UK Shared Prosperity Fund - Levelling Up's super fuel?
However laudable levelling up's objectives are, there is a consensus it is unlikely to succeed without targeted investment. In part this will come from public funding although there is an important role for other sources including from the private sector and pension funds.
The UK Government has already allocated some £4.2 billion by way of levelling up, town deals and community renewal funds.These funding streams targeted levelling up objectives including tackling economic disparities, upskilling people, improving infrastructure and investment into business and place. What these schemes have in common was that they were competitive and not all authorities were successful.
In February 2022 the Government published its pre-launch guidance for the much heralded UK Shared Prosperity Fund (UK SPF). UK SPF will allocate some £2.6 billion of new funding for local investment from now until March 2025. Unlike earlier levelling up funds, all areas of the UK will receive an allocation calculated via a funding formula. The guidance recognises the concern expressed in London and the southeast that even prosperous regions have areas of deprivation and economic exclusion. Unsurprisingly, the UK SPF investment priorities are firmly linked to the levelling up agenda including boosting UK productivity, providing jobs and improving living standards in 'left behind' places. UK SPF funds may also be used to improve public services (where they are weakest) and importantly for localities empower local leaders and communities.
In England UK SPF funds will be devolved to the mayoral combined authorities /Greater London Authority and in localities outside of these regions to unitary or lower tier authorities. The UK Government's stated objective is that local authorities should use the flexibility within UK SPF to devise local programmes and initiatives that best assist their own area.These local initiatives will be set within the context of the national investment priorities for the fund. In summary the guidance recognises that different areas will (and should have) distinct needs and priorities.
The funding encourages inter-authority programmes/projects which is likely to be relevant for regional and travel to work economic areas which will be served by separate UK SPF local authorities.
If authorities have not already done so they should begin to identify potential initiatives and projects which may benefit from UK SPF funding. In doing so they should read the pre-launch and subsequent guidance here.
DLUHC's levelling white paper sets out proposals that local government pension schemes (LGPS) should draw-up plans to invest 5% of their assets to support "domestic" investment. Further, some commentators have suggested that LGPS funds should actively support levelling up in that fund's area.
There is nothing unique about public sector pension funds seeking investments in safe UK public sector assets. Canadian civil servant and teacher funds have actively invested in the United Kingdom for some time. However, using LGPS funds to supplement government investment is not a perfect panacea. Pension fund trustees have a fiduciary duty is to deliver the best outcome for their existing and future pensioners, rather than shoring up public sector initiatives.
The desired levelling up LGPS investments would need a robust framework (to protect pensioners) and prevent either national or local politicians "pressurising" pension trustees into making risky policy driven investments. Further, like their Canadian counterparts private UK pension and life assurance funds would be keen to invest in UK initiatives. We have advised several councils on UK pension fund investments which delivered local and social infrastructure. However, like their Canadian counterparts UK pension and life assurance funds would expect some form of guarantee in respect of returns of their investments. The potential bonus is if the UK Government is able to structure LGPS investments so that they are secure and safe the same formula may also attract UK private pension funds to invest domestically and support levelling up.
Former European structural funding had the concept of "matched" funding. Not all UK SPF funding is intended to be made by the public sector. Subsidy control requirements are likely to require some form of private sector co-investment especially where this benefits specific businesses.