Spending watchdog criticises how Government allocated levelling up funding amid concern deadlines for completion of projects will be missed

Council projects funded by the Government's levelling up programme are behind where the Department for Levelling Up, Housing and Communities (DLUHC) expected them to be, and it appears unlikely councils will complete the projects by their deadlines, the National Audit Office (NAO) has warned.

The findings come as part of a report from the NAO on the £9.5bn in funding that has been allocated to councils by DLUHC since 2020.

The NAO report, Levelling up funding to local government, details how the Department allocated the funding and considered whether it had been spent for the projects it was intended to fund.

The money was envisioned to support more than 4,300 projects across the UK, and intended to be spent between 2020-21 and 2025-26. 

However, as of March 2023, just £2 billion had been given to local councils, of which £0.9 billion had been spent across all three of the Government's funds, the NAO report shows.

The watchdog noted that the three funds allocated since 2020 – the Towns Fund, Levelling Up Fund, and the UK Shared Prosperity Fund – have overlapping investment themes around regeneration, culture, and transport.

However, DLUHC allocated funding in different ways which meant that "local authorities could not align their plans to secure most value".

Project delivery under the Levelling Up and Towns Fund is behind schedule, and council progress reports are showing signs of "slippage," according to the NAO report. As a result, the DLUHC has been forced to push some deadlines back.

Inflationary pressures, skills shortages and wider construction industry supply challenges are to blame for the delays, the watchdog found.

But departmental decisions had a detrimental impact as well, with DLUHC's delay in making several funding announcements resulting in many local authorities delaying works.  

For instance, local authorities had to submit investment plans for the UK Shared Prosperity Fund by August 2022, but DLUHC did not approve these until December 2022, giving local authorities only three months to spend their 2022-23 allocation.

"Local authorities told us they could not risk starting projects with no guarantee that funding would be released, meaning early enabling work such as arranging planning permission or compulsory purchase was delayed," the report noted.

The NAO added that 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.

The NAO found that this meant local authorities did not know what funding they might receive from each fund, preventing effective planning and potentially jeopardising value for money.

The report did note that DLUHC is seeking to improve project delivery, having simplified the process for local authorities to make changes to projects once started.

The Department is also piloting a new approach to use funding more flexibly and is providing an additional £65m of capacity support to local authorities delivering Levelling Up Fund projects.

According to the report, DLUHC is aware that it needs to balance encouraging timely delivery against moving too fast and risking projects not delivering their impacts.

The NAO recommended that the DLUHC set out further action it will take if council projects cannot be completed within existing deadlines. This could include resetting expectations for what and when these funds will deliver, taking into account 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."

Meg Hillier MP, Chair of the Committee of Public Accounts, said: "Today's NAO report says that DLUHC has recognised some of its challenges, including complex processes and slow decision-making, and responded by simplifying the operation of the funds and improving its fund evaluation.

"However, if these changes are to deliver long-term benefits for people where they live, DLUHC must support local decision-makers to learn from both its evaluation work and each other."

Responding to the NAO report, Cllr Martin Tett, Chairman of the Local Government Association’s People and Places Board, said: “Levelling up has great potential to transform people’s lives and livelihoods, with councils best placed to make this happen.

“Inflation and rising construction costs, along with wider supply and skills shortages, have all contributed towards projects being delayed. The Government has made important steps towards providing greater flexibilities on how councils can spend their existing funding and streamlining the long list of local funding pots.

“We want to see a greater push towards place-based investment and the continued move away from the competitive allocation of short-term funding pots. We look forward to the next round of the Levelling Up Fund as evidence of the Government’s progress in this area and continue to call for councils to be given the opportunity to realise the benefits of joined-up funding, to be made available to every part of the country.”

DLUHC has been approached for comment.

Adam Carey