The Prime Minister’s levelling up agenda – promising to ‘unleash the productive power not just of London and the South East’ and ‘answer at last the plea of the forgotten people and left behind towns’ to ‘close the opportunity gap’ – requires a long journey of transformation lifting the fortunes of further behind places and regions. With the lift to the top floor called, where are we almost a year after this Government was returned with a host of new ‘Red Wall’ MPs and a majority?
The Spending Review set out three priorities – recovery from Covid-19, bolstering public services, and record infrastructure investment.
A year ago, no one could have forecasted the spending the Treasury has delivered this year to pay people’s earnings, to the NHS and on vaccine development in order to deal with the Covid-19 pandemic. The emergency button was pressed as normal business was halted in a way unprecedented in recent history.
The Chancellor confirmed that the emergency isn’t yet over, with £4.6bn to support long-term unemployed into work over the next three years including £375m for lifelong skills training, a further £3bn for the NHS to deliver the backlog of regular treatments and tests, and £3bn local government support for Covid-19 costs and social care precept flexibilities. This has meant a Spending Review that just covers one year instead of the usual multiyear spending plan across Government.
The triggering of the emergency button is providing necessary support where we are now, but what about the rest of the long levelling up journey?
The Government has also published a National Infrastructure Strategy, presenting an approach to spending £100bn on infrastructure through discrete pots of funding ranging from roads to broadband to green tech to high streets. A new National Infrastructure Bank will be established in the North by Spring.
A Levelling Up Fund has been announced for places in England to bid into through a national competition for a share of £4bn to fund projects up to around £20m each. The capital infrastructure fund is intended for ‘everyday infrastructure’ such as roads, high streets, and cultural assets. This programme looks similar in scope to the Local Growth Fund which has delivered £9.1m to LEPs since 2014 and is due to end in 2021. Local leaders have highlighted the difference this funding has made in the very areas the Government should be interested in levelling up.
The highly anticipated UK Shared Prosperity Fund to succeed European Structural Funds has been announced with a pledge to provide at least £1.5bn per year to match what has been spent across the UK through EU programmes. The published heads of terms indicates that funding will be targeted at places most in need ‘such as ex-industrial areas, deprived towns and rural and coastal communities’, and that a portion will be invested in people and skills in labour market interventions. However, there is no detail yet on allocation by place, or by type of intervention by revenue or capital, or whether there will be any level of local control of funding. £220m will be spent in 2021/22 to pilot delivery of UKSPF in some places – again, we don’t know where.
We have confirmation that the £3.6bn Towns Fund will support a total of 167 towns. With many Town Investment Plans now submitted to Government, we await the resulting spread of investment to be made following the initial announcement of agreement with seven places.
On housing, the Chancellor announced a new £7.1bn National Home Building Fund - £4.8bn of which is previously announced Housing Infrastructure Fund and Brownfield Fund and Land Fund with an additional £2.2bn in loans, along with the £12bn Affordable Housing Programme from 2021. There are questions here on where in the country funding will be allocated, and how schemes will be assessed. There is no indication currently that the funding will support supplying new homes where land value uplift potential is low, for instance.
The Green Industrial Revolution announced last week with £12bn investment for developing green technologies, alongside boosting R&D spending to £14.6bn will provide valuable investment for future development of the national economy and meeting zero carbon targets. However, much of these commitments are not linked to place, and so we can’t see a real link to levelling up from Government.
So what is needed to send the lift up?
The long journey of levelling up needs serious investment – the UK 2070 Commission has recommended a £375bn 25 year investment. The investment announced is to be targeted at places that need it most, but so far amount to relatively smaller pots of funding, replacing existing expiring investment schemes. It appears that they will mostly be delivered centrally from Government with a focus on open competition between places and projects. We don’t yet know the expected impact on levelling up for different places.
Whilst there was some confirmation of further funding for Mayors, especially on transport, future devolution plans and the role of Metro Mayors, Combined Authorities and pan-regional partnerships such as the Northern Powerhouse were conspicuously absent in the Spending Review. Devolving control of levelling up investment would link local economic challenges to local understanding of communities and local solutions. The Government’s review of the HMT Green Book focused on business cases for investment needing to emphasise strategic context of investments, rather than a departure from the fundamental modes of investment appraisal and decision making. This is a recognition from Government that economic context in places matters for how funding is delivered. As we move back into localised Covid-19 restrictions, local leadership on understanding and responding to the labour market needs of different local economies will be essential in long-term recovery. Government should recognise that it will need to work with local leaders to build back better.
Spending Review 2020: key announcements
Levelling Up Fund
The Chancellor announced a Levelling Up Fund of £4bn, establishing a Fund for England which will invest in projects of up to £20m. funding will be delivered by HM Treasury, the Department for Transport and Ministry of Housing, Communities and Local Government. The first round of bids will be launched in the New Year of 2021. £300m of the fund will come from unallocated Towns Fund projects, with the proviso that the money is spent on towns fund style projects.
The Levelling Up Fund will require buy-in from local stakeholders to demonstrate local support. Initially, it was announced that this would require approval from local MPs; the Treasury has clarified that mayors, local authorities and LEPs will qualify as local stakeholders.
There have been no further announcements for the Local Growth Funds, and this may be seen as a replacement for the Local Growth Funds, which were controlled by Local Enterprise Partnerships. The future of the local Growth Funds were to be announced at the Comprehensive Spending Review.
UK Shared Prosperity Fund
The UK Shared Prosperity Fund replaces EU Structural Funds, eventually matching the EU minimum of £1.5bn per year. Pilots next year will include £220m of funds. The UKSPF will operate across the UK.
The UKSPF will target ex-industrial areas, deprived towns and rural communities. Outcomes will be targeted within the UK’s national framework, and will be required to be approved by Government. A second portion of the fund will target specific groups and cohorts with national programmes.
The existing funds that are being replaced by the UKSPF are the European Regional Development Fund and the European Social Fund, which saw an allocation of €10.6bn between 2014 and 2020. These will be withdrawn following the end of the Brexit transition process on the 31st of December 2020, meaning that next year’s pilots will represent a substantial shortfall in funding.
Further details of the UK Shared Prosperity Fund will be announced in Spring 2021 as part of a UK wide investment framework. This framework will prioritise investment in people, communities and place, and local business.
Local government funding
Local government will see £3bn in Covid-related support, including £1.55bn of grant funding, £670m for household council tax support and £762m to compensate councils for 75% of lost income from council tax and business rate revenue. The treasury estimates a 4.5% core spending power increase, although substantial parts of this will be increased freedom to raise taxes on local economies.
Councils will receive the freedom to increase council tax by up to 5%. Alongside the standard 2% increase, Councils will receive the ability to levy a 3% adult social care precept, with the potential to raise £1bn in funding for social care. Alongside this, will be a £300m addition to the £1bn of social care funding grants announced in 2019, and a £300m increase in children’s social care.
Covid spending
The Chancellor announced a further £38bn in tackling the virus for this financial year, and £55bn in support over 2021-22. This includes £6bn for vaccines, a further £3.7bn to support the Plan for Jobs, and £21bn in contingency funding for public services. The total cost of the Covid response will reach £280bn over the last financial year, 2020-21.
Jobs and skills
The Chancellor announced a Restart Scheme to provide tailored and “innovative” support for 1 million unemployed people, with £2.9bn in funding; but only £0.4bn in 2021-22. Existing schemes from the Plan for Jobs will be continued, such as an already announced £2bn for the Kickstart Scheme to fund over 250,000 Kickstart jobs. The Review also committed £375m to lifelong skills learning.
Infrastructure
The Chancellor announced a £27bn increase in capital spending relative to last year totalling £100bn. This includes £19bn of transport investment, £4.2bn investment in the NHS, and £260m in digital infrastructure. £2.5 billion will be invested in eight city regions to address transport, and mayoral combined authorities will receive £50m in capacity funding to enable this spending. Alongside this, the creation of a new National Infrastructure Strategy, a new National Infrastructure Bank, and a refreshed Green Book which aims to address regional imbalances.
The Green Book changes include a shift in emphasis from Benefit Cost Ratios to strategic rationales stronger requitement to establish clear objectives, clearer advice on value for money, a new emphasis on place-based impacts, and an increased focus on non-monetary benefits..
Transport
£2bn has been allocated for the next fiscal year to maintain subsidies to the rail network. Meanwhile ,£4.8bn in subsides for buses, light rail and TfL has been earmarked for the remainder of the year, although with no extension into 2021-22 (this will likely be extended, as bus operators have been promised costs will be covered until the end of the crisis).
Housing
The Chancellor announced a £7.1bn National Home Building Fund. £4.8bn of this comes from previously announced projects – the Housing Infrastructure Fund, the Brownfield fund and Land Funds – and the remaining £2.2bn will be delivered as loans.
Innovation
£11.1bn will be put into R&D spending between 2021-2022, with £400m for core science spending and £800m for high risk investments.
Public sector pay freeze
The Spending Review saw the announcement of real term cuts for most public sector workers. The majority of public sector pay workers will see a pay freeze over the next financial year. Public sector workers earning under the median wage, £24,000, will receive a guaranteed minimum £250 pay rise, but this would represent a real term cut in the face of projected 2% rate of inflation. NHS workers will receive a pay rise in line with the NHS Pay Review’s recommendations as usual.
Departmental spending
Departmental spending will increase by £14.8bn over the next year, including a £6.6bn increase for the health department and a £2.2bn increase to the schools budget.
Defence spending will see an increase a £4bn extra per year, and the overseas budget will shrink from 0.7% to 0.5% of GDP, seeing a decline in funding of around £3bn.