ODI Leeds

Funding for local growth

Funding for local growth what we've learned in phase 1.

Just over two months ago we started our project to figure out how we could track local funding. It was quite an unclear title and that was my fault.

Those who looked at the list of data sources we were intending to use and the inspirations we were drawing from correctly saw that they were quite varied too.

Whose spending were we interested in? Whose definition of local funding were we going to use? Had we thought through the complexities and difficulties of the project? What even is local funding?

What is local funding?

While the lack of clarity was my fault it wasn't totally without reason. We had lots of ideas and we've been working in this area for a while, but we know that it's easy to drift off into a bubble and we wanted to listen to what people thought we should look at and then shape our project around that.

That approach has worked well.

After talking with dozens of people, both in real life and via our shared document and web page, and following our event at ODILeeds, we're much closer to knowing exactly what we will look at.

Specifically, we will look at funding that is designed to enable and accelerate economic and social growth in specific regions and places and ask the question how much money is spent on local growth in each region and place?

History of efforts to stimulate local growth.

So we are focusing on money spent or invested into places with the aim of growing their economies, with economy broadly defined to include social goals. Let's call it funding for local growth from now in.

There is a long history of such efforts in the UK.

By Tera Allas' count the UK government has introduced almost one new scheme per year for the past 40 years to boost local and regional growth. Of these, ten were still in operation in 2015 when she prepared her chart.

Taking a broader view but looking back even further, The Centre for Cities count ten policies since 1934 with an explicit regional growth focus and a further six that have affected city economic performance so much as to be noteworthy. Their definition of cities includes places as small as Burnley and Chatham, so please don't be put off by thinking they only look at large metropolises.

Measuring outputs or measuring inputs?

To what extent each of these efforts has achieved its goals is largely unknown because the goals were often not stated. If they were stated, they were often exaggerated. And then they were rarely evaluated after the fact. We typically don't know how much each project or policy spent on promoting local growth in each nation and region of the UK.

But in some cases goals were stated, and both spending and progress towards them was monitored. For example Regional Development Agencies, which existed from 1999 to 2012, had well-defined goals and good accounts.

Additionally, thorough evaluations of their performance were conducted while they still existed. Of these the largest was probably PriceWaterhouseCoopers' (PWC) evaluation Impact of RDA spending published in March 2009, although the economists at places like The What Works Centre for Local Economic Growth are likely to think that the estimated return of 7.30 to 11.60 of GVA growth created for every 1 spent by the RDAs is optimistic.

But because we lack evaluations of all funding for local growth projects, and because even those evaluations are unlikely to be widely accepted, measuring outputs from funding for local growth is probably not going to get us anywhere useful. Instead we need to measure the inputs, the amount of money spent on funding for local growth, by which organisations and where.

The RDAs are a good link to the place we need to start on this because in addition to spending money from UK central government they were responsible for spending the European Union's Regional Development Fund.

So for our project we will need to look at funding for local growth by at least the following two sources of money,

  1. The EU (via ERDF, ESIF, and others).
  2. The UK government.

With at least some investigation of spending by two further sources of money,

  1. Subnational and local governments.
  2. Charities (especially in areas such as scientific research and culture).

Lets look at the challenges in doing this one at a time.

1. EU spending.

Of the four main sources of funding for local growth, EU spending is one of the smallest but also one of the easiest to evaluate. EU regional funding is explicitly regional, with clear processes for assigning funding and detailed (some would argue excessive) accountability requirements to report how much was spent and on what.

Accessible information on the past, current, and planned spending allocations can be found in a number of documents described in the EU cohesion policy 2021-2027 EC proposals at a glance blog post. And analysis done by The Conference for Peripheral Maritime Regions provides an excellent digest of what was spent where and within which funding stream. The Institute for Government's work on this issue is also excellent.

So we are already looking at EU funding for local growth in detail, even though it is likely to end very soon. It is a reasonable ambition of this project, suggested by many of the people we've spoken to in recent months, that whatever replaces EU funding in the UK (The UK Shared Prosperity Fund is likely to be a significant part of this) is just as easy to investigate and account for. We have heard loud and clear that monitoring the scale and distribution of the replacements to EU regional funding is of value to many varied organisations in the UK.

2. National spending.

UK national spending is harder to assess. This is in large part because the sums are so much bigger, spent on many more things, and often spent on items for which a place of expenditure is either unclear or not a sensible consideration (think EU membership contributions and foreign aid, but there are many more examples).

A challenge with UK national spending is that announcements of new explicit funding for local growth often turn out to be re-announcements of old money. Take for example the explicit funding for local growth in The Towns Fund. This was announced as 3.6bn, but was in fact the combination of an existing Stronger Towns Fund and the Future High Streets Fund plus some additional funding.

Another challenge is that most funding for local growth is never announced as such. While the UK government has always spent different amounts on different things in different parts of the country it has usually claimed that there is little or no explicit focus on where the money is spent in making these decisions.

A final challenge (for here, there are many challenges I have not yet written down or even discovered) is that UK national funding for local growth is often funded by a department but delivered via arms-length bodies such as Innovate UK and UKRI, Network Rail, or The Highways Agency, some of which include their own private revenue streams.

3. Subnational and local spending.

Devolution, and specifically the varied forms of devolution within the UK, complicates funding for local growth data considerably. The structure of powers and funding streams devolved to Scotland, Wales, Northern Ireland, and increasingly London, Greater Manchester, The West Midlands and other subdivisions of England is varied and complex.

Where block grants or similar lumps of money are provided by central government to subnational governments, with freedom to decide how to spend that money, it is necessary to examine subnational and local accounts to decide what was spent, where, and on what. A small but important concern is how to account for taxes are raised and retained locally, such as Scotland's additional income tax or Nottingham's workplace parking levy.

4. Charity spending.

Charity funding for local growth is mostly of interest in two areas: culture and research & development. Until recently this was extremely hard to investigate.

But increasingly, large charities such as The Big Lottery Fund and The Wellcome Trust provide detailed data on what they fund via the 360Giving website. This means that the funding allocations of most large charities and thus most charity spending can now be analysed by place relatively easily.

Avoiding double counting, unpicking allocations, and the excellent work of HM Treasury.

Combining funding for local growth data from the four above sources is difficult, with two major challenges.

The double counting problem is common and I gave an example earlier; the majority of an announced Towns Fund turned out to be the combination of two previous funds.

But there is another potential problem with double-counting. This one is best exemplified by the approximately 11bn of grants that the UK government makes each year to charities, local government, and others. Where this money is then spent by those charities and local authorities it is important not to count it twice, both by central government in giving it to local government and by local government when it is actually spent.

The second challenge is more controversial, and at first seems almost ridiculously abstract and philosophical. What even is spending? Good examples can be found in the data on UK government spending on local transport, spending that most people would agree is funding for local growth.

In 2017 the local transport grant given to Transport for London was abolished but the funding was almost exactly replaced with a deal that London could retain business rates it collected and would usually send to central government for national redistribution. If we were only looking at the UK national government accounts to try and understand where funding for local growth was assigned this could easily look like a significant cut in funding for local growth. And yet in practice there has been no change.

Another challenge in defining spending in a place is deciding whether to count where the spending takes place or where it benefits. Transport investment provides another good example of this. There are ongoing and contentious conversations about whether spending on projects like Crossrail and HS2 should be assigned to the places where the costs are incurred or the regions which models suggest will benefit, both directly and indirectly.

Both of these challenges are big and whatever answers we arrive at are contested. Unpicking allocations and avoiding double counting requires considerable resources and position of trust.

In the UK, excellent work is done on that by HM Treasury. The HMT Public Expenditure Statistical Analyses (PESA) deal with, discuss, and make a fair judgement on many of the issues I have just described. They are additionally audited by the UK Statistics Authority to earn The National Statistics badge.

So that's what we've been up to in first phase of our project. Listening to lots of people and figuring out what is now in this blog post.

Next well be releasing the first version of our tool onto the web. A lot of the data parsing and calculating is done, but were still checking a few important things before we share it to get your feedback.