Central government's over-reliance on competitive bidding to fund local and combined authorities is not working for anyone and inhibits local growth, warns a new Institute for Government report.
Funding Local Growth in England sets out how the next government can simplify the funding landscape for all local and combined authorities, not just the most developed mayoralties.
The new IfG paper identifies three features of the current funding landscape which undermine the government's attempts to use funding to meet its levelling up and other objectives.
- A huge number of different funds available to local leaders, with tight ringfences determining how the money can be spent. The Local Government Association found 448 unique grants between 2015/16 and 2018/19 from central to local government.
- Funds are often short term, with many lasting only one year. Almost half of the grants issued in 2022/23 were due to expire at the end of the year (48%) - providing no scope for stability or longer-term planning.
- A quarter of funding streams (covering 8% of total local government funding) is awarded through competitive bidding. This is a huge resource burden for local authorities, with bids often costing £20,000 to £30,000.
While flexible funding pots have been agreed for Greater Manchester and the West Midlands, the next government will need to take a balanced approach to ensure a simpler landscape that works for all.
To do this, the paper recommends:
- The government publish a strategy for its regional policy agenda early in the next parliament.
- The single settlement model be extended to more combined authorities when institutions are ready.
- Most funding for local growth be streamlined into a small set of larger, multi-year funds covering spending review periods.
- Competitive funds only used in exceptional circumstances. By default new funding to meet an existing objective should top up the larger funds.
- The Treasury should commit at the next spending review to simpler funding for local growth and set out guidelines for how any subsequent funding streams will be spent.
Report author and IfG Senior Researcher Rebecca McKee said:
“The current funding model is a major barrier to local growth across the country, undermining both central and local government efforts to reduce regional inequalities. Simplifying funding has to be an early priority for a new government, failing to tackle it again risks undermining any future regional growth programmes.”