Published on 4 February 2023
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Levelling Up – too few peanuts, too thinly scattered

In their latest blog, Colin Warnock, Peter Tyler and Geoff White recommend three key priorities within this Parliament for government to get Levelling Up back on track to deliver the ambitions of what was, just one year ago, a flagship policy.

Many congratulations to the 111 winners of the £2.1bn Levelling Up Round 2 funds. And even more commiserations to the 418 losers whose begging bowls remain empty. The winning projects will hopefully benefit the people in their local communities. But will they – to quote the official headline – “spark transformational change across the UK”? That’s very doubtful.

Levelling Up Round 2 – too few peanuts too thinly scattered

The results of the Levelling Up (LU) Round 2 have been announced by the Department for Levelling Up, Housing and Communities (DLUHC). Its explanation of the decision-making process has been dissected with much debate on the extent to which its distribution targeted places most in need.

This matters because it reveals where the government thinks spatial needs reside in the UK. It also matters because the process requires a lot of scarce resouces to bid for small pots of money – and 80% of that effort wasted on losing bids.

But, in the bigger picture, it doesn’t really matter because the sums involved are so small as to be totally inadequate for the transformational purpose. LU Round 2 funding in England is to be £29 per head for projects lasting two to three years – say £12 per head per annum.  That’s roughly equivalent to 0.1% of total public spending per head in England. Or, put it another way, about five packets of peanuts (large packets admittedly) per person. The LU funding per head is higher in other parts of the UK but the point remains – too few peanuts.

And they are too thinly scattered. Successful areas from Round 1 were excluded from Round 2 on the grounds that, by selecting only new areas, the resources across Rounds 1 and 2 could be distributed more widely, and ultimately to cover every International Territorial Level 2 (ITL 2) area in England.

Moreover, the ravages of inflation mean that capital projects will need to be scaled back as part of an ongoing process to obtain DLUHC approval to release funding, before benefits promised at the bidding stage can be realised.  Already, according to IPPR North, only 5% of the LU Fund spending profile has actually been spent within 30% of the lifecycle of the Fund.

Making announcements is easy – delivery takes time.  Big questions exist about whether successful bids can be successfully delivered as originally proposed, with some projects at risk of cancellation and cost overruns and others likely to impact on the delivery of other capital schemes.

Why is this flagship policy failing?

Andy Street, the Conservative Mayor for the West Midlands Combined Authority, recently expressed his frustration with the process, describing it as “another example as to why Whitehall’s bidding and begging bowl culture is broken…”.

The announcement of successful bids to two rounds of the Levelling Up Fund has been one of the few concrete achievements to date from LU policy.  DLUHC has stressed that LU Funding is not the sole plank of the policy.  In a letter to the Chair of the Select Committee for LUHC, the Minister for Levelling Up pointed to £9.9bn allocated to the LU ambition. This was for the Towns Fund, Future High Streets Fund, Shared Prosperity Fund, Community Renewal Fund, Community Ownership Fund and Freeports.  Some of these programmes pre-dated LU; much of it is not new money; and some of it replaces the former European Union (EU) Structural Funds. If we assume it is spent over two years, which is probably optimisitic, that is some £4.95 billion per annum, which is less than 1% of total UK public spending in 2021.

Leaving aside a series of discretionary funding pots, of much greater importance, in our view is the lack of evidence to suggest that mainstream government departments are ‘hard-wiring’ the levelling-up agenda in to their overall spending decisions and the absence of robust monitoring arrangements across Whitehall to track how central government will be responding to the Levelling Up Missions.  In the same letter, the Minister reports that “an extensive funding envelope is contributing to the delivery of the Levelling Up agenda.” And cited a number of initiatives. None of these involve significant funding and – as with LU Round 2 – many involve competitive bidding.

As we reported in an earlier blog, Departmental Outcome Delivery Plans have not been updated since 2021. The Institute for Government noted in a recent paper that these Plans “have started to recognise the cross-cutting and complex nature of most policy problems”, but the problem for Levelling Up is that they have not been updated since July 2021.  In the revolving door of Prime Ministers and Chancellors since then, there has been no public announcement of their being retained or updated.

The appointment of 12 Levelling Up Directors who, it is assumed, might conceivably have had some role to play in engaging horizontally across central government departments and vertically with localities, have not yet been recruited – and may not be recruited at all.

So the achievements to date amount to little more than a series of announcements, many of which have been associated with a competitive bidding process.  Yes, further devolution deals have been announced, but with relatively small sums of money equivalent to tens of millions of pounds a year.  This, when billions are needed.

It is clear that policy delivery to date is simply too far removed from the grand ambitions set out in the White Paper.  As we pointed out in our second blog, the delivery has been done in the absence of clear strategic objectives, appears to have been spatially blind and has ignored the urgent need to get all of central government yoked to the LU plough.  So what can be done in the remainder of this Parliament to turn things around?

What to do about it – now

The Government promises a further round of Levelling Up funding, although the timing has not been confirmed.  With nearly 80% of the £4.8bn LU Fund already allocated, inflation eroding the value of LU Round 1 and Round 2 projects by the day, and with a worsening fiscal outlook, the prospects of a well-funded Round 3 seem somewhat remote.

Should Round 3 go ahead, we would urge the government to take concrete steps to boost the effectiveness of these scarce resources:

Explicitly as part of LU Round 3, proactively broker engagement between local government and central government departments, using this dialogue to inform the content of refreshed, published, spatially aware and LU-supporting Outcome Delivery Plans. These plans should set out three clear priorities:

  1. How Outcome Delivery Plans will support the devolution process, not merely through top-slicing budgets, but through wholesale devolution of mainstream expenditure and service delivery to areas with devolution deals.
  • Kick-starting fundamental reviews of funding formulae, to better allocate resources in line with need.  In doing so there should be a clear commitment to build on the work of the IFS and its Deaton Review.
  • How to urgently rebuild capacity for economic development and regeneration in local government, seconding staff to those areas where additional funding and powers have been devolved, supporting the transition process and helping to build local capacity.

Government needs to move out of its comfort zone of administering a frustrating and wasteful bidding process for separate, small pots of money. Further devolution will help to do this. But, on its own, it will not solve the deep-seated spatial inequalities that the UK has faced for decades. Nor will it enable local places to reach their full potential.

To truly make a difference, devolution has to be accompanied by a substantial shift in the funding of mainstream services and investment, tilting or bending this back to left behind places after a decade of underfunding.

The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy.


Colin Warnock

Colin Warnock is an economist specialising in the appraisal, monitoring and evaluation of economic development, housing and regeneration projects.  His evaluation experience spans four decades and includes enterprise zones, regional...

Professor Pete Tyler

Affiliated Researcher

Pete Tyler is Emeritus Professor of Urban and Regional Economics at the University of Cambridge, UK, and Emeritus Professorial Fellow of St Catharine’s College, Cambridge, UK. His research interests cover...

Geoff White

Geoff White is an economist who worked in HM Treasury and the Department of Trade and Industry before directing a wide range of policy evaluations with PwC, Public and Corporate...

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