Picture of a construction worker building a road.

Picture of a construction worker building a road.

How are levelling up funds working in Wales?

Published 07/11/2023   |   Reading Time minutes

Last year, the UK Government described levelling up as its “defining mission”. It has developed a number of funds, including the Shared Prosperity Fund (SPF) and Levelling Up Fund (LUF),which aim to address place-based economic inequalities.

Our article from May last year explains how the funds operate. Ahead of the Plenary debate on the Economy, Trade and Rural Affairs (ETRA) Committee’s report on these funds on 8 November, this article discusses how the funds are working for Wales.

Disagreements over funding levels continue

The Welsh Government argues Wales will receive £772 million less funding through the SPF between January 2021 and March 2025 compared to the amount that would have been received through EU Structural Funds. It says SPF allocations should replace EU Structural Funds in full in each year up until 2024-25.

The UK Government doesn’t agree. It says previous EU programmes “ramped up and down”, and that its funding commitment will be met by a combination of EU funds from the 2014-20 programme and investment through the SPF.

There’s no consensus on who’s right. The Institute for Fiscal Studies says the UK Government’s position is “more reasonable”. However, the Institute of Welsh Affairs concludes the figures suggest Wales is set to miss out on funding. Professor Steve Fothergill of Sheffield Hallam University illustrates the uncertainty, saying:

It's a very odd situation to be in, to say that both parties are right in all of this, but they are, because they're looking at rather different things. One's looking at actual spending in financial years, and, in that sense, the UK Government is correct; the Welsh Government is looking at financial commitments, which is a different measure, and Vaughan Gething is correct on that front.

Opposing views remain on who should deliver the funds

The UK Government has used its powers under the UK Internal Market Act 2020 to work directly with local authorities to deliver the SPF and LUF. It says:

Replacing bureaucratic European funds, the UK Shared Prosperity Fund provides places with the autonomy and the certainty they need to decide their own priorities and agree them locally.

The Welsh Local Government Association notes that councils have welcomed the management arrangements. It says these allow “councils to be directly responsible in the decision making at a local level, ensuring that specific needs can be addressed”. However, all four local authority representatives who gave oral evidence to the ETRA Committee suggested they also wanted the Welsh Government to be involved in the SPF.

The Welsh Government describes the UK Government’s approach as “a deliberate and unacceptable encroachment into a devolved policy area”. It says:

Many of the problems we see in the UK Government’s management of the Shared Prosperity Fund are a direct result of the imposition of this fund on Wales without meaningful partnership with the Welsh Government and with little regard for the distinct needs of Welsh stakeholders. This is also true in their management of the competitive Levelling Up Fund.

The ETRA Committee noted “stakeholders believe that the absence of any Welsh Government-level coordination in the development or delivery of SPF” had led to a “negative impact”. Consequently, it recommended the UK Government consider how the Welsh Government could aid in the delivery and design of future rounds of funding

How the Shared Prosperity Fund is working

The SPF funds locally-determined priorities in three areas – communities and place; business support and people and skills. Delivery of the SPF is led by local authorities, who have got the fund up and running within their areas.

While welcoming positive working relationships with UK Government officials, local authorities expressed concerns about the impacts of the UK Government’s approach to the SPF on their ability to plan and deliver projects. Councillor Rob Stewart, leader of Swansea Council, said:

…we were handed an almost impossible task of money coming late, lack of clarity around how you can spend it, lack of clarity about how you can allocate it, and then potentially being criticised at the end.

The UK Government acknowledges “some local authorities found certain timescales challenging”. It says its officials are in regular contact with them to support delivery of intended outcomes.

Concerns have been raised that the design of the SPF has led to duplication of efforts by local government and the Welsh Government. The Federation of Small Businesses Wales raised potential duplication of business support. Dyfrig Siencyn, leader of Cyngor Gwynedd, said the Multiply numeracy programme that forms part of the SPF could be improved by widening its scope and co-ordinating with Welsh Government programmes.

Another issue raised by organisations is the potential impact of the SPF’s design on regional and Wales-wide projects. Universities Wales says the SPF’s approach is “too localised to meet regional or Wales-level strategic priorities for investment in research, innovation and skills.” It also highlights that over 1,000 jobs at Welsh universities are at risk due to the change from EU Structural Funds to the SPF. Universities Wales has called for bridging funding to secure jobs while a longer-term solution is found, as have trade unions.

Colleges Wales said administrative requirements for organisations who want to deliver projects across more than one local authority area have created “a different layer of bureaucracy”.

The UK Government says local authorities can decide whether to deliver locally or regionally under the SPF. It highlights that the SPF has been created with different objectives and a new delivery model, and that the UK Government “stands ready to support universities to transition to new funding regimes”.

Operation of the Levelling Up Fund

The LUF invests in infrastructure projects such as town centre regeneration, transport improvements and cultural assets. Over the first two rounds of the LUF, Wales has received around £330 million, with 17 of the 22 Welsh local authorities receiving funding.

The Institute of Welsh Affairs argues the LUF’s competitive approach is “inefficient and not effective in tackling regional inequality”. Speaking on behalf of English councils, the Local Government Association says:

…wasteful competitive bidding processes are not a sustainable approach to economic development or public service delivery.

The Minister for Economy said the LUF could have more impact if it was delivered differently, stating:

…if you'd used those funds in a more strategic way with a longer time frame, would they have made more difference? I think the answer to that is 'yes'.

The UK Government highlights that Wales has received the highest per capita investment through the LUF of the devolved nations or English regions. It has confirmed that round 3 of the LUF will be launched in November 2023, ahead of its Autumn Statement.

The future of levelling up

While the UK Government has published guidance on simplifying levelling up funding streams, which sets out some changes, there is uncertainty about what will happen to the funds after March 2025. The ETRA Committee wants the UK Government to clarify its plans for the SPF and LUF as soon as possible.

The next UK Government Spending Review will set the course for future plans. Until then, we can expect the Welsh and UK governments to continue to disagree on whether Wales is receiving sufficient funding, who should deliver the funds, and whether the funds are operating successfully.

Article by Gareth Thomas, Senedd Research, Welsh Parliament