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The Government’s funding simplification plan steps in the right direction but doesn’t address key challenges

While setting worthy ambitions and demonstrating Government has listened to objections to the current grants system, this week’s announcement from DHLUC still leaves us guessing as to how the Government intends to tackle key challenges.

Blog post published on 6 July 2023 by Stuart Bridgett

The Government has launched a three-phase plan to simplify the funding landscape for local authorities, making progress on its commitment in the to do this in the February 2022 Levelling Up White Paper (LUWP).

The plan includes some significant and positive aspirations for the long run but no concrete timeline for getting there. Meanwhile, its short and medium-term proposals bring some welcome changes, but have not taken the opportunity to significantly tackle the problems of funding fragmentation, centralised decision-making, and the challenges in local government outlined among the eight challenges facing funding simplification in Figure 1 below.

Figure 1: The eight challenges facing funding simplification

Source: Pot Luck, 2023, Centre for Cities

In phase 1, the Government’s plan sets out some immediate, small steps towards simplifying the management of three capital grants that have already been launched by giving local authorities more flexibility in deciding how to adjust their costs and expected outputs for three capital funds: the Leveling Up Fund, Future High Streets, and Towns Deals. These changes will be helpful for local authorities trying to adjust their plans in light of cost inflation, and reduce some administrative burden of managing funds, but are not a significant step in tackling the eight problems above.

For ten ‘pilot’ local authorities, they will be able to move funding between the three funds, so that they have greater scope to prioritise projects, and will have their reporting requirements combined, helping reduce their administrative costs. This is welcome flexibility but for now it only applies to a few places, and for only three grants that already have investment plans in motion.

Phase 1 also removes the requirement for local-led evaluations to be done for most situations, as the Government recognises that local authorities cannot effectively and rigorously deliver the amount of evaluation they are currently expected to. This will be a positive step if efforts are directed more strategically so that more valuable and rigorous evaluation is done but, in order to do this, more resources, capacity, and better incentives are needed at a local level.

In phase 2, the Government commits to establishing a funding simplification doctrine to be launched in 2024, which could make significant improvements to how funds are allocated.

The doctrine will promote the allocation of new grants, according to transparent and methodological rationale – rather than through costly and often ineffective competitive bidding – which will achieve government aims more effectively and reduce the burden on local authorities. This would help overcome the current overreliance on competitive bidding and could help coordinate the funding system according to national strategy if the allocation rationales are tied closely to a wider strategy for how the Government wants to achieve its high-level objectives in that policy area.

The doctrine also proposes that where practicable, new investment should be delivered through existing programmes rather than creating new grants. If this is adhered to across central government, it may help stymie the further fragmentation of funding but this approach is unlikely to significantly consolidate the already fragmented funding landscape.

While decision-making is centralised, central government departments will likely continue setting granular objectives for local government and will need to establish new grants to achieve them, such as the chewing gum task force grant. Decentralising some decision-making to local leaders – and overcoming barriers to doing this, like local government fragmented structures, capacity and accountability – so that low-level objectives are set locally is necessary if the grants system is to be significantly consolidated.

Phase 3 of DLUHC’s plan addresses this exact point, by committing the Government to rolling out mayoral-led devolution deals and ‘trailblazer deal’ multi-year, departmental-style single funding pots to all areas of England that want them. This would be an enormous improvement to simplify the funding landscape and decentralize decision-making to local leaders, but currently, there is no concrete timeline for when such arrangements will be delivered, and not every place will want them.

These aspirations are very worthwhile, but there is still little detail on how they will be achieved. The three-phase plan gives an indication of the direction of travel for levelling up and local government funding simplification as we approach the next spending review, and is a good sign that the Government has listened to objections and is wrestling with real challenges in how local government is funded and structured. However, this week’s announcement still leaves us guessing as to how the Government intends to solve the problem it identified in the LUWP 18 months ago.