Municipalities are forced to freeze leveling projects or find millions from their own tight budgets to complete works due to skyrocketing costs that have exceeded government grants.
At least £500 million has been lost from projects funded by various government programs to raise levels due to inflation and rising costs, The Guardian can reveal. The actual losses are likely to be even greater, as the government will pay out for some funds in the delivery phase, which could be several years later.
Level up secretary Michael Gove will address the Convention for the North on Wednesday amid criticism of the latest round of funding from some MPs, including anger that London got more than Yorkshire and North East England. The government has argued that on a per capita basis the North and Midlands have benefited more.
However, the number of projects financed by Whitehall-allocated schemes is now under pressure due to skyrocketing costs – which also meant that councils took on additional risks.
New leisure buildings, high street regeneration, museums and public spaces are suffering from rising costs, including in Calderdale, Preston and Greenock.
Analysis of data from the House of Commons Library shows that, based on the latest projections from the Office for Budget Responsibility (OBR) at the time of the autumn statement, £576m has been lost from various leveling funds due to inflation.
The analysis of the overall loss in real terms was done by Labour, who found that around £137 million had been lost from the first round leveling fund, £196 million from the UK shared prosperity fund, £172 million from the city fund, £ £60m from the Future High Streets Fund and £9m from the Community Renewal Fund.
The analysis looked at inflation projections from the OBR analysis of the fall statements, as well as the fair value of the leveling fund from the first round of inflation based construction in the construction sector, as those projects are predominantly infrastructure-based.
In Halifax, a new swimming pool and recreation center are on hold for at least a year due to rising costs. Calderdale council received £12.2 million for the project in October 2021, but local reports say the cost could increase by a further £4 million.
Halifax Labor MP Holly Lynch said inflation had a chilling effect on the first wave of projects. “Too many of the first-round projects have had to be interrupted or shelved because of rising costs,” she said.
“The government wants the credits for these projects, but the economic landscape they have created makes them impossible to realize.”
The council said the project was unsustainable in its current form due to multiple budgetary pressures following years of budget cuts and the impact of the pandemic. It said it predicted it would need to earn tens of millions of pounds more in budget savings through 2026 due to inflation.
There has also been an analysis by the Institute for Public Policy Research which found that £1 out of every £13 could be lost to inflation if the government did not act to protect investment.
Jack Shaw, a senior research fellow at IPPR North, said: “Expected spending has been consistently underperforming, meaning the true cost of inflation is likely to be much higher, and further delays will only add to the pain local authorities face as the impact of inflation accumulates. ”
In many cases, projects go ahead but need more funding from local councils, which are already under pressure. In Preston, the council is being hit by rising costs for the redevelopment of the town centre, for which it received more than £20 million in 2019.
Some of the related projects now had “significant challenges with cost inflation,” said Preston City Council President Adrian Phillips. In one project, the regeneration of the Grade II listed Amounderness House, the council had to borrow to close the funding gap, because otherwise it could not go ahead.
Another scheme, backed by the city fund, required the council to significantly reduce work and go back to the government for approval.
“The cost was so high and we had no flexibility, so we just narrow down the area that we can take advantage of,” Phillips said. The council has also had to find more than £1 million to refurbish the Harris museum, where scaffolding costs alone have risen to more than £1 million, meaning potential delays to other capital projects.
Phillips is one of many local authority leaders who have criticized the approach to bidding for central funding items. “Government funding is always welcome, but you have to participate in lots of competitive bidding rounds, they are time consuming and costly for very limited resources,” he said.
“There are also ridiculous delivery deadlines, nominally set by the Treasury, that are not optimal for winning partnerships. If it has to be issued in March 2025, (that) is not flexible enough for a large capital program.”
Preston was also successful in the latest round of leveling funding bids, raising £20 million to regenerate parks. “That’s fraught with challenges in terms of cost inflation,” he said.
“The government has made it clear that you can’t go back for more. Sometimes you need to downscale and then go back for permission. It’s a very stressful process and the worst part is when you promise something and can’t deliver everything.”
In other areas, there have been warnings from those who won in the latest round of funding that they are already facing budgetary pressures. Councilors in Greenock, Inverclyde, said their costs had already skyrocketed since their successful bid.
The council was allocated £20 million to demolish and re-route the A78 dual carriageway to transform Greenock town centre, including new public squares and green spaces. But the council has said it will likely need a further £2 million to complete.
Inverclyde council leader Stephen McCabe of Scottish Labor told the Greenock Telegraph he was delighted with the success of the bid, but added: “Inflation will have already eaten away at the funding amount we are bidding on, so our project team will have to assess how this may affect the scope of the project and whether additional funding will be required to realize the full plan as envisaged.”
Labor has said it would end the competitive bidding process by radically expanding devolved powers – and said the Conservatives were responsible for rising inflation.
Shadow level secretary Lisa Nandy said: “Due to the Tories crashing the economy and pushing UK inflation to near the highest level in the G7, vital projects have been delayed and now many will be downsized or deleted altogether.
“This is symptomatic of a fractured system where communities are forced to go to Whitehall cap in hand for little money with strings attached. It exposes them to economic shocks, not least those caused by Tory governments.”
A spokesperson for the Department of Housing, Leveling Up and Communities said: “We are closely monitoring the impact of inflation on projects and are working closely with municipalities and delivery partners to ensure public services are protected and projects are delivered. “
The department said it had established a project adjustment process to work on the scope and phase of projects to reduce delivery issues. It said £65 million in support was made available to successful applicants in the form of commercial consultants, grants to buy local support and a training package.