The challenges of Levelling Up: a critical examination of funding and governance

The Productivity Institute provided written evidence to the ‘Funding for Levelling Up’ inquiry conducted by the Levelling Up, Housing and Communities Committee. The inquiry looked at the funds available for Levelling Up and how effectively resources are directed to those areas most in need and its report was published in May 2023. It included reference to the submission from Professor Patrick Diamond, Dr Jack Newman, Professor Dave Richards, Dr Anna Sanders, and Professor Andy Westwood who are working on the Institute’s project ‘The UK Productivity-Governance Puzzle’. This blog summarises their evidence.The stated aim of the Levelling Up White Paper is to address regional inequalities and to drive productivity, innovation and growth across the UK today. However, in our evidence submitted to the Levelling Up, Housing and Communities Committee, we highlight several challenges associated with the government’s approach to Levelling Up – centralisation, underinvestment, uncertainty, competitive bidding, siloed funding, ambiguous measurements of success, and competing devolution geographies.

Centralisation: a barrier to effective policy implementation

A top-down approach focused on Whitehall’s centralised decision-making hampers effective governance. Despite acknowledging the need for devolution, the government has yet to challenge the dominance of Whitehall departments. This centralisation of power limits local authorities’ ability to develop place-based strategies and thus to address regional disparities adequately. Furthermore, it leads to a dilution of local needs through the competitive bidding process, hindering the potential for genuine bottom-up solutions.

Underinvestment: a hurdle to Levelling Up

The Treasury’s lukewarm response to Levelling Up in 2022 and constraints on funding have posed challenges to the Levelling Up agenda. While city-regions are favoured due to their economic agglomeration effects, areas such as counties, towns, and rural regions face additional disadvantages. The centralised funding system exacerbates the disparities between regions, making it difficult for areas with limited resources and capabilities to secure adequate funding for their Levelling Up initiatives.

Uncertainty: impeding effective planning

The turbulent nature of the Levelling Up agenda and frequent changes in priorities have contributed to uncertainty at the local level. Local places, already facing challenges in matching funding with local needs, now grapple with foundational questions about funding levels and the future of levelling up. This uncertainty not only undermines effective decision-making, but also favours larger, well-connected authorities, deepening regional inequalities. This uncertainty is part of a long history of instability in the UK’s spatial policy, but there are indications that this policy churn is accelerating.

Competitive bidding: a fragmented landscape

The competitive bidding system, coupled with policy churn and short-termism, creates a fragmented policy landscape in regional development. With numerous funding streams and initiatives constantly changing, local places must devote significant time and resources to navigating this bewildering landscape. The system also results in decisions about local priorities being made by central civil servants, which limits the utilisation of local knowledge and leadership.

Streamlining funding: devolution and fiscal autonomy

To streamline funding for Levelling Up, there is a need to devolve funds directly to subnational institutions, bypassing Whitehall departments. This approach would make use of local knowledge and leadership, which are crucial for addressing regional disparities effectively. This is beginning to be realised in the ‘trailblazer deals for Greater Manchester and the West Midlands, but current reform proposals fail to address central government’s organisational model and do not sufficiently empower local institutions with decision-making autonomy.

“The Treasury’s lukewarm response to Levelling Up in 2022 and constraints on funding have posed challenges to the Levelling Up agenda.”

Measuring success: transparency and accountability

The Levelling Up White Paper emphasises some of the failures of past government policy. The absence of data, comparative analysis, and institutional memory are recognised as obstacles to effective measurement of Levelling Up outcomes. Transparent and accountable policymaking is essential, but current mechanisms, such as the proposed Levelling Up Advisory Council, lack the necessary political independence and accountability. Robust independent analysis is vital for evaluating progress and learning from successes and failures. This needs more than a simple dashboard of metrics – it needs institutional structures for policy evaluation and evidence sharing.

Balancing focus: regions and individual towns

The challenge of balancing focus between wider regions and individual towns calls for a comprehensive and consistent framework for different layers of government. This framework should enable effective collaboration rather than competition for funding, resolve conflicts between regional and local institutions, and address overlapping jurisdictions. It is a necessary imperative to align and settle the geographies used to govern and make policy. A decentralised and coherent system that promotes stability is crucial for achieving long-term success in Levelling Up.