02What lessons can be drawn from other grants

While there has been a proliferation of grants over the last decade that have complicated the funding landscape, the Government has implicitly recognised the problems discussed above in the choices it has made in three major funding streams for local economic development – the Local Growth Fund, the UK Shared Prosperity Fund (UKSPF) and the City Region Sustainable Transport Settlement (CRSTS).

This section assesses each of these three grants to determine how well they navigated the eight problems outlined in section one and to draw out lessons that should be incorporated into a streamlined grants system. There are few perfect solutions, but each of these grants has had some successes which can help inform a streamlined grants system. Where past grants have persistently struggled to resolve these problems also shows that in the longer term, other wider reforms such as local government reforms and devolving fiscal powers are likely to provide more effective solutions than redesigning the grants system alone.

Figure 2 below summarises how well these grants have navigated the eight problems using a tick, an X and a dash to indicate if each grant substantially resolved, did not resolve, and partially resolved or has limited generalisable lessons for managing grants.

Local Growth Fund

The Local Growth Fund was launched in response to Michael Heseltine’s 2012 report, No Stone Unturned, and ran from 2015 to 2021.²⁸ It was guided by his recommendations to create a single pot of funding for economic development allocated to Local Enterprise Partnerships (LEPs) on a competitive basis.

Consolidation

Fragmented and complex funding streams – substantially resolved:  The Local Growth Fund successfully simplified funding, by pooling a large number of grants together into one pot. But this pot was not entirely free of ring-fencing. The individual growth deals included funds that had already been committed, with 20 per cent of the funds under the first tranche already pre-committed to transport bodies.²⁹ In three LEPs, more than half of their first allocation was pre-committed.

Timescales

Short termism and churn of grants – partially resolved: Once each place’s deal was struck with the Government, the single pot successfully provided funding certainty over the five-years it ran, but it was then wound-up, reintroducing the problems of churn and fragmentation of pots once it ended.

LEPs also reported feeling under pressure to spend funds according to central government’s preferred timeline, or risk being allocated less funding in the competitive process, and so put forward plans with more ‘shovel-ready’ projects rather than the best ones.³⁰

Allocation

Lack of national strategy guiding allocation – did not resolve: One of the criteria assessed during the competitive process was whether the plan had regard to the national growth strategy, but this was only a number of criteria which determined how bids were assessed.³¹

Reliance on competition – did not resolve: Competition underpinned the allocation process for the Local Growth Fund. LEPs drafted and submitted local plans to the central government which were then negotiated, but ultimately the central government decided on the allocation based on which plans they assessed were best.

Management and accountability

Centralised decision making – partially resolved: The LEPS drafted their own plans, but as funds were allocated competitively, decision-making was still relatively centralised. Central government determined how much of the pot to allocate to each LEP, and LEPs tailored their plans to appeal to central government.

Fragmented local government – partially resolved: The funds were awarded to the newly-created LEPs, which were partnerships between local authorities and business whose geographies were intended to reflect functional economic areas. However, some local authorities were in more than one LEP which fragmented decision-making and weakened accountability for economic outcomes in that area.

Local government accountability – did not resolve: The LEPs did not have appropriate accountability mechanisms over their spending to either the electorate, or to central government. Because LEPs were not elected bodies, but rather boards that included both local government and business leaders, they were not ‘downwardly’ accountable to the electorate. The result was that they were often not publicly transparent in their decision-making. ³²

Instead, the Government intended to hold LEPs accountable to their investment plans, as their annual funding was conditional on them reporting on milestones, outputs and outcomes. Payments to the LEPs could be withheld or staggered if they were failing or struggling to reach project delivery milestones.³³

However, this didn’t work particularly well in practice. The Government’s oversight of the Local Growth Fund was intentionally ‘light touch’,³⁴ instead relying on assurance frameworks and other internal accountability frameworks that many LEPs did not have in place when the fund was launched.³⁵ This resulted in some LEPs having substantial failures of internal governance, such as the Greater Cambridge and Greater Peterborough LEP which was wound-up following a government review that determined it did not comply with national assurance frameworks.³⁶

Local government capacity – did not resolve: The local growth fund did not sufficiently resolve issues around capacity, as LEPs were under-resourced as institutions.³⁷ LEPs were heavily reliant on staffing from local authorities to function, with 69 per cent of LEPs reporting they did not have sufficient staff to fulfil their roles.³⁸ This meant they struggled to deliver on their plans, resulting in an underspend of £1.1 billion of the £12 billion committed by 2017/18.³⁹

UK Shared Prosperity fund

The UK shared Prosperity Fund (UKSPF) is intended to help replace EU structural funds from 2022 by allocating £2.6 billion of funding across a three-year period – targeting three investment priorities: community and place, supporting local business, and people and skills.⁴⁰

Consolidation

Fragmented and complex funding streams – partially resolved: The UKSPF covers three policy areas, but includes some internal ringfencing of funding for adult skills (the “Multiply” programme) and does not cover a lot of policy areas that are important for economic development.

Timescales

Short termism and churn of grants – partially resolved: A three-year funding settlement is better than many grants, but shorter than the EU funds that preceded it (seven years) or the Local Growth Deals (five years), making it difficult to deliver longer-term interventions like infrastructure investment.⁴¹ Local authorities also face some spending restrictions between years. For example, most spending on the people and skills priority could initially only take place from 2024/2025.⁴² This restriction was later relaxed but by this point many local authorities had already committed to plans.⁴³

The actual timeline for the UKSPF has also been squeezed substantially by delays to the launch date, leading to local authorities having to roll forward their plans and spending to the next financial year.⁴⁴

Allocation

Lack of national strategy – did not resolve: The formula which determines how the UKSPF is allocated is not underpinned by any clear strategy for national growth. Instead, the Government has decided to reproduce the same distribution across regions – and to Scotland, Wales and Northern Ireland – as the EU funds it is replacing. This gave more funding to regions with lower productivity than the EU average – an approach which does not cohere with the approach set out in the Levelling Up White paper.⁴⁵

Within those regions, the funding will be allocated across local authorities based on mostly on population, but also based on deprivation.⁴⁶

Reliance on competition – substantially resolved: The grant is not allocated competitively, instead using a formula to determine how much funding a local authority should receive.

Management and accountability

Centralised decision-making – substantially resolved: Local authorities are broadly free to determine how best to spend their allocation within the three priorities, with some restrictions.

The Multiply budget for each area has already been allocated based on skill levels, and the ‘core UKSPF’ funds will then top up an area’s total allocation until it reaches their share allocated according to the allocation above.⁴⁷ This means that places with lower skill levels have a higher share of their funds already earmarked for skills.

Fragmented local government – partially resolved: A single ‘delivering’ local authority exists in most areas for the UKSPF; the MCAs, the Greater London Authority, and unitary authorities. However, in two-tier areas, the lower-tier district authorities will deliver the ‘core’ UKSPF, while the ‘Multiply’ funding will go to the upper-tier county councils.⁴⁸ As mentioned above, this differs from the Community Renewal Fund, which considered upper tier councils the lead authorities.⁴⁹

Local government accountability – substantially resolved: The UKSPF includes additional monitoring and ‘upward’ accountability mechanisms between the local authorities and central government which provide more oversight of spending decisions and implementation progress. As the fund has only launched recently, it is not clear yet how effective these systems will be in practice but they in theory should ensure that local authorities have the flexibility to determine their own local policies but are accountable for delivering them.

Central government has an overview of the local authorities’ intentions with the funding, as they must submit investment plans to be agreed with central government before grants are dispersed, which outline how they intend to use the funding, which interventions and outputs they are prioritising, the spending profile for the three years of the plan, and which wider outcomes and indicators that the local authority wants to improve. Central government can then hold the local authorities to account to implement their plans as the local authorities then must report on their progress to central government on a six-month basis,⁵⁰ and central government can withhold next year’s grant disbursement relating to a project if the local authority is failing to progress it.

The interventions should be logically linked to the problems local authorities identify in their areas, as central government has prepared a menu of outcomes and linked interventions to help local authorities select suitable interventions. Local authorities can also propose bespoke interventions if they choose, which central government will assess to ensure they link local context, outcomes and outputs with clear logic chains or a theory of change.

Local government capacity – partially resolved: Local authorities can also spend up to 4 per cent of the fund on building capacity to manage the fund, and were granted between £20,000 and £40,000 each to help develop their investment plans.⁵¹ Additional capacity boosting resources are positive, but providing it as part of relatively short-term grant means local government doesn’t have the certainty to retain as much capacity and institutional knowledge as would be possible with longer-term resources.

City Region Sustainable Transport Settlement

The City Region Sustainable Transport Settlements (CRSTS) are devolved grants which run in five-year rounds, provided to the eight city region, mayoral-led combined authorities (MCAs). The first round of the CRSTS is worth £5.7 billion and runs from 2022 to 2027, with a second round worth £8.8 billion – announced in the 2023 spring budget⁵² – running from 2027 to 2031. It aims to help simplify the grant system and give city regions more flexibility in deciding their own transport priorities.

Consolidation

Fragmented and complex funding streams – partially resolved: The CRSTS helps simplify transport funding by bringing together different grants, like the Integrated Transport Block (ITB) and Highways Maintenance grant into one grant. As the name suggests, the CSRTS is limited to transport funding and other policy areas important for economic growth remain separate.

Timescales

Short termism and churn of grants – substantially resolved: The initial five-year timescale gave the city regions greater certainty over the resources available to them in the medium term, which has been improved further with the announcement in 2023 of a second five-year round, beginning in 2027.

Allocation

Reliance on competition – substantially resolved: The grant included some bidding for funding, as each MCA was given an individual ‘bidding range’ but this range included a minimum amount of funding each MCA would receive so long as the bids met a minimum standard set by central government.⁵³

Lack of national strategy – substantially resolved: The funding is strategically allocated and underpinned by the 2020 National Infrastructure Strategy,⁵⁴ with each MCA bidding range’s informed by the National Infrastructure Commission recommendation on growth-focused funding.⁵⁵

Management and accountability

Decentralised decision making – substantially resolved: The CRSTS is a devolved fund which allows the MCAs to broadly decide what to spend the funding on, so long as their plans meet the minimum standard.

Fragmented local government – substantially resolved: Rather than being split between tiers in the areas it operates, the grant is only available to MCAs, which were established specifically to provide transport and economic policies and have geographies that broadly reflect the area their local economy operates over.

Local government accountability – partially resolved: The CRSTS relies on the stronger and clearer executive accountability of the directly elected, mayoral-led combined authority model to allow the electorate to hold the local authority executive to account, rather than this being done by central government.⁵⁶ The Government will publish details of the funding, outputs agreed, and progress towards delivery in order to better inform the public of the projects’ progression. This local electoral accountability is welcome, but is not an effective arrangement for managing grants in places without the mayoral-led combined authority model.

As is standard for transport investments, 15 to 20 per cent of the project must be funded with local contributions.⁵⁷ This encourages local authorities to carefully consider how best to use the capital funds available but also may not be a solution for managing grants elsewhere, as for many smaller local authorities the match funding would be unaffordable. ⁵⁸

Local government capacity – partially resolved: The CRSTS is accompanied by funding to boost the MCAs’ internal capacity to manage transport projects, which is worth roughly one per cent of each MCA’s allocation.⁵⁹ The 5-year rounds, and the Government’s early commitment to a second round of funding provides more certainty for local government to build and retain the capacity needed to deliver this fund.