Almost all UK councils have not spent total share of levelling-up fund

A multibillion pound fund designed to boost levelling up and replace crucial EU funding is being left unspent by the vast majority of councils, the Observer can disclose.

The main reasons for a significant underspend in the shared prosperity fund were money being handed over too late to spend, a lengthy and bureaucratic process and a hollowing-out of council expertise.

The fund, a central pillar of the government’s efforts to boost the most deprived areas of the UK, is designed to provide £2.6bn by 2025. Ministers said it would “reduce the levels of bureaucracy and funding spent on administration when compared with EU funds” and “enable truly local decision making”.

However, new data uncovered using the Freedom of Information Act reveals that 95% of the local authorities that received funding in 2022-23 were unable to spend all of their share. Across the UK, 43% of £429m in funding was not spent. Not a single council in the north of England, Scotland or Wales spent its full investment.

The findings will raise questions over whether the new post-Brexit system is streamlining funding and handing power to communities in the way ministers promised when the fund was launched last year.

The unspent money has been rolled over into this year. However Jack Shaw, affiliate researcher at the Bennett Institute for Public Policy at Cambridge University, who uncovered the data, said there was a “big risk” of the mistakes that were leaving councils unable to spend the cash would simply be repeated with an even bigger potavailable this financial year.

He said the main reason authorities were unable to spend their allocations in 2022-23 was because the government gave them less than two months, instead of 12 months. Shaw warned that with significant underspends likely at the end of the programme, money could be recouped and allocated elsewhere across Whitehall. “The issue is not the size of the funding pot per se, but the rules attached to it and the failure to get it out on time,” he said. “Authorities will now have to spend nearly three times more than they were able to allocate in 2022-23 – which raises questions about their capacity and capability to do so, given the reductions in staffing in recent years.

“It’s clear that whoever wins the next election will need to prioritise public services and, in particular, rebuild local capacity.”

His research found that of the 235 groups responsible for taking forward the shared prosperity fund, 223 of them had to request additional time to spend their investment. Only 12 authorities spent their investment in full, including Slough and Woking councils, which have both issued bankruptcy notices.

Shaw and others are calling for the system to be simplified and speeded up, to give councils a fighting chance of actually spending money allocated to improve poorer neighbourhoods.

Professor Graeme Atherton, head of the Centre for Inequality and Levelling Up at West London University, said: “Part of the problem is that funding was reduced and distributed rather differently. As has happened with all the levelling-up fund, there are more strings attached than initially appear.

“You have to submit a plan – and the plan doesn’t necessarily fit with local need. Also, the areas that had a lot of the funding had it cut. Once you cut money, it’s then hard to rebalance it. It’s not as straightforward as saying, we’ll just reduce the cost of everything. You’ve really got to start again.

“And then there are capacity issues. Those who have been tasked with spending this money at local authority level are very strapped for capacity. What they need is core funding. They’re being asked to spend other ring-fenced funding and it’s difficult to do so.”

The government has earmarked more than £10bn to programmes related to levelling up – the towns fund, levelling-up fund and the UK shared prosperity fund. Experts said all were behind schedule when compared to their original plans.

A Department for Levelling Up, Housing and Communities spokesperson said the shared prosperity fund offers each local authority the freedom to spend money on their own priorities. “The majority of local authorities were notified of 2023/24 payment by 6 July 2023 and were paid shortly thereafter.”

Angela Rayner, Labour’s deputy leader, said: “The Tories’ version of levelling up is a sham and scam. They have hollowed out local government and tied the hands of local leaders so much-needed funding cannot be spent. Labour will oversee the biggest transfer of power from Westminster in British political history and build local capacity outside of Whitehall, so where powers and funding are transferred, they are made the most of.”

The Guardian