National Audit Office report on Levelling up funding to local government

DLUHC has allocated £9.5 billion of funding for local government through three significant funds to support levelling up, but projects are behind where the Department expected them to be and it appears unlikely that local authorities will be able to complete projects by the original deadlines, a new National Audit Office report has found.

Through the Towns Fund and Levelling Up Fund DLUHC sought to back “shovel ready” projects, but both funds had projects that were yet to start or were paused as at 31 March 2023, with 64 projects completed by this point.  Across the two funds, an additional 1143 projects were underway, and 76 had not yet started.¹

The NAO finds that, given the delays and delivery risks, DLUHC’s original deadlines are unlikely to be met. For instance, 50% of the main construction contracts for Levelling Up Fund projects due by March 2024 were unsigned, rising to 85% of unsigned construction contracts for Levelling Up Fund projects due by March 2025.

The NAO’s report, Levelling up funding to local government, assesses the Department for Levelling Up, Housing & Communities’ (DLUHC)² work supporting local projects across the country through the Levelling Up Fund (LUF), worth £4.8 billion; the UK Shared Prosperity Fund (UKSPF), worth £2.6 billion; and the Towns Fund, worth £3.2 billion – a total of £10.6 billion.³

The three funds have overlapping investment themes around regeneration, culture, and transport - but DLUHC allocated funding in different ways which meant local authorities could not align their plans to secure most value. Some funding was allocated by a competitive process after local authorities submitted bids, including the first two bidding rounds of the Levelling Up Fund. However, Town Deals – allocated under the Towns Fund - were offered to 101 selected towns based on several metrics and a final decision by ministers. And the UK Shared Prosperity Fund was allocated to places, based on the amount of EU structural funding they previously received.

DLUHC has so far allocated £9.5 billion of funding through these funds, envisioned to support more than 4,300 projects across the United Kingdom (UK), and intended to be spent between 2020-21 and 2025-26. The UK’s independent public spending watchdog found project delivery under the Levelling Up and Towns Fund is behind schedule, and local authority progress reports are identifying signs of slippage. As a result DLUHC has had to slip some of the original deadlines. As at the end of March 2023, it has distributed £2bn to local places, and they have spent £0.9 billion so far across all three funds.⁴

The reasons for these delays are multi-faceted, including inflationary pressures, skills shortages, and wider construction industry supply challenges. Departmental decisions have had a detrimental impact too. DLUHC made several funding announcements later than planned, resulting in many local authorities delaying works. For example, the UK Shared Prosperity Fund was launched in April 2022, Local Authorities had to submit investment plans by August 2022, but DLUHC did not approve these until December 2022, giving local authorities only three months to spend their 2022-23 allocation.

Communicating the results of bids could have also been better managed. The deadline for submitting the first round of Levelling Up Fund bids came before the final confirmation of Town Deals offers. This meant local authorities did not know what funding they may receive from each fund, preventing effective planning and potentially jeopardising value for money.

The Department is seeking to improve project delivery. It has simplified the process for local authorities to make changes to projects once started, and it is piloting a new approach to use funding more flexibly. The Department is also providing an additional £65 million of capacity support to local authorities delivering Levelling Up Fund projects.

Effective evaluation of these funds is critical to understand what works. The NAO’s February 2022 report Supporting local economic growth found weaknesses in DLUHC’s approach to evaluation. The NAO has now found significant improvement in this area. For example, DLUHC has published its plans to evaluate the funds, and sought external advice on the practicality of delivering them.

The NAO recommends DLUHC sets out further action needed if projects cannot be completed within existing deadlines. This could include resetting expectations for what and when these funds will deliver, taking account of rising cost pressures.

Head of the NAO, Gareth Davies said: 

“DLUHC is in a better position to understand the benefits these funds deliver following significant improvements in its approach to evaluation. But the department and local authorities will need to work together to unblock projects which are delayed or have not started and set realistic expectations for delivery” 

“It is important that DLUHC shares the insights from its evaluation work with local decision-makers to help them achieve better value for money and reduce regional inequalities by improving the places people live”

ENDS

Notes to editors

1. Please refer to figure 6 of the report for a breakdown of status of projects as of 31 March 2023.
2. Alongside DLUHC and DfT, HM Treasury co-designed the bidding and assessment criteria for the Levelling Up Fund and all three departments were responsible for deciding where funding was allocated.
3.  

1. Please refer to figure 7 of the report for a breakdown of spending under the three funds, as of 31 March 2023.