Inside the UK’s failing plans to ‘level up’ left-behind towns

When UK ministers invited a fresh round of applications to the £4.8bn Levelling Up Fund for economically struggling areas in 2022, Durham county council was optimistic. 

Whitehall officials had praised a previous application from the north-east authority, which includes some of the UK’s poorest former mining communities, as an exemplar of “what a bid should look like”, recalls Amanda Hopgood, the council’s Liberal Democrat leader. 

Encouraged, the authority paid consultants £1mn to draw up five more lengthy applications tailored to Whitehall’s exacting criteria and tight deadlines. 

The bids were all rejected. “We were quite shocked, given that the first bid had been used as good practice,” says Hopgood. “We then discovered that because of the number of bids — and because they wanted to spread them across the country — anyone who had been successful in round one couldn’t get money in round two.” 

Legacy of levelling up

The Conservatives rode to victory in 2019 on an ambitious pledge to reduce the UK’s long-standing regional inequality. This story is the first in a series that delves into the impact of ‘levelling up’ and its future as the next general election approaches

Part one: Inside the multibillion-pound plan to help left-behind towns
Part two: The benefits and drawbacks of levelling up
Part three: Can a freeport ‘level up’ the Welsh island of Anglesey? 

The council briefly considered suing the government to recoup the money spent preparing the bids, but ultimately concluded it could not afford it. 

Durham’s experience is emblematic of criticism directed at the administration of more than £10bn in the various centrally controlled regeneration funds that have proliferated during this parliament. 

Under the banner of “levelling up”, the amorphous phrase coined in Boris Johnson’s 2019 election pitch to disillusioned Labour voters, the Towns Fund, the Levelling Up Fund, the Shared Prosperity Fund and several smaller schemes were intended to ensure the visible delivery of regeneration projects within the space of a few years.

However, delivery has not been the among the achievements of these schemes. Parliament’s public accounts committee concluded in a recent inquiry into the three main funds that it had seen “no compelling examples” of delivery to date.

The committee’s Labour chair, Dame Meg Hillier, describes them as “a sticking plaster” over the huge reductions made to local government funding since 2010, with comparatively steady income streams from government grants and council taxes partly replaced with “a real top-down” approach.

Local authorities complain of delays, moving goalposts, unachievable spending deadlines, costly bidding processes and opacity and unfairness in the way the cash was allocated. Higher inflation over the past two years has also pushed up construction costs, eroding the value of disbursements.

MPs have been left frustrated at the lack of progress, particularly Tories in seats won from Labour for the first time in 2019. For them, such funds were supposed to generate proof of delivery at the next election.

Nick Fletcher, elected Conservative MP for Don Valley in Doncaster in 2019, says “there’s not an awful lot of evidence” of levelling up that he can point voters towards, noting that half of the projects for which funds have been awarded have only just started being developed.

He highlighted the Corn Exchange in Doncaster city centre, which is being revamped into a new cultural hub but is yet to open its doors, and a new hospital that had been promised but was ultimately rejected. “Doncaster is desperate for a new hospital,” he adds.

Levelling up secretary Michael Gove concedes that the “pendulum had swung too far” in the government’s original efforts to promote competition and that led to an “over-onerous bidding process”, which has now been simplified. Others point to more recent devolution deals struck with big city regions that feature longer timescales and less meddling.

But there is “frustration across the board” with the programmes in parliament, according to Hillier. “If you’re a Conservative, you’re really cross because it’s your flagship policy and it hasn’t delivered,” she says.

“And if you’re Labour, well, hey — we thought it didn’t work and it hasn’t.”

The UK’s regional economic divides are among the starkest in the western world, a theme that underpinned the government’s levelling up white paper published in February 2022. 

But such divides will take decades of investment and intellectual focus to close, says Rachel Wolf, a lobbyist and co-author of the 2019 Conservative manifesto.

“You have a bunch of voters across towns in the north and midlands who voted Brexit and voted Conservative in considerable part because they felt their places were getting slightly worse every passing year,” she says. 

“And I didn’t think you could say to those people, ‘Guys, there’s a huge productivity job to do which is going to start in cities and it’s going to take 20 years, just bear with us.’”

The levelling up funds were meant to “show people you are taking the place seriously and you’re making a positive difference . . . then you have a chance to get their buy-in to do the much longer-term stuff”.

However, the funds were mired in controversy from day one. The first such pot, the £3.6bn Towns Fund, was launched by Johnson shortly before the 2019 election. Ministers selected 101 towns across England for one-off regeneration cash. 

A remarkably close correlation with Conservative electoral targets was quickly apparent, including some areas — such as Cheadle, a leafy marginal seat on the edge of Cheshire — with relatively low levels of deprivation. A public accounts committee report in 2020 found that the allocations had not been impartial.

“You would find very few members of parliament, even on the government side, who did not think there was a degree of political favouritism in the way that decisions were taken by ministers about the allocation of those funds,” said Scottish National party MP Peter Grant at the committee’s more recent inquiry into levelling up funding.

The Towns Fund was followed by the Levelling Up Fund, unveiled as part of the 2020 spending review. One former Whitehall official says the pot was dreamt up that summer, when Prime Minister Rishi Sunak was chancellor.

“The Levelling Up Fund was pure Rishi, 100 per cent Rishi,” the official says. “And it came from him because he was already thinking about how he could win backbench support for when he wanted to become leader.” A government source counters that they have “no idea” whether Sunak acted for that reason “but it sounds like nonsense that Labour would push.” 

This time local authorities were required to draw up detailed bids for cash, including for transport, culture and regeneration projects.  

One council official in a deprived northern area compares the core document for their first unsuccessful bid to a “dissertation”, noting that the submission ran to more than 30,000 words without appendices and related reports. 

They’re asking local authorities to do a massive intervention, sometimes multiple ones, after a decade of having to cut back non-statutory services

Such analysis is often beyond the capability of councils whose economic development teams have been whittled away by years of centrally imposed budget cuts. As a result, they have tended to hire consultants to draw up bids at an average cost of up to £30,000, according to the Local Government Association. 

“They’re asking local authorities to do a massive intervention, sometimes multiple ones, after a decade of having to cut back non-statutory services,” says Eamonn O’Brien, leader of Bury council in Greater Manchester. “Ten years ago we might have had teams to deal with this in house.”

Despite the expense and red tape, the Levelling Up Fund’s first two rounds were oversubscribed. More than 800 applications were received, with only a quarter of those successful.

But as those bids landed on desks in Whitehall, officials were also having to administer the UK Shared Prosperity Fund, a £2.6bn post-Brexit replacement for EU structural funds.

The two bidding windows overlapped, noted the National Audit Office spending watchdog last year, so the Department of Levelling Up, Housing and Communities (DLUHC) “had to assess multiple bids within a short timeframe”. 

“It lacked the capacity to do so as quickly as planned, and subsequent delays in making decisions on successful bids meant that announcements about funding allocations were made later than planned,” concluded the NAO.

For the SPF, local authorities had to draw up plans explaining how they would spend the money. But the government did not sign off those plans until December 2022, leaving only four months of the financial year in which to spend the funds. 

As soon as funding allocations were made on the Levelling Up Fund, meanwhile, the rationale for the decisions came under intense scrutiny.

Durham was one of 55 councils to spend money on bids for the second round of the Levelling Up Fund before discovering that their previous success made them ineligible to apply.

“The theory of levelling up should be good,” says Hopgood. But the money has ended up sprinkled across the country, she adds. “They might as well have called it ‘spreading it out’.”

Although the funds have mostly ended up in deprived areas, councils have questioned the criteria used by government.

Matt O’Neill, executive director of growth and sustainability at Barnsley council in South Yorkshire, says the authority — which, like Durham, covers many deprived former mining communities — was surprised to find that his area had not been considered a priority area under the methodology used for the fund.

Instead of using the index of multiple deprivation — an industry standard “used by government over decades”, according to O’Neill — DLUHC hired a private company that compiled information itself using freedom of information requests. 

“The methodology that they used was untested,” he told MPs last year. “It did not have empirical data to back it up.”

A further problem emerged in 2022, as inflation began eating into projects that had been costed months earlier.

In Bury, the council secured £20mn each for two regeneration projects with the intention of providing the remainder of the projects’ expected cost itself.

“But then you get inflation and costs and all of a sudden your £40mn project becomes a £50mn project and you don’t necessarily have that [extra] £10mn,” says O’Brien.

“We were quite disappointed that there weren’t the funds available if you could demonstrate costs had gone up significantly. I felt that was a massive missed opportunity to help deliver it quickly and of better quality.”

As the general election expected this year moves into view, levelling up’s under-delivery and the adversarial nature of its many bidding processes are coming into sharper focus.

O’Neill, at Barnsley council, told MPs in 2022 that the approach amounted to the “poor competing with the poor”. Barnsley alone had entered 16 separate bids for town centre projects over three years, he said. “We would get rid of the bidding process and look at a place-based investment plan over 20 years.”

But Steve Fothergill, director of the Industrial Communities Alliance, a group of councils in post-industrial areas in the north and midlands, says centralised funding pots do have a place.

“We’ve always had funds doled out from the centre,” he adds, pointing to previous iterations under both Labour and Conservative governments. However, like O’Neill, he believes they need to be targeted better and provided over two three-year spending review periods rather than one. 

“At the moment you can’t engage in investment in longer-term capital projects, and projects that are more transformational, because you have to get all the money out the door in 24 months, so unless it’s ‘shovel ready’ it’s a non starter,” he says.  

“Sometimes the things that make the difference and have value for money are things that are planned and delivered on a longer fuse.”  

Any incoming government will need to weigh up what is most likely to deliver growth and improve the vitality of declining areas, against a constrained fiscal backdrop.

Adam Hawksbee, deputy director of the centre-right think-tank Onward, says it would be a shame if the entire premise of the funds were abandoned, arguing that the government had eventually learnt the right lessons. 

The “common sense” approach that has emerged more recently is reflected in the beefed-up devolution deals granted to Greater Manchester and the West Midlands last year, he adds, featuring longer-term and more flexible devolved pots.

These provide a mixture of revenue and capital, avoiding the scenario in which funding is advanced for construction of a building or facility that the council cannot then afford to run, says Hawksbee. There is also less micromanagement from Whitehall. 

“That’s become, after so much headache and heartache, where things seem to have landed,” he says.

One of the best ways of generating innovation, or rivalrous emulation, is by having a degree of competition

More recently, the government has also allowed some local areas to roll together separate bids from different funds into one more coherent programme, working particularly closely with councils such as Blackpool. 

Gove, the levelling up secretary, tells the Financial Times that “it is a legitimate debate as to whether or not we’ve done enough to simplify the system, but we have undoubtedly simplified it”.

He adds that he does not believe there is any example of a “high-handed or misapplied approach towards funding that we haven’t had some form of course correction to address”.

But he rejects criticisms that competitive bidding processes resulted in a Hunger Games-style contest. “One of the best ways of generating innovation, or rivalrous emulation, is by having a degree of competition,” he says.

As the next election approaches, Wolf, the author of the Conservative manifesto at the last one, says the past underperformance of the funds does not reflect well on wider attempts to narrow the country’s gaping economic divides. 

“If you cannot get a simple fund out the door and make small, tangible changes,” she says, “why the hell do you think you can do long-term strategic change?”