Councils scale back levelling up ambitions as costs rise

Councils have spent only around 15% of the money awarded in the first round of the Levelling Up Fund in 2021.

Two years on from the first round of levelling up awards only around 15% of the money has been spent (Christopher Furlong/PA) (PA Archive)

Councils are cutting back on plans backed by the Government’s Levelling Up Fund in the face of inflation and tight deadlines.

Only around 15% of the money awarded in October 2021 has been spent in the two years since, according to data obtained by the PA news agency under the Freedom of Information Act, with £1.4 billion left to spend.

FOI responses showed many projects are still in the design phase and are yet to submit planning applications, despite the fund being intended for “shovel ready” projects.

PA found several projects supported by the fund had been cut back or paused due to spiralling costs, with the Local Government Association warning that “crucially important projects” were “at risk” without further support from the Treasury.

In Pembrokeshire, an initial budget of £19.7 million for regenerating Haverfordwest town centre had soared to £28.6 million by March this year, forcing the council to cancel part of the project to bring costs down and ensure the remaining sections could be delivered on time.

In Brighton and Hove, similar steps have been taken after costs rose by around 50%.

Brighton and Hove Council “paused” work on its planned regeneration of parts of West Hove in June this year, before restarting in September after agreeing cuts.

Council documents show the authority expected construction prices to rise by 3.63% in 2022/23, but prices ended up rising by more than twice this figure.

Rebecca McKee, a senior researcher focusing on levelling up at the Institute for Government, said the figures showed “a key problem with the way that the Levelling Up Fund has been administered”.

She said: “Ring-fenced and time-limited pots of money are inflexible and don’t allow for changing circumstances – the greatest of which has been the steep rise in costs due to inflation which will have disrupted many of these projects.”

Most councils maintain that they will have spent all the money by the March 2025 deadline, when the funding expires, but some have already acknowledged that their projects would not be completed until later.

Around 20 councils told PA they expected work to finish after March 2025, with some suggesting the projects would not be delivered until 2026.

Even among those that expect to complete their projects by March 2025, around 35 councils – a third of the total given funding in October 2021 – said they were still in the design process and some are yet to submit planning applications.

Bradford Council, for instance, was awarded £20 million towards a new leisure, community and enterprise centre but two years later has not submitted final plans for the project.

The project has also suffered a significant setback after funding issues forced a key partner to withdraw, leaving the council to consider scaling back its plans to less than half their original size.

Ms McKee said: “The bidding process incentivises local authorities to unrealistically present projects as ‘shovel ready’ even if, for example, planning permission has not yet been granted.

“There are understandable political incentives to see results quickly from money earmarked for levelling up but this can result in local authorities prioritising shorter term projects over more worthwhile ones which may take longer to complete or pay off over a longer time period and/or tie up local authorities with projects they will struggle to deliver with the money and time available.”

Adam Hawksbee, deputy director of the centre-right think tank Onward, agreed the problems faced by the Levelling Up Fund were partly the result of the competitive bidding process involved.

He said: “The sad reality of these competitive processes is that councils overestimate their ability to deliver to secure the most investment. And those heroic assumptions become impossible in the face of inflation, particularly given scarcity in the construction industry.

“These stats show why it’s so important that the government moves away from these competitive and piecemeal pots – as they did recently with their long-term plan for towns.”

Cllr Martin Tett, chairman of the Local Government Association’s People and Places Board, said: “Councils are working hard to deliver projects supported by the Levelling Up Fund which will help to bring improvements to their local communities.

“However, well-documented increases in the cost of construction as well as an increase in the cost of borrowing has pushed up the cost of delivering these for councils from their initial estimates, putting crucially important projects at risk.

“Highly skilled council officers are working to mitigate against these increased costs where it is possible to do so. To help them with this work they should also be provided with additional support in the Autumn Statement to ensure all projects supported by the Levelling Up Fund can be delivered successfully.”

In July 2023, the Department for Levelling Up, Housing and Communities changed the rules governing the Levelling Up Fund, allowing councils to change expected outputs by 30% without having to ask for Whitehall’s permission.

In guidance published at the same time, civil servants said this could involve a 30% increase or decrease, but acknowledged: “We would expect this to normally be a reduction, recognising the impact of inflation on project scope.”

PA also found that two of the largest awards announced in October 2021 have still not been confirmed two years later.

The Liverpool City Region was provisionally granted £37 million to improve transport networks, but still needs to submit a full business case for Whitehall’s approval.

We continue to work closely with local authorities to support their delivery of these vital projects, while also maintaining value for money for taxpayers

DLUHC spokesperson

The Isles of Scilly’s award of £48.4 million, intended to fund improved ferry links with the mainland, might now not be spent at all as the Government rejected a previous business case submitted by the council and private sector funding for an alternative solution may now be available.

A spokesperson for the Department for Levelling Up, Housing and Communities (DLUHC) said: “The £4.8 billion Levelling Up Fund is supporting projects across the UK – regenerating town centres and high streets, improving local transport links and protecting cultural and heritage assets.

“We continue to work closely with local authorities to support their delivery of these vital projects, while also maintaining value for money for taxpayers.

“A £65 million support package is available to local authorities to ensure they have the necessary capacity and capability to deliver their projects.”

A second round of the Levelling Up Fund awarded £2.1 billion at the beginning of 2023, and the Government plans to launch a third round of funding in November.