03What needs to change

Based on the lessons from the examples above, Figure 3 sets out how the Government should deliver on its commitment in the Levelling Up White Paper to simplify the grants system for local economic policies in a world without wider and fiscal devolution. A streamlined grants system alone cannot solve all the problems outlined in Section 1, but can still significantly improve upon the status quo.

The proposals in Figure 3 set out to improve the grants system through consolidation, long-term timescales, strategic allocation, and clear management and accountability.

  • Consolidate: Create a single pot of funding for economic development.
  • Long-term timescales: Commit funds in rolling five-year rounds to increase certainty over funding and reduce the churn of grants.
  • Allocate: Allocate the funding non-competitively based on a national strategy that devolves decisions over what the funding is spent on to local government.
  • Management and accountability: The top-tier of local government should be the lead authority for each place that receives funding; combined authorities, unitary authorities, upper-tier county authorities and the Greater London Authority. The lead authorities should draft investment plans, report on their progress and are accountable for their delivery.

Figure 3: How a single pot could be formed and managed


Create a single pot for economic development

The Government should:

  • Create a single pot of funding for local economic development which does not have internal ring-fences directing grants to specific programmes or policy-areas. The only ringfence should be to set a minimum amount of capital spending, to ensure spending is appropriately financed and adheres to current expenditure limits, but with local government able to use the remaining funding as either revenue or capital expenditure.60
  • Assess existing grants to local authorities to consider which have the objective of facilitating economic development, and include them in this single pot. Grants with other objectives should continue to operate separately. Michael Heseltine’s ‘No Stone Unturned’ report previously outlined an example of the grants that could be included in a single pot.61

Grants with already committed spending should continue to operate separately, but future rounds of funding that otherwise would have come under those grants should instead be folded into the single pot. This may mean the pot cannot be launched immediately without the Government providing additional funding.

Consolidating grants will make the grants system simpler, but the resulting figure may be more or less than what the Government thinks it needs to achieve its strategic objectives. The amount of funding that was needed for ‘levelling up’ East Germany after German reunification would suggest the single pot needs more funds than consolidation can produce, and the Government will need to find new funds if levelling up is its objective.62 As an example though, if the single pot was equivalent to the funding from the UKSPF, LUF, City deals and Towns Fund, it would equate to a pot of up to £13 billion.

Long-term timescales:

The pot should be allocated on a rolling five-year basis, with minimal spending restrictions between years. This funding should not be spread evenly across the five-years. Instead, the Government should consult with local authorities in advance to determine roughly what disbursement schedule will allow them to plan to advance their projects at the pace they think is best.

Levelling up is a long-term ambition, as any strategy for economic growth should be, so the Government should commit to its strategy to guide allocations for a minimum of ten-years, or two funding rounds.


Allocate the funding according to a clear national strategy

A strategy is something that makes choices and addresses trade-offs rather than spreading money everywhere.63 The Government should set the overall focus of the fund, but should do so with a clear, long-term strategy that has a single high-level objective, or small number of closely related, high-level objectives, which are clear and consistent across policy areas. The strategy would then guide how much money is allocated to different places in order to deliver those objectives.

This means there will be some parts of the country that are given more money than other areas. A critique of the Levelling Up Fund allocations was that some places did not get funding, and it was unclear why. In this instance, it is the lack of clarity that is the problem, not that some places didn’t receive an allocation.


The top tier of local authorities should lead the investment plans

Funding should be given to the authority best placed to take decisions over the whole of the local economy. Combined authorities’ boundaries broadly match the economic geographies of their areas, and they were established specifically to implement transport and economic policy so it is a straightforward decision to allocate funding to them where they exist.64 Elsewhere, the lead authorities should either be unitary or upper tier authorities. As upper tier authorities cover wider geographies, they are more likely to reflect functional economic geographies and will be better able to coordinate with the relevant stakeholders within it, such as the lower tier district councils. Though lower-tier districts and upper-tier counties split responsibility for economic development in two-tier areas,65 splitting the funding allocation across tiers would fragment the pot and implicitly create ring-fences, as the different tiers are responsible for different policy areas.

Build local government capacity

Local government should be provided with funding to build their internal capacity to deliver their economic policies. The amount of funding required will depend on the scale of the investments local authorities must manage, and current capacity (which differs across types of local authorities), but it should be enough so that every local authority receiving an allocation can manage its projects, assess local barriers to growth, develop policy and evaluate the impact of past interventions.

This means funding will need to be made available in advance of the drafting of the investment plans, during the five-year rounds, and after their plans are delivered. Capacity funding can be provided by enabling local authorities to use up to a certain share or amount of their grant allocation on internal capacity. If local authorities decide they do not need to use all of this share for capacity, they can use it instead for the projects in their investment plans.

In addition, a clear commitment to future rounds of funding from the Government will be an essential signal to local authorities that they should retain and improve the capacity they develop.


Require coherent investment plans from local government

To get access to their single pot allocation, the lead local authority should create five-year investment plans which include:

  1. A concise evidence-based outline of their plan to deliver the strategic objective or objectives set by central government.
  2. Specific interventions and projects intended.
  3. Spending and milestones associated with each intervention.
  4. Outputs each intervention is expected to produce.
  5. Outcomes/indicators that the outputs are intended to impact.

Delivering on these investment plans will require the input and cooperation of other local stakeholders, and therefore by definition the drafting of these plans will require the lead local authorities to coordinate and reach agreement with these local stakeholders, such as other tiers of local government.

National government should review these plans to ensure they are underpinned by a clear logic chain, justification or theory of change and that they use an evidence base to identify If an investment plan does not meet these conditions, the funding should not be released until the lead local authority produces an investment plan that does. The Government should operate on an assumption that it will accept the plans submitted, and if it does deny any plans it will publish its rationale for doing so that local authorities can adjust their plans if necessary.

Assessing these plans effectively will require central government to earmark sufficient capacity in key departments, which has been a problem for the assessment of bids for other grants recently.66 Reducing the reliance on competition and moving towards a single pot will cut down on the number of plans and bids that central government must assess overall – it received 834 bids for the first two rounds of the Levelling Up Fund alone – but problems like high staff turnover and vacancies in key departments will need to be resolved.67

Combined authorities with trailblazer devolution deals should be the exception to the accountability arrangements outlined above because of the additional accountability arrangements to their local electorate, parliament, and internal audit and scrutiny committees that were announced in their deals. Instead, their allocation under the single pot should be rolled into their multi-year devolved pot. Box 2 discusses this in more detail.

Box 2: Combined authorities with “trailblazer” deals should have their funding rolled into their own devolved pot

For the Greater Manchester and West Midlands mayoral-led combined authorities, their allocations should be folded into their devolved single pot agreed under their “trailblazer” deals in March 2023.

These deals will provide both places with their own single devolved pot determined on a multi-year basis through the spending review process and will give the combined authorities much greater flexibility over how to spend it. The deals also build in further accountability of the combined authority’s decisions through local and parliamentary scrutiny, rather than relying on additional mechanisms built into different grants.

As part of this increased scrutiny, the combined authorities will be required to publish certain metrics and details under a ‘single reporting framework’ – the exact details of which the Government is yet to publish.68 But the Government must ensure that the reporting requirements enable at a minimum the comparison of interventions, outputs and outcomes between devolved areas and other places.

Local authorities must report on progress

To build accountability into the system, which could be policed by the newly-established Office for Local Government:

  • Local government should report monitoring data on the milestones, spending, outputs and outcomes/indicators to central government on an annual basis, and these metrics should be made publicly available.
  • Central government should be able to withhold the future funding disbursements for projects that local authorities are unable to progress, following engagement with the local government to try get the project back on
  • Central government should be able to reduce the funding made available in the next five-year round to any places that were unable to deliver their investment plans.

If a project fails to progress according to plan, the Government should first support local authorities to help them get their projects back on track and consider changes to the investment plans that the local authorities propose that would allow them to advance their projects before withholding funding.

Evaluate interventions to build an understanding of what works

The Government, both central and local, should evaluate the impact of the interventions wherever possible, and begin planning early to do so, in line with What Works Centre for Local Economic Growth and the Government’s Magenta Book recommendations.69 This means prioritising the policy areas where there are the largest gaps in understanding for robust impact evaluations.70 Conducting these evaluations at the local level will often require additional resources, capacity, and incentives which the new Office for Local Government could play role in providing.71