Thomas Pope argues that the Levelling Up Fund is another ineffective competitive funding pot that is neither large enough nor targeted enough to make a dent in regional inequalities.
The announcement of the latest projects funded by the government’s Levelling Up Fund, which the government says is designed to “create new jobs, drive economic growth, help restore people’s pride in the places where they live, and spread opportunity more equally”, 13 Department for Levelling Up, Housing and Communities, Northern Ireland Office, Office of the Secretary of State for Scotland, Office of the Secretary of State for Wales, The Rt Hon Rishi Sunak MP, Landmark Levelling Up Fund to spark transformational change across the UK, press release, 18 January 2023, www.gov.uk/government/news/landmark-levelling-up-fund-to-spark-transformational-change-across-the-uk. has stimulated fierce debate over which areas have won and which have lost. £2 billion has been awarded (out of a total fund of £5 billion) to over 100 projects across the whole country, following the announcement of £1.7 billion of funding awarded to 105 projects in Autumn 2021. 14 Department for Levelling Up, Housing and Communities, Levelling Up Fund: first round successful bidders, 27 October 2021, www.gov.uk/government/publications/levelling-up-fund-first-round-successful-bidders
Those areas winning bids will no doubt welcome the money, and the projects funded will improve some local areas. But as a UK-wide policy the Levelling Up Fund lacks the scale or focus to move the dial on the substantial and persistent gaps in regional economic performance that the government has pledged to address through its levelling up agenda. Nor is the model of awarding money to local projects based on central government competitions an effective one.
There are policies and reforms the government could implement that would, over time, make a serious dent in regional inequalities, but the Levelling Up Fund is not one of them.
The Levelling Up Fund is neither large enough nor targeted enough to regenerate left-behind regions
At £4.8 billion, the total size of the fund is larger than most other similar funds (such as the towns fund or community renewal fund). But that only amounts to around 0.2% of this year’s GDP, and is much smaller than the more than £10 billion cut to local government spending power since 2010. Even these comparisons to annual figures substantially overstate the size of the fund because it will be spent over several years. Today’s announcement covers only £2 billion of the total, and of the first tranche of funding awarded last year only £243m has been spent as projects take time to get off the ground. 18 Williams J and Foster P, Is the UK’s plan to revive ‘left behind’ areas running into trouble?, Financial Times, 13 November 2022, www.ft.com/content/6d4ca5c9-37c7-4570-bb36-e8895440fbc6 Even if the fund were very well directed, the money involved could at best make small progress on regional economic gaps which amount to hundreds of billions of pounds annually.
The broad coverage of the fund also suggests it is not strategically targeted to have maximum impact on regional inequalities. Across the two tranches of the fund so far, authorities covering 70% of the UK population have been awarded at least some funding, amounting to total spending of around £81 per person. Spreading the money thinly might be an effective political strategy, but it is not the best way to reduce economic disparities (which is a prominent, although not the only, goal of levelling up).
Recent Institute for Government research highlighted that investments are likely to drive bigger economic change when they are targeted on a smaller number of areas with high economic potential because this can lead to a step-change in the attractiveness and productivity of an area. That work pointed to the UK’s underperforming large cities outside London as good candidates, but the Levelling Up fund has continued to provide slightly more funding per head to rural authorities (£55 per head) than urban ones (£52 per head).
The competitive bidding process is inefficient and ineffective
The Levelling Up Fund is one of many designed to promote local growth initiatives, with local authorities able to bid into hundreds of competitive central government funds. This is not an effective way to spend money or select projects.
Bidding for funds is expensive: a recent FOI showed that local authorities have spent at least £27m preparing bids for various levelling up funds. 19 Whitehead M, Councils spend millions on levelling up bids, new figures show, LocalGov, 6 January 2023, www.localgov.co.uk/Councils-spend-millions-on-levelling-up-bids-new-figures-show/55395 This also risks biasing the process towards better-resourced authorities that can afford to spend more to compile more convincing bids.
The competitive funding model also means that winning projects are decided based on central government’s priorities (and bids are therefore geared towards those). While this might be attractive to ministers, in practice local government is likely to have the knowledge of which projects are highest priority. Indeed, the Levelling Up White Paper acknowledged the need to “support local leaders… by simplifying the disparate funding landscape”. 20 HM Government, Levelling Up the United Kingdom, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1052706/Levelling_Up_WP_HRES.pdf, pxxvii.
Finally, high profile competitive funds will inevitably breed scepticism and criticism when awards are announced. Even if a process were entirely absent ‘pork-barrel’ ministerial meddling, some places winning while others lose will always leave a government open to those accusations. The process therefore neither leads to an effective use of money nor the headlines ministers might hope for.
More ambitious policies and reforms are needed
The Levelling Up fund is a symptom of and contributor to the overly complex local government funding arrangements which the government’s own white paper criticises. And the money involved is too small to drive big changes in regional inequality.
Achieving the white paper’s missions will require the government to show more policy ambition (and spend more money) in some areas. But the government will also need to target the money it does spend more effectively. Big annual departmental budgets, that dwarf the Levelling Up Fund, can have big effects on regional economic development and could be spent better. This is the focus of the policy making reforms the government laid out in the white paper, including further devolution and simplification of local government funding.
The government must stay focused on its broader “systems reforms” to improve the way it directs spending and announce more ambitious policies if it wants its levelling up agenda to succeed. Today’s announcement will do little to help. At best the Levelling Up Fund is a minor contributor to the government’s levelling up aims; at worse it is an unhelpful distraction that has soured central-local relationships, especially in areas that have not won funding.