Regional development funding levels and arrangements have been the topic of political and debate over recent years. In the Spending Review earlier this year the UK Government set out headline details of its proposed new Local Growth Fund (LGF), which will replace the Shared Prosperity Fund (SPF) from April 2026. In October, the Welsh Government announced it would be making decisions in relation to the LGF in Wales.
On 7 November, the Welsh Government opened a consultation on its plans for the fund. This article explains how its proposals will work, how they compare to previous regional development funds, and what’s still to be decided about the fund.
How will the fund operate?
The LGF will operate across the UK, although there will be different arrangements for delivery across the UK nations.
The Welsh Government will have overall responsibility for managing the LGF in Wales, and will be accountable to the UK Government and Senedd for its performance in managing the fund. Funding will be released annually by the UK Government, subject to an yearly review process. This will be a change in approach from the current arrangements under the SPF, where the UK Government has worked directly with local authorities, bypassing the Welsh Government.
The UK Government has developed three broad themes for the fund – support for business; skills and employment support for growth; and enabling local growth infrastructure. The Welsh Government’s objective for the LGF is to “support productivity growth and tackle issues leading to economic inequalities across Wales”.
The majority of the funding will be capital, with a smaller amount of revenue available. This is different to the SPF, under which much of the funding has been revenue with the previous UK Government predominantly using the Levelling Up Fund for local capital projects. The UK Government has confirmed three years of revenue and capital funding for Wales.
The Welsh Government has proposed that the LGF has Wales-wide, regional and local elements. It intends to work with partners to identify a number of ‘national interventions’, and will assess the business cases submitted by these, which will be planned and delivered by “the most appropriate organisation”.
The Welsh Government intends the majority of the LGF to be planned, prioritised and managed at the regional level, although the balance between national, regional and local funding hasn’t yet been decided. It proposes to support the four Corporate Joint Committees (CJCs) to lead this work, following a transition period where it expects to use existing SPF delivery structures. The Welsh Government hasn’t proposed a methodology for allocating funding to different areas of Wales in the consultation, but is calling for views on how this should be determined.
The Welsh Government will work with partners to develop an investment plan for the three years of funding, which it intends to submit to the UK Government early next year to enable funding to be transferred to the Welsh Government.
How does the level of funding compare to previous initiatives?
The UK Government is providing £547 million to Wales for the LGF between 2026-27 and 2028-29, which works out at around £182 million per year. This is less than was received under both the SPF and EU Structural Funds.
There are a couple of ways of looking at how much funding has been reduced in comparison to that received via the SPF. One approach taken is to look at it in relation to the £585 million Wales was allocated from the SPF between 2022 and 2025, which would suggest a reduction of £38 million, or around 6.5% in cash terms.
Another is to look at the £343 million Wales was allocated through the SPF in 2024-25, and compare the annual LGF allocation of £182 million to this. The Welsh Government had called for Wales to receive the higher of either 22.5% of the total UK allocation for the fund, or £343 million per year uprated for inflation through the LGF. This is the annual level of funding required to maintain or exceed funding received through EU Structural Funds once inflation is taken into account.
The Industrial Communities Alliance (ICA), who represent local authorities in industrial areas across Great Britain, calculates the annual funding Wales will receive through the LGF has been reduced by almost half in comparison to the level of funding Wales received through the SPF in 2024-25.
What’s been the reaction?
The Welsh Government believes the arrangement “delivers on the UK Government’s promise to restore decision-making for the replacement of EU structural funds to the representatives of Wales”. However, the ICA has characterised the decision a bit differently. They say “there’s been a tussle between local authorities and the Welsh Government. This appears to have been resolved by the UK Government in favour of the Welsh Government with a role for Corporate Joint Committees at the sub-regional level”.
A number of sectors have set out their views on the roles different organisations should play in the LGF. Universities Wales has said a wholly local approach to distributing funding can be “too fragmented”, and risks excluding universities. It supports regional distribution of funding channelled through the Welsh Government. The ICA is concerned about potential job losses for staff involved in managing SPF projects due to the proposed changes to delivery arrangements. It has also said local authorities are concerned about added bureaucracy, ‘top-slicing’ of funds by the Welsh Government, and a loss of focus on local need.
The Federation of Small Businesses (FSB) Wales has called for the Welsh Government to use the LGF to restore business support funding in real terms to the level received when Wales received EU Structural Funds. CBI Wales has said that to maximise the potential benefits of the LGF “the fund must be deployed strategically, managed rigorously, and aligned with local strengths. Success will depend on strong collaboration between partners and a relentless focus on rapid delivery”.
What’s next?
The Welsh Government’s consultation on the LGF will run until 19 December, and it intends to submit an investment plan to the UK Government as soon as possible next year to secure funding ahead of the fund starting in 2026-27.
The Senedd’s Economy, Trade and Rural Affairs Committee will also hold a short inquiry into the LGF over the coming weeks.
Article by Gareth Thomas, Senedd Research, Welsh Parliament
