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A report by the National Audit Office (NAO) has found that the government’s policies to stimulate local economic growth are not consistently based on evidence of what interventions are likely to be most effective, increasing the risk that billions of pounds awarded to local bodies will not deliver the intended benefits.

The Department for Levelling Up, Housing and Communities (DLUHC), working with other government departments, has responsibility for “raising productivity and empowering places so that everyone across the country can benefit from levelling up”. As at November 2021, central government had committed £11 billion through policies to support the regeneration of towns and communities across the UK between 2020-21 and 2025-26, including £4.8 billion for the Levelling Up Fund1, £2.6 billion for the UK Shared Prosperity Fund2 and £3.2 billion for the Towns Fund3.

DLUHC has a limited understanding of what has worked well in previous local growth programmes due to a lack of consistent evaluation or monitoring. By failing to conduct evaluations, DLUHC has wasted opportunities to learn lessons to inform future interventions, and it does not know whether previous policies achieved their aims. Instead, it has built its evidence base for what works in local growth by drawing largely on external sources such as academic studies and evaluations conducted on place-based funding from the European Union.

The NAO found that DLUHC has not consistently applied knowledge and key policy principles from this evidence base. For example, the way the interventions work makes it hard for local authorities to plan the joined-up investment strategies that the Department’s research suggests are needed to promote local growth. DLUHC has received expert advice that major physical regeneration could significantly improve local economic outcomes, but the smaller-scale infrastructure investments it is funding through the Levelling Up Fund do not usually drive significant growth. DLUHC says it has intentionally designed the Levelling Up Fund to allow investment in small-scale infrastructure that improves everyday life as well as to support recovery and that major physical regeneration is largely funded through other routes.

DLUHC, with HM Treasury’s approval, did not produce all three standard stages of the business case process4 for the Levelling Up Fund, instead consolidating the stages into a single business case. While there may have been good reasons to move quickly, bypassing the earlier stages of a business case review limits the amount of scrutiny and independent challenge. The business case it did produce, and that HM Treasury approved, did not document the substantive comparison of alternative options for achieving ministerial aims as it should have.

DLUHC has committed to improve how it monitors and evaluates its most important local growth policies. This includes a new intention to evaluate one of its past interventions designed to stimulate local economic growth, the Local Growth Fund5, after previously saying it had no plans to do so. The Department has also made a promising start on monitoring and evaluating the Towns Fund. However, these plans are at an early stage, and there is significant further work needed to translate these good intentions into practical changes. DLUHC has also yet to make any progress on its commitment to an overarching local growth framework, with common metrics for evaluating local growth initiatives.

To ensure that future interventions achieve maximum impact, the NAO recommends that departments ensure they follow the guidance on developing and appraising business cases at key decision points, documenting how they have evaluated different alternatives to delivering a desired outcome. Government should coordinate the full range of its local growth programmes across Whitehall to manage dependencies between departments’ work and avoid conflicting initiatives. DLUHC should also set out and publish how it intends to formally evaluate the Levelling Up Fund and the UK Shared Prosperity Fund.

Gareth Davies, head of the NAO, said:

“The Department for Levelling Up, Housing and Communities has not consistently evaluated its past interventions to stimulate local economies, so it doesn’t know whether billions of pounds of public spending has had the impact intended.  

With its focus on levelling up, it is vital that the Department puts robust evaluation arrangements in place for its new schemes to promote local growth.”

Full report:  Supporting local economic growth

Notes for Editors

1. Levelling Up Fund –£4.8 billion UK-wide fund aimed at supporting town centre and high street regeneration, local transport projects, and cultural and heritage assets. (of which the Department announced £1.7 billion through 105 awards at the 2021 Spending Review).
2. The UK Shared Prosperity Fund (UKSPF) – £2.6 billion UK-wide for the three years to 2024-25, increasing to to replace the £1.5 billion per year local growth elements of the European Structural and Investment Funds which will end in 2023 following the UK's exit from the European Union. Government has made £220 million available during 2021-22 through a one-year UK Community Renewal Fund (CRF) to help areas prepare for the UKSPF. In the 2021 Budget, Government announced the first tranche of awards under the Levelling Up Fund, totalling £1.7 billion across the UK.
3. Towns Fund – fund investing in towns in England as part of the government's plan to level up our regions. It includes £2.2 billion for Town Deals and £1 billion for the Future High Streets Fund. Of the £3.6 billion originally announced for the Fund, £0.4 billion has been redirected to the Levelling Up Fund and Freeports.
4. The Green Book is guidance issued by HM Treasury on how to appraise policies, programmes and projects.
5. Between 2011–2020, government committed some £18 billion of domestic funding to policies designed to stimulate local economic growth in England. This includes £12 billion through the Local Growth Fund, and £3.2 billion through the Regional Growth Fund. A further £10.3 billion was directed to the UK through EU structural funding between 2014 and 2020 (for spending up to 2023).
6. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.

 About the NAO

The National Audit Office (NAO) scrutinises public spending for Parliament and is independent of government and the civil service. It helps Parliament hold government to account and it uses its insights to help people who manage and govern public bodies improve public services.

The Comptroller and Auditor General (C&AG), Gareth Davies, is an Officer of the House of Commons and leads the NAO. The NAO audits the financial accounts of departments and other public bodies. It also examines and reports on the value for money of how public money has been spent.

In 2020, the NAO’s work led to a positive financial impact through reduced costs, improved service delivery, or other benefits to citizens, of £926 million.