Levelling up faces powerful adversary – inflation

The levelling-up agenda has come under renewed attack from a powerful adversary – inflation. Levelling up secretary Michael Gove has confirmed that bids for levelling up funds will be rejected if their viability is in question. Speaking to the Commons’ levelling up select committee this week, the secretary of state said that “funding will not be inflation-proofed”. “One of the things we will be looking at, as we asses all of the bids in round two for the Levelling Up Fund, is what the impact of inflation is on deliverability,” he said, adding that “it is the case, undoubtedly, that people who would have been entertaining levelling up bids a wee while back” will see their bids rejected. Tim Heatley, co-founder of social impact developer Capital&Centric, said: “This will undoubtedly force a wide-scale rethink of some of the projects that were due to be delivered with levelling up funding. “Given the timescales of when the funding was granted, pretty much every project will have experienced some degree of increased costs from inflation alone, let alone initial projections changing as teams work through the detail. There will for sure be casualties and we have already seen some paused, with local authorities terrified of prolonged running costs at a time when even their existing budgets are coming under strain.” Heatley said that Capital&Centric had anticipated these pressures on its Levelling Up Fund-backed projects. “We have been super-speedy and fast-tracked developments that routinely take years to get a spade in the ground.” Gove said that unsuccessful bids could apply for the next round of levelling up funding. “There will be – at the moment the plan is – another round of Levelling Up Fund bidding after this one,” he said. Healey commented that this was promising: “It is worrying for all involved, but it is not necessarily a bad thing. I would say the government needs to give the applicants the leeway to pause and reconsider their original projects. Greater flexibility could allow them to explore whether there are better alternatives that are more commercially viable and don’t rely on long-term support from public funding.” While the option of a further round of bids provides some comfort, it does appear to confirm fears that the timescale for the allocation and distribution of the £4.8bn Levelling Up Fund will now be stretched beyond the next General Election. It also shows that the fund will not rise with inflation, but instead suffer a real terms cut. The IPPR think tank has estimated that the Levelling Up Fund and UK Shared Prosperity Fund now face a £560m hole by 2025/26. “The failure to inflation-proof two of the largest funding streams available to local authorities will force them to downsize their infrastructure projects and casts serious doubt over the government’s plan to tackle regional inequalities and its commitment to economic growth,” it said. “With £1 in every £13 of the LUF and SPF now expected to be lost to inflation, cancelling, scaling back or pausing infrastructure investment is inevitable.” The text of last week’s Autumn Statement document reads: “The government remains committed to levelling up and spreading opportunity across all areas of the UK. To support this, the Autumn Statement confirms that the second round of the Levelling Up Fund will allocate at least £1.7bn to priority local infrastructure projects. Successful bids will be announced before the end of the year.” However, the Levelling Up Fund will actually be spread out over a longer period of time, so that only £900m is committed in 2022-23, with £1.4bn for both 2023-24 and 2024-25. In other words, £1.4bn of actual spending has been pushed to the other side of the General Election, while the accolades for having allocated it will be claimed beforehand. The government initially claimed that £600m of the £4.8bn Levelling Up Fund would be spent in 2021–22. That was then revised down to £200m during the 2021 spending review. In reality, just £128m was spent in 2021–22. So far, approximately £243m has been spent. In other words, it has spent just 5% of the fund over a period when it was meant to spend 30%. The Department for Levelling Up, Housing and Communities is also facing bigger cuts to its own budget than any other department, with spending set to fall by a third. Day-to-day departmental expenditure will be cut from £3.1bn this year to £2.1bn next year and in 2024 and 2025. Capital expenditure for the department will also be slashed, from current levels of £9.5bn to £6.8bn. It is also worth noting that the much-heralded “planning reset” has been utterly abandoned. Planning does not feature as one of the “supply side growth” areas; indeed, there is no mention of the planning system in any of the supporting documents. Gove told the committee: “I have had robust conversations with the chief secretary and the chancellor about the importance of maintaining our commitment to levelling up, but I also do have a lot of sympathy for the position in which they find themselves.” To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews Photo © Buffik/Pixabay