Purpose, price and political nous: bidding for levelling up projects

After a summer of unrest in Westminster – and unease among spending departments – the autumn ‘Budget’ did much to calm fears of an immediate halt to capital spending on regional infrastructure and ‘levelling up’ projects. Much-trailed curtailments of HS2, Northern Powerhouse Rail and Sizewell C didn’t materialise, and Chancellor Jeremy Hunt’s ‘kick the can down the road’ approach to fiscal controls sees specific levelling-up funding protected until at least 2025.

This will have cheered local authorities, charities and businesses looking to access the £1.7bn from future phases of the Levelling Up Fund (LUF): bids for phase two closed in August; phase three, for the final £1.4bn pot, is yet to be scheduled.

But listening to bidders for those funds, it’s apparent that for many the process has been frustrating, time-consuming and costly. Project proposals have to be justified against often subjective criteria, include detailed costings and potential returns, and have been evaluated in a competitive process – resulting in many local authorities and project consultancies labouring for no return.

What’s in a name?

Minister Deanna Davison’s explanation of the ‘guiding principles’ for funding in the Levelling-up and Regeneration Bill in the House of Commons in November illustrate the point. She suggested projects highlight “beauty, infrastructure, democracy, environment and neighbourhoods – or, for acronym fans, BIDEN… We want to ensure people across the country have the opportunity to live and work in beautiful places, supported by the right infrastructure, with strong locally accountable leadership and with better access to an improved environment, all rooted in thriving neighbourhoods of which they can be proud.”

Over at the National Infrastructure Commission, Chairman Sir John Armitt put it in starker terms. “We have a lot of labels for what is fundamentally needed: economic activity across the regions,” he told Project. “London is still outstripping the rest of the country in terms of investment levels.”

There remains a balancing act. Stung by National Audit Office criticisms of accountability and lack of evidence of value for money, the Department for Levelling Up, Housing and Communities will want rigour in proposals, even as it attempts to minimise the administrative burden of the bidding process. Ministers are keen to promote devolution in general (and more local decision-making in levelling up spending) but remain the final arbiters of green-lit projects.

A final complication: in addition to the pitch problems and the questions around evaluation, project managers for phase two and three schemes now have to contend with inflation. Bids made in July and August will clearly have been undermined by the sharp rise in the cost of materials and labour. According to the Institute for Public Policy Research, £1 in every £13 of the LUF and Shared Prosperity Fund (SPF) will be lost to inflation – a real-terms fall in the value of two funds of £560m by 2025/26.

A vicious circle

For a generation of project managers and cost accountants who have earned their stripes in a period of low inflation, honing these skills to ensure projects are not left hampered by rising costs will be key.

And for new projects in 2023? “If you’re at the front end of activity – in consultancy and development – there’s potentially more to go at,” says Armitt. “But it’s a vicious circle. To what extent do you ‘put bread on the water’ as a project consultancy, suggesting to local authorities or private sector clients that they fund project development with a view to gaining funding?” (In other words, if you’re competing for funds or shooting at relatively loose criteria, it can be speculative and costly.) “If you’re a contractor, you’re just sitting waiting for the investment to get projects going.”

This is true of more than just the levelling-up funds, of course. And investors – whether that’s in real estate, retail, digital infrastructure or even housing – seem increasingly nervous in the face of uncertain economic prospects for the next couple of years.

That makes the availability of stable funding – either for the biggest infrastructure projects, or the more modest levelling-up agenda – more important than ever. Greater clarity for local authorities on the project bidding process and less uncertainty over the value of investing in project development, suggest the experts Project spoke to, could be the key well into 2024.

Structures of power

The final piece of the puzzle, according to Professor Will Jennings, expert in public policy at the University of Southampton, is a much bigger political mission: devolution. “[We] should be thinking about the structures of power in the UK as a way of addressing these issues,” he told a recent conference on levelling up research.

The signs here are positive. In the same Budget that underscored continuity in headline infrastructure projects, Jeremy Hunt praised devolved administrations in the West Midlands and Teesside, and promised new devolved powers in Suffolk, Cornwall and Norfolk.

With more local accountability, dedicated funding and a more predictable bidding process, the life of the levelling up project manager might well be less frantic over the next couple of years – but possibly more fruitful.

Read the Winter 2022 issue of Project journal for further analysis of the future of ‘levelling up’