This is the first article in a series called “Local Economic Development in Transition.”
With so much in flux in England – the end of European Funds, the wrapping up of Local Enterprise Partnerships (LEPs), the Levelling Up White Paper and the subsequent launch of the UK Shared Prosperity Fund (UKSPF) – there is a lot to write about! there’s also a lot of transitions happening to local skills, with the roll-out of the Local Skills Improvement Plans beyond the initial eight trailblazers.
This article will focus on early thoughts after the release of more detailed guidance for the UKSPF. It’s meant to be a bit edgy, and put the cat amongst the pigeons. However this is a serious business. Local authorities will have to make some serious choices over what they fund and deliver for local economic development and regeneration, and some activities will be cut.
Less money but perhaps more freedom
The pill might represent a small dose of medicine but its been made a bit sweeter with the flexibilities of the UKSPF. Estimates are that there’s about 50% less funding per year 2022/23 to 2024/25 compared to the previous five years for local economic development and regeneration compared solely to ERDF allocations. If we take into account the end of funding for LEPs, Enterprise Hubs and other initiatives – this makes the UKSPF pot even smaller by comparison.
If we compared the UKSPF allocation to funding for local and regional economic development and regeneration in 2008/09, it’s likely to be less than one-sixth of expenditure then, probably less if we included the impacts of local government and other public sector cuts since 2011 (which have not been reversed).
However – the UKSPF prospectus gives more flexibility on what money is spent on and how. There are a range of interventions listed which don’t require a business case or great deal of paperwork. And there’s a remarkably sensible approach to delivery – councils can deliver in house, commission or contract delivery.
Local authorities just need a Local Investment Plan that has been agreed by a local partnership board (including MPs) and HM Government, to start drawing down funding for three years.
A Local Investment Plan, when the funding is less, when support services and European Funds are providing a range of benefits and funding the administrative staff with all the experience of running programmes and interacting with clients and beneficiaries.
Now the difficult bit – what to fund? what to cut?
How I think Local Investment Plans could pan out…
So there’s no pesky ERDF and ESF rules now (such as 12-hour tranches of business advice) … but there’s much less money. And it is starting at 80% revenue, reducing to 90%. Here are some of the decision-gates that Local Authorities will have to get through…
What’s going to make the biggest impact?… in the new agenda post, covid, post-brexit, and facing climate change?
Local Authorities are faced with the big question – what’s going to give the biggest bang for the buck? Added to this – the ‘bang’ is not the same as it always was. Local councils are prioritising more – addressing inequalities, helping local small businesses, sustainably rejuvenating local high streets, and helping reduce carbon emissions. They are less interested in subsidising property developers or big business or splurging on short-term fixes. They are more interested in taking control of assets and the means of regeneration and social and economic cohesion. Enhancing land values is not going to be top of the priority list.
Transition from capital-based funding sources to revenue-based, with no match funding requirement
Much of the funding for local economic development in England in the past 10 years has been capital funding – for land, buildings, and business equipment. Local authorities and local partners have got quite good at handling this. So – apart from small grant schemes such as the Levelling Up Fund (separate to UKSPF) – it’s all change! over to revenue funding – which is much more about services to businesses and people. Added to that – there is no match-funding requirement, which changes the manner of engagement and incentivisation of the commercial sector as well as the local government sector. We are less likely to see interaction with the commercial property world.
Keeping some capacity, capability and knowledge
There are ED staff out there with a lot of experience. Whether it’s interacting with businesses, or property developers – or developing projects and successfully winning bids for central government funds. Local authorities will develop LIPs and support programmes which retain capacity and expertise. They are well aware of the losses from the 2010/11 cuts, and how they have had to reinvent the economic development function. One large city I know completely closed its economic development department down in 2011, with a director in a meeting saying in 2016 that the private sector would develop the economy, the city council didn’t need “economic development initiatives”. This comment, after about £300m was spent on physical regeneration alone 1990-2010 where all the shiny new offices and employers were now located, and with persistent social and economic exclusion to this day – struck me as pretty dumb. Anyhow – I didn’t say that this article would be completely rant free, did I?!
And here’s what I think the consequences will be
- Some quite bold principles that will guide investment – and these principles will be as much about addressing inequality, poverty, poor environments, health, local jobs and sustainable local businesses – as much as about inward investment, enterprise and property. For example – if enterprise support and advice is given – this will be on the basis of making this available to all residents. There’s no match funding requirement – gone is the need to get private sector leverage – which I think orients the funds much more to social and sustainability goals than to commercial goals.
- Far fewer grants for businesses. ERDF was good at putting out grants, assessing eligbility, and getting matched funding. For local authorities I think its a bigger risk in terms of assuring its money well spent, and with high rates of additionality. Abuse of covid loans and other covid support will also put them off grant funding, and loan funding for that matter. Personally I think that grants will be cut dramatically. Where they will be available – I can see this, as above – prioritising addressing inequalities, inclusion, and sustainability and climate change. However, there could be some clever evergreen loan funds developed – where there is a return, and a longevity in terms of benefits achieved.
- Focus on sustainable services, advice, and support. Local authorities will seek to build and maintain capacity. They are fed up with stop-start initiatives. UKSPF gives them a chance to achieve some stability in their offer and services.
- Some interesting new delivery collaborations and arrangements may emerge. This will be about getting local value and developing local capability. There are some excellent non-profit organisations, and university units and departments that engage with local businesses and employers well. I think local authorities will prefer delivery bodies and partners that do not take much of a profit.
- Joint services. A good feature of UKSPF is that there are no barriers to collaboration and provision of joint services. This is going to make sense, where improved impact and efficiency can be achieved – common for activities such as FDI promotion, support for innovation and growth businesses, evergreen loan funds, and some skills initiatives.
- Activities where it might be difficult to get on the funding shortlist. Some activities like FDI promotion and innovation – whilst worthwhile, I think will struggle to make a case next to poverty, inequalities, residents lacking basic skills, and access to jobs or education and training. Some activities will face severe funding cuts, no doubt.
The transitions that local economic development will go through in England are immense. A complete change in funding regimes, and a cut in funding. A saving grace is the relatively sensible HMG policy and guidance, with enormous flexibility.
About Glenn Athey and My Local Economy
I’ve worked in local and regional economic development for 27 years, and still enjoy, and am stimulated by helping local economies. I’ve done big, impressive reports for national policy makers, and I’ve done very customised strategies and hands on work for local authorities.
These days I like really challenging projects and clients who want to deliver change and impact. If the project helps make bold strides in development and prosperity and addresses inequalities and climate change – that’s ideal!
If you need an informal chat aboout UKSPF, or a bit of consutancy help – get in touch. DM me in Linkedin or contact me via the website.