Meet the Department for Levelling Down

Posted on December 12, 2023

Question: when is levelling up, levelling down? Answer: when it’s done by the Levelling Up, Housing and Communities Department.

One of the most significant contributions to economic regeneration, attracting investment and growth is the degree of spend in the local economy. And one of the greatest sources of spend in a locality, the more so in deprived areas, is the local government budget. A rough estimate would be that 70% of total budget is spent locally.

So, one would have thought any Government serious about regeneration would be using local government as one of the key levers.

No. Since 2011 the opposite has happened. First, in the six years of austerity post 2010, local government received the greatest cut of any area of public spending – 50%. The only comparable cut was to the Department of Justice at 32%.

Compounding this underfunding is the distribution. Between 2011-12 and 2022-23 the greatest losses were visited on the most deprived councils. The top 10 local authority losers are all in the top 25 most deprived areas. Knowsley, the second most deprived upper tier council area in England out of 152 received the second largest reduction in spending power per household. By 2022-23 this amounted to £1,271.

The overall correlation between poverty of an area and loss of local authority spending power is 0.8. By contrast, those least affected are among the wealthiest areas.

Wokingham, the least deprived upper tier authority in England, until 2020, was a net gainer at £61 per household for the year 2021-22.

By 2020, with the number of Red Wall seats falling to the Conservatives, came the imperative to ‘level up’. And the department responsible for levelling down so effectively between 2010 and 2020, the DCLG, shed its slough to emerge with a bright new gloss as the Department for Levelling up, Housing and Communities.

This resulted in two phenomena: first, a 3.2% growth in local government allocation in the form of one-off, mainly social care grants in the last year or so. These were allocated more on the basis of need but with marginal impact compared with years of accumulated cuts.

Second, the announcement of the Levelling Up Fund. However, far from being targeted according to need, Rounds 1 and 2 have been scattered according to a combination of pork barrel politics and the necessity of providing a veneer of equity.

At the extreme ends, Middlesbrough, the fifth most deprived authority received £52 per household, Rutland, the second least deprived, received £1,752 per household. The telling statistic, however, is the correlation between poverty and allocation – an unimpressive 0.41.

In terms of specific impact, the household gain in Knowsley is a one-off £91 as against an annual loss of more than £1,200 spending power embedded in the grant system.

The ultimate solution is a fundamental reform of the system based on greater pooling. In the interim, we need to reverse some of the highly regressive distribution mechanisms which have been so manipulated over the last 13 years and which have contributed to regional inequality. To name four of the many examples:

• - the New Homes Bonus which top-sliced the total grant pot and redistributed according to the number homes built in an area. This effectively switched money to better-off areas in the South East where newbuild was greatest.
• the allocation of road funding which used to be based on usage but is now based more on length, thus favouring rural areas such as Rutland over more congested and less well-off areas in the towns and cities.
• the local retention of 50% business rates favouring areas with greatest growth which are overwhelmingly the better-off areas. Fulfilling the long awaited ‘re-set’ of the baseline promised in 2021 would immediately free up around £2.0bn of growth to be redistributed based on need.
• then, of course, there is the compound effect of seven years of the 2% precept for adult social care, where councils with the lowest tax bases are expected to cater for populations with highest demand.

Whether from ignorance or deliberate deception, the Government has created an absurdity. With one hand and much publicity, it is embarking on a fruitless exercise to regenerate poorer areas of the UK via a smattering of one-off high-profile schemes. With the other, it is simultaneously widening the gap and undermining its own efforts by persisting with an inherently regressive local government funding regime. Calling a pig a hawk doesn’t make it fly. Calling an entity a Levelling Up Department, doesn’t make it level things up, especially when its efforts are tokenistic and subject to political interference.

The fact remains that along with investment in education, early years and training, effective local government is a key lever in any regeneration strategy.

Until these basics are recognised then all the hunger games bidding for small pots of money will achieve nothing and will be seen for what they are – political sops.

To contribute effectively to levelling up and help achieve the Government’s stated goals, local authorities require a stable and reasonably funded finance regime built on need. One can only hope.

Read the article in the MJ here.