North East Devolution and Levelling Up

This is not levelling up, Minister

News of some small-scale regional economic development continues to emerge following the recent Budget and Spending Review, and an obscure government announcement of 477 grants throughout the UK, including the North East – most of which are worth under £1m. But the relatively insignificant scale of funding conceals some important issues for levelling up.

The grants from the Community Renewal Fund (CRF) total £220m and, according to the Department for Levelling Up: ‘will provide funding to help places across the UK prepare for the introduction of the UK Shared Prosperity Fund (UKSPF). Contributing to the levelling up agenda by investing in people, places, businesses and communities improving everyday life across the UK)’.

Biggest winner in the North East is Gateshead, which receives four grants worth a total of almost £2.2m, including £558,000 for a riverside park at Dunston Staithes.

Gateshead also receives £748,000 for ‘Future You’, which according to the council ‘seeks to encourage those furthest from the labour market to find work. By working with underused community networks, the council and voluntary sector organisations will pilot a new co-created approach to employability services’.

There are five grants for Sunderland and two each for Tees Valley and North of Tyne combined authorities, all of which receive a total of just over £1.5m, and one grant worth £836,000 for Durham County Council.

Councillor Malcolm Brain, cabinet member for the economy on Gateshead Council, said: “We are delighted that these bids for the Community Renewal Fund have been successful. There are some fantastic projects and hugely imaginative people here, really working hard to take their projects forward, and help the local economy recover from the effects of the Covid 19 pandemic.”   

ANALYSIS

Grant recipients are naturally pleased, but behind the announcement lie several issues of concern, starting with the size of the UKSPF, for which the CRF is a preparatory step. The UKSPF, due to be launched in 2022/23, is intended as a replacement for the European funding which regions like the North East received during the UK’s membership of the EU.

According to a report by the House of Commons Library, as a member of the EU, the UK received Structural and Investment (ESI) funding worth about £2.0bn per year between 2014 and 2020 for boosting several aspects of economic development, including support for businesses, employment and agriculture. Now that the UK has left the EU and the transition period has ended, new ESI funding has ceased and to replace it the government has pledged to set up the UKSPF to ‘reduce inequalities between communities’.

The government committed in the March 2020 Budget to ‘at a minimum, match current levels of funding to each nation [of the UK] from EU structural funds’. This implied, according to the Commons Library, to that no nation of the UK would lose out relative to the current level of funding it receives.

How much the UKSPF will actually amount to was revealed in the autumn 2021 Budget and Spending Review. It will spend to £0.4 billion in 2022/23, £0.7 billion in 2023/24, and £1.5 billion in 2024/25, and is expected to continue at this level thereafter, the Library reports.

There are two possible reasons why the UKSPF is less than the EU funds it is replacing. One is that EU funds agreed before Brexit will still be getting spent for several years afterwards, perhaps making up the difference during that period. The second reason is that spending on agriculture and fisheries was covered by ESI funding but now the UK has left is being handled separately.

However, there is also an issue of match funding, or additionality, to consider. As the Library report points out, the EU regarded its funding as supplementing existing national funding not replacing it, and typically met only 52% of the costs of projects to which it contributed.

‘If the UKSPF aims to result in similar levels of investment to the ESI funds’, concludes the Commons Library, ‘then those designing the fund will need to consider the total amount of investment enabled by ESI funds, rather than just the amount provided by the EU’.

A second issue with the UKSPF is exactly what it will be used for and where it will be allocated. The ESI funds which it replaces aim to reduce disparities in the level of development in the regions of the EU and to help less developed regions to catch up.

The CRF, in preparation for the UKSPF, when inviting funding bids, specified that they must meet four criteria: investment in skills; investment for local business; investment in communities and place; and supporting people in employment.

Analysis by the Library found that if the UK had remained in the EU at least six regions could have been classified as less developed regions for the purposes of the next ESI grant period (2021/27), of which Tees Valley and Durham is one. The others are South Yorkshire, Lincolnshire, Cornwall and Isles of Scilly, West Wales and the Valleys, and Southern Scotland. The Outer London – East and North East region is borderline for this classification.

But this ‘less developed’ classification does not appear to have been used for the preparatory CRF grants recently announced. Along with Gateshead and the other North East localities that benefited are places such as Buckinghamshire, Devon, Dorset, East Sussex, Hampshire, Herefordshire, Kent, Norfolk, Oxfordshire, Somerset, Suffolk, Torbay and Worcestershire.

However, as the Library points out: ‘As the UK Government replaces [EU] structural funds with the Shared Prosperity Fund, it can define its own priorities’. Quite so. The March 2020 Budget, building on pledges made in the Conservative Party manifesto, said that the UKSPF would ‘be realigned to match domestic priorities, not the EU’s, with a focus on investing in people’.

The Commons Library concludes on this point by saying: ‘The priorities announced in the November 2020 Spending Review are broadly similar to those of the existing [EU] structural funds. Those in the Autumn 2021 Budget and Spending Review tended to focus more on skills than on economic development in general, particularly given the launch of the adult numeracy programme Multiply, which will be funded with £560 million from the UKSPF’.

The ’Future You’ programme in Gateshead referred to above presumably aligns with this skills agenda, while North of Tyne Combined Authority’s two projects also fall into the employability category.

Finally there is an issue over who will administer the UKSPF. This is perhaps of greatest concern to the devolved governments in Scotland, Wales and Northern Ireland, but English local government is concerned too. The Local Government Association, representing councils, has laid down as one of its principles for the new fund that there should be accountability at the local level, with greater devolution of decision making to local government.

The All Party Parliamentary Group on Post-Brexit Funding has similarly said that the new fund should engage closely with local authorities and local partners, and the Institute for Public Policy Research has said that management of the fund should be devolved to the local level and local communities should have direct input into the way the funds are designed.

Levelling Up Secretary Michael, quoted in The Journal, said: ‘We are levelling up in every corner of the United Kingdom’. This may be in line with the Conservative Party Manifesto 2019 statement that: ‘We will…ensure communities in every corner of the United Kingdom are pleasant, safe and prosperous’, and few would argue that there is a national need for skills training for people wherever they may be.

But taking funds that were intended as the Library report says, ‘to reduce disparities in the level of development in the regions of the EU and to help less developed regions to catch up’ and use them instead for projects in some of the country’s most prosperous counties – even though there are some doubtless excellent projects among them – can hardly be interpreted as a contribution to levelling up the North East and other lagging regions.