The Government made a welcome commitment in last year’s Levelling Up White Paper (LUWP) to streamline the grants system for local government, but so far there have been few concrete proposals for how to do it. Centre for Cities’ latest briefing, “Pot luck”, proposes a path forward to streamline the grants system and ensure it can better support local economic policies. It sets out four categories of principles the streamlined system should be set around:
- Management and accountability
Tying these principles together, it proposes the creation of a single pot, and outlines how it should be formed, allocated and managed, as summarised in Figure 1 below.
Figure 1: How a single pot could be formed and managed
To streamline the grants system the Government must first consolidate it. The current system is too fragmented, with numerous different grants ring-fenced for different purposes, making it difficult for local government to make joined-up plans that cut across policy areas. Central government doesn’t have enough oversight of what grants are being issued to coordinate it either. More than a year after the LUWP’s release in February 2022, the Department of Levelling Up, Housing and Communities does not have a coherent understanding of what grants are supposed to be contributing to leveling up.
To resolve this fragmentation, the Government should form a single pot, by bringing together the various grants issued to local government for economic development, without ring-fencing between policy areas. This means they will have to assess grants currently issued to local government, determine if their purpose is economic development, and if so, roll them into the single pot. Michael Heseltine’s 2012 report “No Stone Unturned” recommended a similar approach, and includes an example of the grants which could be included in the single pot. To avoid introducing ring-fencing, grants which already have spending committed should not be rolled into the single pot until their committed spending is disbursed.
The amount of funding in the pot should be determined by what the Government’s strategic objectives are, not whatever figure the various grants rolled together happen to add up to. If the Government is committed to levelling up, or similar objectives, evidence from German reunification would suggest much more new funding will be needed.
This single pot should be allocated in five-year rounds to give local authorities longer-term certainty over what funds are available to them and sufficient time to deliver capital investment.
The single pot’s allocation must be underpinned by a clear national strategy for growth with a high-level strategic objective, or a few closely-related objectives. This can then guide how the pot is allocated across places to achieve those objectives. Without a clear strategy, it’s not clear how any resulting allocation would be effective at achieving local and national growth.
Asking local authorities to bid competitively for funding is no substitute for a strategically guided allocation either, as competition comes with a number of drawbacks and centralises decision-making away from the local authorities, who then cannot use their local knowledge to develop the most effective policies.
4. Management and accountability
The ‘lead authority’ – responsible for drafting an investment plan and delivering it – should be the top tier of local authority for each place receiving an allocation. These are the Mayoral Combined Authorities (MCAs), unitary authorities, upper-tier ‘county’ authorities and the Greater London Authority, whose boundaries tend to better reflect the economic geographies of their areas.
Local government should be required to submit their investment plans to central government, and then report annually to central government on their implementation progress. Central government should sense check the plans to ensure they’re linked by a clear logic chain or theory of change, and ensure the interventions progress as planned. They also can reject a plan, or withhold an intervention’s future funding if it cannot be progressed, but there should be a high bar for doing this, and they should publish their rationale. This oversight should help resolve central government’s concerns that many local authorities do not have appropriate governance structures to reliably make good spending decisions, while still giving local government flexibility on how to use the funds.
Greater Manchester and West Midlands combined authorities should be the exceptions to this system, as their recent trailblazer deals provide them a devolved pot in return for additional local, parliamentary and internal scrutiny. Their single pot allocation should instead be rolled into their devolved pot.
The Government has recognised many of the problems in the grants system in the way it has designed recent funds such as the UK Shared Prosperity Fund and the City Region Sustainable Transport Settlement. It should now learn from past efforts, move forward with the proposals above, and fulfil the commitment in the LUWP to streamline the grants system.