Planning matters

Amongst the eagerly awaited announcements from Wednesday’s Autumn Budget and Spending Review were details of the successful bidders from the first round of Government’s £4.8 billion Levelling Up Fund, following launch of the fund’s bidding prospectus earlier this year (for a round-up of key announcements from the Autumn Budget and Spending Review, see Ciaran Gunne-Jones’ blog).

First coined as a key manifesto pledge during the 2019 general election, ‘levelling up’ has developed to become the Government’s flagship policy agenda, encompassing everything from infrastructure and housing to regeneration and net zero. The key focus is on increasing investment and improving life chances for communities in every part of the UK, but particularly in northern and central areas.

In this context, the Levelling Up Fund provides a tangible and timely opportunity for local areas to help realise Government’s ambition to level up ‘left behind’ regions of the UK. It will invest in local infrastructure that has a visible impact on people and their communities, with the first round focused on local transport projects, town centre regeneration, and culture and heritage.

Open to all parts of the UK, funding will be delivered through local authorities in England, Scotland and Wales. Government considers that the most impactful infrastructure projects are often smaller in scale and geography, so the fund will focus investment in projects that require up to £20m of funding; larger high value transport projects will be funded only in exceptional circumstances.

Local authorities were required to submit competitive bids for round one by 18 June, and a total of 305 bids were received, of which 293 passed the ‘gateway’ criteria. To assist with selection and prioritisation, each local authority in the country was placed into one of three priority groups – as shown on the map below – with preference given to bids from higher priority areas based on their need for economic recovery and growth, improved transport connectivity and regeneration.

In this blog, we summarise some initial analysis of the successful first round bids, focusing on their spatial distribution, investment ‘theme’ and alignment with Levelling Up Fund priority areas previously assigned.

About £1.7 billion of first round funding was announced on Wednesday for 105 projects across all regions and devolved administrations, just over a third of the total value of the Levelling Up Fund. These range in scale from a music education centre at Nine Elms in Wandsworth (£800,000) to a £49.6m new junction on the A50 in Derbyshire to help unlock development at the South Derby Growth Zone and Infinity Garden Village. The announcement was accompanied by further detail on the assessment and decision-making process followed by the Department for Levelling Up, Housing and Communities.

The North West has been awarded the largest number of successful projects (12) as well as the greatest value of investment (£232.5m cumulatively). The East Midlands, West Midlands, Yorkshire and the Humber also received a large share of both projects and investment value. By contrast, the North East, East of England, South West and London were all awarded a much smaller share of funding (see Figure 2).

First round funding was distributed across the regions and devolved administrations as follows:

• North West (14%)
• East Midlands (12%)
• West Midlands (12%)
• Yorkshire and the Humber (11%)
• Scotland (10%)
• South East (9%)
• South West (8%)
• Wales (7%)
• North East (6%)
• East of England (5%)
• London (4%)
• Northern Ireland (3%)

Whilst the full details of specific bids have yet to be released, initial analysis indicates that the majority of successful first round projects relate to the ‘regeneration and town centre investment’ policy theme, equivalent to 57% of projects and 53% of total investment value awarded. Project examples in this category include city centre pedestrianisation schemes, refurbishment of cultural venues such as theatres and art galleries, and public realm improvements.

‘Transport investment’ accounts for a further 26% of projects and 30% of the total £1.7 billion first round value. Projects typically comprise road improvement schemes, along with interventions designed to promote more sustainable travel (such as cycling and walking). Just 17% of projects and funding value directly relate to ‘culture and heritage investment’.

Going back to Government’s ‘priority index’ for the Levelling Up Fund, it is unsurprising to see that the majority of successful first round projects fall within priority 1 local authority areas, both in terms of number of projects (63/60%) and investment value (£1.2 billion) (see Figure 3 below). However, lower priority areas have not been discouraged by their comparatively lower ranking, with over £423 million also being invested in priority 2 and 3 areas across the country.

Our analysis suggests that so far, Levelling Up Fund investment appears to be weighted towards northern parts of the country and the Midlands, but with some notable exceptions in the form of the North East (which has been awarded a much smaller share than its neighbouring regions) and the South East (which secured almost as many successful first round projects as the North West).

The key focus on town centre regeneration, having attracted most funding so far, is likely to be welcomed right across the country as a timely response to the acute economic challenges that many of our high streets and urban centres have faced in the wake of Covid-19, and arguably offers most scope to make a ‘visible impact’ in local areas (a key Government criteria).

It is also interesting to note that of the 123 local authority areas classified by Government as ‘priority 1’ – i.e. deemed in most need of investment through this fund - less than half (50) received any funding through the first round. And just 15% of ‘priority 2’ areas received any funding. Demand is therefore likely to be high for future funding rounds, as will be the political incentive to ensure funding is appropriately distributed to those parts of the country considered by Government itself to be most in need of levelling up. 

 

You’d be forgiven for thinking that there wasn’t much left for Rishi Sunak to announce at today’s Budget – his second this year – given the degree of pre-briefing by HM Treasury officials and various ‘leaked’ announcements over recent days. But such was the packed agenda – new forecasts from the Office for Budget Responsibility (OBR), the outcome of the delayed departmental Spending Review as well as the Autumn Budget itself – it was perhaps inevitable in order to create as much airtime as possible.

One of the most important elements of all the early news was actually last week’s figures from the Office for National Statistics that revealed a reduction in government borrowing levels (£7 billion less than last year’s high water mark, but the second highest since the early 1990s), largely reflecting the rebound in economic growth and strong labour market over recent months boosting tax receipts for the Treasury. Coupled with upward revisions by the OBR to UK economic growth forecasts (6.5% for 2021, up from 4%) released today, the Chancellor found some extra room to manoeuvre than he might have expected back at the time of the March Budget. The quicker than expected rebound does mean that growth in 2022 is now forecast to be slightly lower, at 6%.

Notwithstanding, the state of the public finances is still far from straightforward. The public sector’s net debt excluding public sector banks amounted to £2.2tn in September, equivalent to about 95% of the country’s entire gross domestic product, a proportion last seen in the early 1960s. While the OBR is now taking a more optimistic view on the long-term effects of the pandemic on the economy – cutting its estimate of the “scarring” effects from 3 to 2% of GDP – which will also give some more fiscal headroom, other factors still risk clouding the outlook, such as rising interest rates which could substantially increase the costs of servicing that debt. And all that comes before the various extra spending commitments that had already been made over recent months, for example to the NHS.

However, the Chancellor was keen to focus on what he described as “an economy fit for a new age of optimism” following the pandemic. Of course, this was his cue for talking about how to get the government’s policies around regional policy, housing, regeneration, infrastructure and innovation and net zero on track – all of which, the government contends, are critical opportunities for its wider levelling up agenda.

Key announcements in this regard include:

1. Levelling up funding – £1.7 billion of funding was announced for 105 places to upgrade local infrastructure through the first bidding round of the £4.8 billion Levelling Up Fund. This includes projects in all regions and devolved administrations, which we have analysed in more detail in a separate blog.
   
   
2. UK Shared Prosperity Fund – the UKSPF will be worth £2.6bn over the next three years as the successor to the EU Structural Fund programme addressing local needs across the UK. The UKSPF will rise to £1.5 billion a year by 2024-25. Government is committed that total funding through the UKSPF will, at a minimum, match the size of previous EU Funds in each nation and in Cornwall, each year.
   
   
3. Brownfield land – £300m grant funding was announced that will be distributed to Mayoral Combined Authorities and local authorities to unlock smaller brownfield sites for housing and improve communities in line with their priorities. This follows the Prime Minister’s recent call for more housing to be delivered on brownfield land.
   
   
4. Business rates – following the publication of the long-awaited business rates review, the multiplier for calculating business rates will be frozen for 2022 and 2023, saving businesses a total of £4.6bn over the next five years. Additionally, revaluations will move to every three years from 2023 (currently every five years). A new 50% business rates discount for businesses in the retail, hospitality, and leisure sectors in England (worth £1.7 billion) was also announced for 2022-23. Business rates raise about £25bn in England each year, but the Treasury has indicated that it will also consider a future online sales tax to raise revenue that could fund a potential reduction in other business rates.
   
   
5. Residential property developer tax – the new tax to be levied on developers from April 2022 (and expected to run until 2032) was confirmed as part of the government’s wider plan to bring an end to unsafe cladding in February 2021. The tax will be charged at 4% on profits exceeding an annual allowance of £25 million (profits to be calculated using an activity-based approach on trading profits) through the Corporation Tax process. In addition, a new levy will be applied when developers seek permission to develop certain high-rise buildings in England. Build to rent activity will be excluded from the new tax.
   
   
6. Regional transport – £5.7 billion over five years was confirmed for City Region Sustainable Transport Settlements, subject to the creation of appropriate governance to agree and deliver funding. This will fund projects such as the Sheffield Supertram renewal and the Wednesbury to Brierley Hill metro extension in the West Midlands. As is often the case with infrastructure spending announcements, there is some debate about how much of this constitutes “new money” with an estimated £4.2bn of this funding having already been announced in the 2020 Budget.
   
   
7. Digital planning – an additional £65 million investment to improve the planning regime, through a new digital system with the intention that this will ensure more certainty and better outcomes for the environment, growth and quality of design. This is very much in the spirit of last year’s White Paper on the future of the planning system, but the Budget was silent on planning reforms more generally.
   
   
8. Freeports – the first designated tax sites have been confirmed at the Humber, Teesside and Thames Freeports, and which will be able to begin initial operations from next month. This follows the announcement in March to establish eight Freeports across England, while there also remains a commitment to also establishing at least one Freeport in Scotland, Wales and Northern Ireland.
   
   
9. DLUHC departmental budget – the Spending Review settlement for the freshly renamed Department for Levelling Up, Housing and Communities (DLUHC) provides a £2.6 billion budget increase over the Parliament to £8.9 billion in 2024-25, which represents an annual average 4.7% increase in spending above inflation. This is higher than for the overall departmental spending which is set to grow in real terms at 3.8% a year on average over this Parliament. In part, it reflects that the new UKSPF falls within the DLUHC budget.
   
   
10. Devolution deals – the Budget confirmed that the forthcoming Levelling Up White Paper will outline the government’s plans to enable more areas to agree ambitious devolution deals, where there is local support, and to strengthen existing devolution arrangements to ensure local leaders can deliver. There was no reference to the outcome of the ongoing review of Local Enterprise Partnerships.