by Professor Steve Fothergill, CRESR (Centre for Regional Economic and Social Research)
Alongside the White Paper on Levelling Up published on 2 February, the government issued ‘pre-launch guidance’ on the UK Shared Prosperity Fund, intended to replace EU funding to the regions. Details of the UK SPF have been long-awaited, and the fund is intended to be up-and-running this spring. So where do we now stand?
Aims of the UK SPF
In the Spending Review back in autumn 2020 the government defined the three priorities for the UK SPF as ‘investment in people’, ‘investment in communities and place’ and ‘investment for local business’. These themes are carried forward into the guidance but there is a new and over-arching emphasis on what the government calls ‘pride in place’.
The shift in emphasis moves the focus further from local and regional economic development, which was the aim of EU funding. Examples in the guidance of what might be funded include visual improvements to town centres, interventions to address litter and graffiti, neighbourhood improvement and outdoor markets. The shift could in practice pave the way to funding being spread more evenly across most places rather than concentrated in the less prosperous parts of Britain most in need of levelling up.
Allocation between areas
There’s good news here because the government has backed away from competitive bidding, which has been widely criticised, and promises instead to use a funding formula. The bad news is that the pre-launch guidance doesn’t provide local financial allocations or explain what the formula will be. The allocations are promised in the spring, when a fuller prospectus will be published.
As announced in the 2021 Spending Review, the financial pot for each of the devolved nations and Cornwall will be not less than they previously received from the EU. However, we are left in the dark as to whether the least prosperous parts of England, mainly in the Midlands and North, will retain the high priority they enjoyed under EU funding. There is also no suggestion that South Yorkshire and Tees Valley & Durham will be given comparable favourable treatment to Cornwall now that their GDP figures are worse.
Local economies mostly operate across several neighbouring authorities but stop short of whole regions, so it makes sense to allocate funding at the sub-regional scale. The government’s proposals are a hotch-potch.
For Scotland, the government says it “would support delivery across existing strategic areas, illustrated by but not limited to City and Growth Deals”. For Wales, it says it “would support delivery across strategic regional areas” (N Wales, Mid Wales, SW Wales and Cardiff City Region). In Scotland and Wales, sub-regional delivery is therefore the model. In England, mayoral combined authorities will be the building block where they are in place – again this is a sub-regional delivery model.
In the rest of England, the government wants the fund to be delivered by lower tier or unitary authorities – 225 individual authorities in all. These are a long way from self-contained local economies. It will be nigh-on impossible in most of these areas to design and implement strategic interventions in the local economy that span local authority boundaries. Additionally, if the modest EU funding going to large parts of southern England is any guide to the allocation of the UK SPF, the sums going to each lower tier or unitary authority will often be very small.
There is a further problem in that distortions in formula-driven funding allocation are likely to arise if economic data is compared at very different spatial scales (combined authority vs. shire district).
The government expects the management of the funding to reflect delivery geographies, with the relevant local authorities / mayors taking the lead. It expects local partners to be involved and for local MPs to be engaged too. There is no clear and obvious role for the devolved administrations in Scotland and Wales though they will be “invited to play a role in the development and delivery of local investment plans”. Each of the delivery geographies will have to submit an investment plan to the UK government for approval.
The Multiply initiative to support adult numeracy – announced in the 2021 Spending Review – will be funded by £559m of UK SPF monies but managed separately by the Department for Education, with arrangements to be announced. How this fits with devolved responsibilities for education remains unclear.
UK SPF funding is intended to be used alongside other funding, such as the Levelling Up Fund, and unlike with EU funding the government is not presently setting fixed requirements regarding matching finance.
There is no commitment in the pre-launch guidance to funding beyond the current Spending Review period. In other words, the UK SPF is presently a £2.6bn programme over three years, ending in 2024-25. By comparison, EU funding to the UK regions operated over a seven-year cycle and over the 2014-20 period was worth £1.5bn a year (at present-day prices).
The government has promised that average annual funding for the UK SPF will match this £1.5bn a year. In fairness, lags between decision-making and activity on the ground mean that it takes a while for actual spending to build up and, by the final year of the new spending round (2024-25), the government does expect spending to hit £1.5bn. But what happens beyond that?
The short-term nature of the present UK SPF funding has major drawbacks: It will not be possible for local partners to design and implement strategic interventions that need to run on more than a couple of years or, especially in the case of capital projects, take several years to implement. Crucially too, unless something like £1.5bn a year is available to commit each year during the present spending round the lags between decision-making and spending mean that it will not be possible to sustain spending at this level beyond 2024-25.
The danger, therefore, is that despite the government’s promise it will fail to deliver a UK SPF that matches the EU funding it is intended to replace.