not get funding under Town Deals and queried what safeguards the Department had put in place to stop the political influence of Ministers in the current suite of funding.36

The Department’s accounting officer reasoned that we had discussed and reported on the Towns Fund at quite considerable length and that he felt it had a been a valid and fair process.37 In respect of the Levelling Up Fund, he said that there had been a very high level of transparency, referring to an explanatory note setting out how decisions were taken, that it had published alongside the list of 105 successful bidders.38 Contrary to the Department’s indications about data published, it did not publish a list of unsuccessful bidders or any thematic distributional analysis of bids and awards and there is no transparency of the location and type of unsuccessful versus successful bids.The Department reassured us that the party of the local MP played no part in the decision-making but that, as they had set out in advance, there was a small allowance in the scoring for where a bid had demonstrated local MP support.39

We questioned the Department on the nature and timing of the role for Ministers in making final decisions for the Levelling Up Fund.40 The NAO’s report explains that following an initial pass/fail gateway, officials scored and ranked bids against published criteria and then passed a shortlist of the highest scoring bids to Ministers. Ministers then made final decisions, taking into account the scores as assessed by officials though the process allowed them some discretion in how bids met a pre-defined list of ‘other considerations’.41 The Department explained that Ministers made decisions about how much money to allocate; what score threshold to apply and what the balance of investment across the three themes of the Levelling Up Fund would be.42 We acknowledged that some decisions would always be taken subjectively by Ministers but wanted to understand how much discretion they had.43 We wanted to understand if Ministers had decided on the principles for awarding funding only after they knew who, from the 170 shortlisted bidders, would win and who would not as a result of those principles.44 HM Treasury told us after the evidence session that Ministers had seen a high level summary of all eligible bids prior to shortlisting but that they made decisions from a shortlist that had been locked down. The Department told us that none of the scores changed as a consequence of ministerial decision-making. It pointed us to the explanatory note which, it said, laid out the detail of how Ministers made their decisions.45 The explanatory note implies a single discussion in which Ministers discussed the shortlist and determined principles for award.46 However, the Department did not publish sufficient information for us to determine, as we would expect in the interests of openness and transparency, how much discretion Ministers had. For example, it did not publish lists of shortlisted or unsuccessful bidders, neither did it publish any information on how the Department had scored

According to its business case, the Department expected to allocate £720 million of the total £4.8 billion budget in the first round of the Levelling Up Fund. In October 2021, government announced 105 successful bids totalling £1.7 billion for the first round.47 The Department told us that there had been a large number of good-quality bids and, as part of the routine course of the spending review, the Chancellor thought it would it appropriate to fund £1.7 billion work of projects in the first round.48 The Department and HM Treasury were unsure whether bidders had any indication how much government was intending to award in the first round of funding but HM Treasury told us that the figure £720 million had never been in the public domain.49 We expressed some concern that local authorities would have had to decide whether to bid in the first round or to wait to later rounds and that the greater the money paid out in the first round, the smaller the amount available for those that chose to hang back. We noted the risk that this decision may have been more difficult for local authorities not familiar with these particular bidding processes, such as those in the devolved administrations.50

We queried whether making “up to” £600 million available for 2021–22 at the Spending Review 2020 had set an expectation about the amount that would be awarded in the first year.51 The Department explained that this £600 million was the amount it expected bidders to spend in the first year of funding and not an indication of how much it intended to award in the first round. When asked how much it had paid out this year, the Department estimated that it had so far paid out around £100 million.52 Given it was only four weeks to the year end when we took evidence, that the Department had required bidders to be able to spend some funding in the 2021–22 financial year as part of the pass/ fail criteria, and it expected bidders to spend £600 million in the year, we would have expected this £100 million figure to be much higher.53

The Department told us that getting started on delivery was, in many cases, taking longer than expected but that it did not want to penalise places now that they had got through the assessment process. We heard that delays have often been for good reasons such as areas taking more time to ensure they have got other project funders in place.54 We asked if the Department had any concerns that bidders may have got through the selection process by being overoptimistic about how ‘shovel ready’ their projects really were, while other—more realistic—bidders may have missed out. The Department told us it did not have any reason to believe that places had been over optimistic.55 47 C&AG’s report, para 3.26 48 Q 60 49 Qq 61, 63 50 Qq 63, 105 51 Q 94 52 Q 95 53 Qq 97–98 54 Q 97 55 Q 99 14 Local economic growth 2 Monitoring, evaluation and oversight Accountability for Levelling Up Outcomes

This Committee reported in 2016 that government’s accountability arrangements had failed to keep pace with increasingly complex ways of delivering policies and services and that this had weakened accountability to Parliament for the use of public funds.56 Noting the long timescales and magnitude of the delivery challenge, we questioned witnesses on who was accountable for levelling up outcomes. The Department told us that levelling up was a cross-government exercise which inevitably made accountability more complicated.57 The Department explained that Cabinet Committee would be the formal mechanism for overseeing the Levelling Up work as a whole but that government was still working through accountabilities for the Levelling Up ‘missions’- in reference to the 12 ‘missions’ or Levelling Up outcomes set out in the White Paper.58

We heard that a lot of the missions were cross-cutting and would require leadership from several departments while others were more focussed and there would be more of a role for a lead department.59 For example, the Accounting Officer from the Department for Business, Energy and Industrial Strategy told us that she was accountable for targets in the White Paper relating to innovation.60 We queried whether HM Treasury, which ultimately holds the purse strings, felt responsible for delivering on levelling up. HM Treasury told us that its accounting officer was not accountable for the Levelling Up Fund or for the UK Shared Prosperity Fund and that the overarching mission relating to pay, productivity and employment was inherently cross-cutting and touched every government department.61 Formal accountability for the UKSPF sits with the Department, it shares accountability for the Levelling Up Fund with the Department for Transport.62 Approach to evaluation

We questioned the Department on why, despite billions of pounds spent on it over the years, there was so little evidence on what works for delivering local economic growth, particularly outside London. The Department’s Accounting Officer pointed to the inherent complexity of understanding how local economies grow, and that the precise mix of interventions needed and the engagement between private sector and society, varied from place to place. He explained that ultimately it was for central government to provide frameworks and funding, and for local areas to determine the right interventions. While acknowledging that the picture of evidence was imperfect, the Department told us that it was “not a counsel of despair” and that the Levelling Up White Paper drew very clearly on lessons from the past.63 As examples of successful local growth projects, he pointed to the Department for Transport’s Transforming Cities Fund and, he said, taking a broader interpretation of what makes a difference at a local level, the Supporting 56 Committee of Public Accounts, Accountability to Parliament for taxpayers’ money, Thirty-ninth Report of Session 2015–16, HC 732, 4 May 2016 57 Q 128 58 Q 128; HM Government, Levelling Up the United Kingdom, CP 604, 2 February 2022 59 Q 128 60 Q 132 61 Q 133 62 Q 36; C&AG’s Report, para 6 63 Q 12 Local economic growth 15 Families programme. Drawing from the White Paper, the Department emphasised the importance of a holistic definition of local growth that included not only investment in physical capital such as transport infrastructure, but how to combine that investment with other forms of investment such as skills.64

In 2019, this Committee reported that the Department did not understand what impacts its £12 billion Local Growth Fund had had on local economic growth yet had decided not to evaluate it.65 We were encouraged to learn that the Department has now decided to reverse that decision but, as the NAO’s report highlights, designing an evaluation at the end of a scheme is not best practice as activities such as establishing a baseline against which to assess impact will be extremely difficult.66 The vital importance of embedding evaluation into programmes from the start was also stressed to us more recently by the government’s heads of evaluation and analysis, who are trying to improve practice across government as a whole.67 The Department assured us that this retrospective approach is not one it would take now and stressed the importance of continued evaluation and its prominence in the White Paper.68 We asked the Department how it intended to use the metrics in the Levelling Up White Paper to evaluate what was working and what was not. The Department told us that evaluation was at the heart of its work and, in a break from the past when it left evaluation to local bodies, it was putting evaluation strategies in place up front.69

The Department has been considering an overarching monitoring and evaluation framework for local growth to include common objectives and outcomes, within which individual programme-level frameworks would sit. This would enable it to compare the relative effectiveness of similar initiatives and minimise the data collection burden on local authorities. The Department has not yet started to develop this framework but is now developing detailed monitoring and evaluation plans for each of its local growth funds. These are at different stages of implementation. The Department has previously committed to defining a common set of metrics to aid comparison across places, but without significant progress.70

When we asked what success would look like for people in areas where, for example, it is hard to get a job or the High Street is struggling, the Department highlighted the importance of taking a broad definition of growth.71 We heard that that success would include people having access to good jobs, a good place to live, a vibrant High Street and pride in the sense of community. The Department for Transport told us that its appraisal includes measures around the role that transport plays in connecting people to jobs and services, unlocking housing and wider investment, and decarbonisation.72 64 Qq 12–15 65 Committee of Public Accounts, Local Enterprise Partnerships: progress review, One Hundred and Fifth Report of Session 2017–19, HC 1754, July 2019 66 C&AG’s Report, paras 19 and 4.10 67 Public Accounts Committee, Oral evidence: Use of evaluation and financial modelling, HC 1055, Wednesday 9 March 2022 68 Q 12–13 69 Q 137 70 C&AG’s Report, para 4.5 71 Qq 14–15 72 Qq 15–16 16 Local economic growth Measuring performance on a consistent basis

Two of the missions in the Levelling Up White Paper are ‘overarching’ missions. The first is around living standards and includes measures of productivity, pay and jobs and the second is around measures of well-being.73 With reference to the first, we asked the Department how it intended to measure local productivity. The Department told us it had set out the metrics it intended to use to track progress against the missions in the annexe to the White Paper but acknowledged that while there was regional GDP data, there was very little available below regional level.74 It told us it had: set out a programme of work to improve the quality and timeliness of local data, including data that would make comparisons across the UK’s nations possible; that it was developing a Spatial Data Unit (which the White Paper says will drive the data transformation required in central government); and that it was working closely with the Office of National Statistics to collect statistics that reflect the modern economy.75

When we asked the Department whether it expected to be able to get this data quickly enough to be able to measure what impact the funds under its levelling-up agenda were having, the Department told us it would be able to make some progress quickly but some of it would need time to develop.76 We questioned whether there was sufficient capacity at a local level to gather and analyse useful data, the Department told us that some local authorities were already doing this but acknowledged that not all would be in that position. The Department considered that conversations with local authorities, communities and businesses about the health of their economies could provide proxy indicators in the absence of good data.77

We asked the Department how it intended to pull together all this data to show a big picture, as well as a local picture, to demonstrate the effectiveness of government’s levelling up agenda. The Department told us it had committed to reporting annually on levelling up and its performance against the missions but it had not yet committed to a timescale.78 We encouraged the Department to consult on the contents of these reports and to provide consistent data on a consistent basis that would enable us to compare one year with another.79 73 Q 107; Page 12 – Levelling Up the United Kingdom: missions and metrics Technical Annex (publishing.service. gov.uk) 74 Q 107 75 Q 107; Government’s White Paper: Levelling Up the United Kingdom, Page 150–151 76 Q 108 77 Q 110 78 Q 125 79 Qq 127–128 Local economic growth 17