On 19 January 2023, the successful bidders to the second round of Levelling Up funding were announced by the UK government. Ten projects in Scotland are to receive funding worth a total of £177 million.
What is the Levelling Up Fund?
The Levelling Up Fund (LUF) is one of several funding programmes that were announced by the UK government to support local economic growth, partly in response to the impacts of the pandemic. It is separate from the UK Shared Prosperity Fund which replaces regional funding that had previously come to the UK as part of EU funding programmes.
The LUF is a £4.8 billion programme covering the period to March 2025 aimed at infrastructure projects. When launching the programme in March 2021, the UK government said that this would include “regenerating town centres and high streets, upgrading local transport, and investing in cultural and heritage assets”. There have now been two rounds of the LUF, with the first round awarding a total of £1.7 billion and this second round awarding a total of £2.1 billion.
Funds are awarded following a competitive bidding process. Bids for Round 2 were invited from local authorities, in line with the guidance issued by the UK government, which highlighted three broad themes:
- culture and heritage.
Local authorities were eligible to submit one LUF bid per UK parliamentary constituency that falls fully or partly within their boundaries, and are also able to submit one further transport-only bid. LUF funding is allocated via local authorities and, although not a formal requirement for a bid, there was an expectation that local MPs would provide support for priority bids in their areas. In Round 1 of the LUF, “the expectation [was] that an MP will back one bid which they see as a priority”. In Round 2 of the LUF, MPs were able to “provide formal priority support to up to two bids”.
A further round of funding has been promised by the UK government, so there will be scope for further bids from local authorities that have not yet received LUF funding. So far, 18 of Scotland’s 32 local authorities have been successful in securing LUF funding.
To inform the prioritisation of bids, the UK government allocated each local authority to Priority 1, 2 or 3 depending on their identified level of need. Priority 1 areas are those considered to be in greatest need of investment. The assessment of the level of need was based on a range of metrics, reflecting:
- the need for economic recovery and growth (using measures of productivity, unemployment and skills levels)
- the need for regeneration (using dwelling vacancy rates).
For English local authorities, measures of transport connectivity were also used to inform the assessment, but equivalent data was not used for Scotland due to lack of availability of data.
In Round 1, this assessment resulted in 13 Priority 1 areas in Scotland, 12 Priority 2 areas and 7 Priority 3 areas. For Round 2, updated data was used for the assessment of priority areas, but this did not affect the categorisation of any Scottish local authorities.
How much has been awarded to Scotland to date?
Across Rounds 1 and 2 of the LUF, Scottish local authorities have been awarded funding for 18 projects with a total value of £349 million. This was split roughly equally between the two rounds, with £172 million awarded in Round 1 (across 8 projects) and £177 million awarded in Round 2 (across 10 projects).
In Round 2, the value of individual projects ranges from £9 million to £39 million, with an average project value of £19 million. The LUF is explicitly focused on projects requiring less than £20 million in funding, although there was scope for a small number of larger projects of up to £50 million.
In Scotland to date, Priority 1 areas have received 56% of the LUF while Priority 2 areas have received 20% and Priority 3 areas have received 24%.
In response to some criticism aimed at the UK government around the geographical distribution of funding, including the amounts awarded to the relatively prosperous South East of England, the UK government has highlighted per capita funding levels. The Round 1 funding for projects in Scotland represented 10.1% of the UK total, while the Round 2 funding represented 8.5% of the UK total. Across both Rounds of the LUF, Scotland’s share of the total funding averages 9.2%. To set this in context, Scotland accounts for 8.2% of the UK population (based on mid-2021 population estimates). The UK government had committed to allocating at least 9% of funding to Scotland across both Rounds of the LUF.
In Scotland, funding across both Rounds of the LUF represents an amount equivalent to £64 per person. According to analysis presented by the BBC, this puts Scotland fifth highest across UK regions/countries in terms of LUF funding per head.
How are funding decisions made?
As can be seen from the analysis above, geographical prioritisation is only one element of the decision-making process and there have been successful bids in Priority 2 and Priority 3 areas.
Decisions on which projects receive LUF funding are taken by the UK government and the Round 2 prospectus notes that UK Ministers have discretion over these funding decisions:
“In England, Scotland, and Wales, once bids have been assessed and moderated, and the shortlist is drawn up, Ministers will make funding decisions. In making these, ministers will have the opportunity to exercise discretion to meet the following additional considerations:
- ensuring a reasonable thematic split of approved projects (e.g. across regeneration and town centre, transport and culture and heritage)
- ensuring a fair spread of approved projects across Great Britain within, and between, individual nations and regions, and between rural and urban areas
- ensuring a fair balance of approved projects across places in need
- prioritisation of either ‘strategic fit’ or ‘deliverability’ or ‘economic case’ over the other criteria (noting this must be applied consistently to all projects)
- taking into account other investment in a local area, including investment made from the first round the Fund to encourage a spread of levelling up funds across places.”
Is there any involvement from the Scottish Government in funding decisions?
In terms of involvement from the Scottish Government, the Round 2 prospectus stated that:
“Where appropriate, DLUHC [the Department for Levelling Up, Housing and Communities] and DfT [the Department for Transport] will seek advice from the Scottish Government, Welsh Government and Northern Ireland Executive on projects in Scotland, Wales, and Northern Ireland respectively, including on deliverability and alignment with existing provision.”
The UK government has published details of the decision-making process, which notes that:
“Officials in the devolved administrations were also invited to contribute to the assessment process on bids from Wales, Scotland or Northern Ireland.”
However, there was no active involvement from the Scottish Government in the decision-making process for either Round 1 or Round 2.
What other regional funding is available?
In the LUF Round 2 prospectus, the UK government noted that the LUF is one of a number of funding programmes intended to support regional growth and development:
“We recognise that levelling up requires a multi-faceted approach and the Fund is delivered as part of a broad package of complementary UK-wide interventions including: The UK Community Renewal Fund, The UK Community Ownership Fund, the Plan for Jobs, the Freeports programme, the UK Infrastructure Bank, the Towns Fund, and the UK Shared Prosperity Fund (UKSPF).”
An earlier SPICe blog looked at these various funding streams in the broader context of the Scottish economic development landscape. Future SPICe blogs will provide updates on how these various funds are being delivered in Scotland, in particular the UK Shared Prosperity Fund (UKSPF) which is intended to replace some of the EU funding programmes that the UK used to participate in. A previous SPICe blog has looked at initial reaction on the scale of the UKSPF compared with the EU funding programmes that it is replacing.
How will the funds be monitored and evaluated?
The UK government has published information on how it intends to monitor and evaluate the funds provided through the LUF. This monitoring and evaluation will be led by DLUHC, with monitoring and evaluation data collected and submitted by local authorities.
When regional support came primarily via EU funding streams, the Scottish Government had a defined role in administering, monitoring and reporting on the use of these funds (and was also required to provide funding to support the EU funds). Audit Scotland also had a clearly defined role in auditing the use of funds allocated to Scotland as they formed part of the Scottish budget. As a consequence, there were also clear opportunities for the Scottish Parliament’s committees to scrutinise the use of this regional support.
Following the UK’s departure from the EU, and the new funding arrangements coming into place, the role for the Scottish Parliament in scrutinising the use of the funds is less clear, given that funding is being allocated directly to local authorities and not via the Scottish budget.
The role of Scottish Parliament committees
The Scottish Parliament’s Finance and Public Administration Committee (FPAC) and Public Audit Committee (PAC) have both been exploring what role they might play in scrutinising the new regional funds.
FPAC has been undertaking work as part of its ‘Replacing EU Structural Funds in Scotland’ inquiry, which is exploring what role it can play in supporting effective scrutiny of these funds, within the overall context of public spending in Scotland. The Committee is exploring what scope might exist for a more formal reporting role for the Scottish Parliament in relation to these funds, including through the Levelling Up and Regeneration Bill. FPAC previously took evidence from the Rt Hon Michael Gove MP (Secretary of State for Levelling Up, Housing and Communities and Minister for Intergovernmental Relations) and has invited him to give evidence again. He has indicated a willingness to give evidence in 2023.
PAC has also explored how audit and accountability arrangements might work under the new schemes. It has taken evidence on this issue as part of its work on the 2020/21 and 2021/22 Scottish Government Consolidated Accounts. Most recently, the Committee took evidence from the Auditor General for Scotland who commented that:
“There is no statutory role for Audit Scotland or the Auditor General in respect of the levelling up funds—the successor arrangements—and the shared prosperity fund
The Accounts Commission for Scotland, which audits local government, and Audit Scotland are keen to maintain a level of transparency to support the committee’s interest in how those funds are spent. However, that would be to support the committee’s information rather than to provide an audit opinion on how the funds have been spent. Ultimately, the flow of funds is now from the UK Government to individual bodies in the public sector or the third sector in Scotland, so there will be a variety of arrangements.”
PAC also intends to take evidence from the Permanent Secretary to the Scottish Government at a future meeting.
SPICe blogs will continue to explore the evolving scale, scope and scrutiny of the regional investment funding streams.
Nicola Hudson, Senior Analyst, Financial Scrutiny Unit