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Levelling Up funding: the governance challenge

Author: ICAEW Insights

Published: 27 Apr 2022

The Levelling Up White Paper points to insufficient regional data and the need for a new accountability framework. But will this create barriers for local authorities to access funding?

Local authorities are used to strict governance and accountability procedures for financial management of public money. But under the new Levelling Up agenda, councils will have to submit to a new monitoring and evaluation process if they wish to enter the competitive bidding process to receive Levelling Up funds. Although essential to ensure public money is spent effectively, that process could prove tricky for some, especially if local authorities are seeking a new devolution deal.

The government’s Levelling Up White Paper highlights the “insufficiently granular” data available at regional level and suggests that these “data gaps” contributed to previous failed attempts at eradicating inequality across the UK.

The White Paper says: “The Bean Review identified the need for more timely and geographically flexible subnational statistics for policy purposes and the 2020 review of UK regional productivity by the Industrial Strategy Council highlighted particular subnational data gaps.”

To tackle data gaps and harness the potential of new data and visualisation techniques to support levelling up, the UK government is putting in place a transformative data and analysis strategy at the regional level.

The White Paper states that “before new devolution deals are agreed, a new accountability framework will be finalised that will apply to all devolved institutions in England. This will ensure that there are clear roles and metrics for assessment and measures to support local areas, alongside strong local scrutiny mechanisms.”

To secure Levelling Up funds in the competitive bidding process, local authorities will have to build a strong business case, including detail on how the authority will spend the money, and how it will monitor and evaluate that spend based on clear objectives. As part of the bid strategy, local governments will need to demonstrate that they have a robust governance and accountability framework in place.

However, due to austerity cuts and, more recently, the pandemic, local authority funding has been squeezed more in recent decades than ever before, resulting in a struggle for “financial survival” in some cases.

The National Audit Office (NAO), the watchdog of public finances, found in its study on the Financial sustainability of local authorities 2018 that authorities had faced significant challenges since the 2010-11 austerity cuts under then Chancellor George Osborne.

In its follow-up 2019 report, Local authority governance, the NAO said: “Effective governance is particularly significant as funding has diminished because authorities’ objectives are now increasingly fundamental and relate, for instance, to securing their own financial survival and continuing to meet statutory service obligations.”

Tracey Groves, partner at management consultants StoneTurn, says: “The biggest challenge for local authorities is going to be the ability to align what their priorities are to their strategic goals because those strategies have been massively impacted by the pandemic.”

In its report Local government grants: how effectively do they support communities?, published in 2021, CIPFA highlights the complexity of the bidding process and its concerns around it. 

“Allocation by bids requires considerable capacity and favours councils with the skills and resources for this approach. It also may not necessarily result in the funding being allocated where it is most needed. To ensure fairness, support must be provided to those with less experience,” CIPFA’s report says.

It highlights the example of the bidding process for the Garden Villages Fund in 2019, when councils submitted more than 100 proposals and only five were approved, “resulting in considerable costs for those [failed] organisations”. 

It also raises questions about political influence in regard to the allocation of funds for the £3.6bn Towns Fund in 2019. “There has been a public debate around the allocation of funds and the extent of ministerial influence, as in terms of parliamentary constituencies, 57 of the 101 successful towns were in Conservative constituencies and 44 were in Labour constituencies.”

Given that the UK is one of the most regionally unequal countries in the developed world and some local authorities are more deprived than others, the government has recognised the cost of the bidding process and allocated some funding towards this to ease the resource-intensive pressure of competitive bidding.

The government has said that any area in England will have the right to a devolution deal, if they want one, by 2030. Some areas are going for joint deals in order to secure the maximum funding. But this could prove complex. Merging two or more different local authorities to create a new mayoral combined authority, for example, in terms of governance and accountability frameworks.

“If you’ve got a joint bid, the governance needs additional consideration as it may involve greater risk,” says Joanne Pitt, Local Government Policy Manager at CIPFA.

However, Pitt hopes that the Department for Levelling Up, Housing and Communities (DLUHC) will work collaboratively with local authorities to help them through the bid process and the requirements of that in terms of monitoring and evaluation.

Ministers also plan to put in place a “transformative data and analysis strategy at the subnational level” as well as a new Spatial Data Unit to speed up data usage in central government. As part of the Government Statistical Service’s (GSS) Subnational Data Strategy, published last December, there is also a framework for producing and disseminating more timely, granular statistics.

“The scrutiny on how Levelling Up is being done has expanded to include much more of this qualitative stuff in terms of is it being done fairly, equitably and are they able to demonstrate that they’re doing it in a way that is transparent and honest,” Tracey Groves says.

The success of the new Levelling Up and bidding process remains to be seen, but the government’s plan is clearly one of improved data analysis and dissemination to eradicate inequalities across the UK. Its success? That will become clearer in the coming years.

Pitt says: “CIPFA welcomes the fact that the government appears to have recognised the challenges inherent in a bidding process and have tried to address that with additional support.”

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