PAC highlights “past form” at DLUHC with questions over award of ‘Levelling Up’ funds

Ministers finalised the principles for awarding the first round of £1.7 billion of Levelling Up funds only once they knew the identities and scores of shortlisted bidders – a situation the PAC calls “unsatisfactory” in a report today, saying “DLUHC has past form with this”.

In November 2020 the Committee reported that the selection process for awarding the Towns Fund had “not been impartial” and raised concerns about the lack of transparency over the towns selected. The Committee remains concerned over the timing of Ministerial input for funding awards, and also that realistic bids to the Levelling Up Fund have missed out at the expense of projects claiming to be ‘shovel-ready’ that have “since been beset with delays”.

In 2019, the committee highlighted how DLUHC did not know the impact of its £12 billion Local Growth Fund - but had also decided not to evaluate it, and says now that “accountability for levelling up outcomes remains unsatisfactory”.

Government has spent billions on local growth policies over many years without “a strong understanding of what works” or how it will measure performance across different geographical areas and timescales and must “demonstrate how the priorities of the devolved administrations will be addressed” in local growth funds.

PAC report conclusions and recommendations

5. It is unsatisfactory that Ministers finalised principles for awarding the first round of the Levelling Up Fund only once they knew the identities and scores of shortlisted bidders. The Department has past form with this. In November 2020, we reported that the selection process for awarding the Towns Fund had not been impartial and we raised concerns about the lack of transparency over the selection process. The Department’s efforts to improve transparency over decision making for the Levelling Up Fund, for example, by publishing an explanatory note alongside the list of 105 successful bidders is welcome. However, we remain concerned over the timing of Ministerial input for final awards. Following an initial pass/fail gateway, officials scored and ranked bids against published criteria and passed a shortlist of the highest-scoring bids to Ministers. Ministers then made final decisions after taking into account the scores as assessed by officials.  The process allowed them some discretion in how bids met a pre-defined list of ‘other considerations’ but Ministers decided on the principles for awarding funding only after they knew who, from the 170 shortlisted bidders, would win and who would not as a result of those principles. The Department’s explanatory note did not list unsuccessful bidders or contain any thematic or distributional analysis of bids and awards. There is no transparency over the location and type of unsuccessful versus successful bids. 

Recommendation: The Department should: 

• Determine principles for awarding funding before the identities of shortlisted bidders are disclosed to ministers   
• Provide thematic and geographic transparency of successful and unsuccessful bidders in line with other targeted local growth funding 

6. The Department does not yet have a strong understanding of what works for local growth but we welcome its belated commitment to evaluating local growth interventions.  It is disappointing that, despite billions spent on local growth over many decades, government does not yet have a strong understanding of what works. In 2019, the committee highlighted how the Department did not understand what impacts its £12 billion Local Growth Fund had had on local economic growth and yet had also decided not to evaluate it. While we are pleased that it has now reversed that decision, designing an evaluation at the end of a scheme is not ideal. Activities, such as establishing a baseline against which to assess impact, will be extremely difficult. It is inherently complicated to understand the impact of place-based policies and central government funding is only one part of the wider levelling up agenda. But understanding what part these policies play will be essential to ensuring continued improvement and value for money. It is encouraging that evaluation features prominently in government’s Levelling Up White Paper and that the Department is committed to improving its track record in this area, but it is disappointing that it has not yet developed the promised overarching monitoring and evaluation framework for local growth.  

Recommendation: The Department should update us on progress with its local growth evaluation commitments (including for the Local Growth Fund) and set out how it intends to feed evaluation findings back into its ongoing local growth activity and to the wider levelling up agenda. 

7. We are concerned that optimism bias has meant realistic bids to the Levelling Up Fund have missed out at the expense of ‘shovel-ready’ projects that have since been beset with delays.  The Department told us that, four weeks from year end, it had paid out around £100 million of the “up to” £600 million it made available in 2021-22 for the first round of the Levelling Up Fund. Since deliverability was one of the criteria for the first round (£1.7 billion) and the Department required bidders to be able to spend some funding in the 2021-22 financial year (through a pass/fail gateway criteria), this figure should be higher. We are concerned that some bidders may have got through the selection process by being overoptimistic about how ‘shovel ready’ their projects were, while other – more realistic – bidders may have missed out. Local authorities unused to presenting bids in this way, such as those in the devolved administrations, may have been at a particular disadvantage. 

Recommendation:  The Department should set out:  

• Spending profiles for the first round of funding, confirming how much have spent in 2021-22 against the £600 million it anticipated paying; and 
• Its assessment of optimism bias in authorities’ deliverability plans. 

8. There remains considerable uncertainty for Local Authorities around funding, structures and responsibilities for local economic growth.  The Department extols the virtues of local plans for coordinating and achieving value for money from central government funding. However local authorities’ attempts at long-term planning have been frustrated by the timing, co-ordination, and unpredictability of the “alphabet soup” of funding pots to support regeneration in recent years. Unlike Whitehall departments, local authorities do not know what is coming next and have to dedicate time and resource to respond piecemeal to each new announcement, with no guarantee of success. Further uncertainty arises from delays in awarding some of this funding, and the patchy integration of Local Enterprise Partnerships (LEPs) into existing structures. While the Department is now consolidating funding and says there are now “indicative allocations” for the UK Shared Prosperity Fund, the scheme itself has yet to be announced. The Department plans to introduce Levelling Up Directors to improve relations between central and local government. However there is, as yet, no clarity on when they will be in place, and limited information on what they will be doing. 

Recommendation: In its Treasury Minute response, the Department and HM Treasury should set out how they intend to provide greater certainty to Local Authorities to enable them to plan the integrated capital, skills and community investment needed to drive growth in their areas. 

9. It is unclear how the Department is reconciling tensions between devolved responsibilities and administering local growth funding on a UK-wide basis. Economic development is a devolved power but the Department is administering the Levelling Up and UK Shared Prosperity funds (UKSPF) on a UK-wide basis. We are concerned that decisions were taken without sufficient consideration of devolved governments’ priorities. These include on how much to allocate, what the criteria were, when to open and close bidding, and how to score bids,. The Department assures us that it is expecting significant collaboration with the devolved governments and with the local bodies responsible for delivery. However, it has not yet convinced us that that this collaboration will be effective in ensuring that priorities of the devolved administrations are adequately taken on board. 

Recommendation: The Department should set out: 

• How it will ensure that the processes for awarding funding for future rounds of Levelling Up Fund and the UKSPF will address the prioritisation of devolved nations 
• How it plans to ensure ongoing engagement with the devolved administrations. 

10. Accountability for levelling up outcomes remains unsatisfactory. This Committee has reported before that government’s accountability arrangements had failed to keep pace with increasingly complex ways of delivering policies and services. and that this had weakened accountability to Parliament for the use of public funds. The cross-government nature of the levelling up ambition makes accountability more complicated, and the Levelling Up outcomes (or ‘missions’) in the White Paper relating to pay, productivity, and employment are inherently cross-cutting. While accountabilities for the Levelling Up fund and UK Shared Prosperity fund are clear, the Department told us that those for the 12 Levelling Up missions are still being worked through. 

Recommendation: HM Treasury and the Department should write to the committee alongside the Treasury Minute response to clarify departmental accountabilities for levelling up outcomes and in particular for cross-cutting missions. 

11. The Department does not yet know how it will measure performance on a consistent basis across different geographical areas and timescales. We are concerned that data availability and quality is not yet adequate to track progress against the Levelling Up missions, either at a local level or to allow comparison across the UK’s nations.  For example, it is not clear how the Department will measure sub-regional productivity, as an outcome measure around living standards, since Gross Domestic Product data is not available at a local level. We welcome the steps the Department is taking to improve its data quality, but we are not convinced that there is sufficient capacity at a local level to make the data quality improvements needed there. We are also concerned that data quality improvements may not be delivered in time to allow year-on-year comparisons or to establish a baseline against which to measure progress. 

Recommendation: The Department should clarify how it intends to provide performance information on a consistent basis (both year on year and across different geographical areas) and how, in the absence of good quality local data, it intends to establish a baseline against which to measure progress.