Meeting of the Parliament

Meeting date: Tuesday, February 7, 2023

Official Report 1000KB pdf

---

Levelling Up Fund

The next item of business is a statement by Richard Lochhead on the Scottish Government’s response to the second round of the levelling up fund. The minister will take questions at the end of his statement, so there should be no interventions or interruptions.

14:23  

The United Kingdom Government introduced levelling up in 2020, signalling it as the central agenda for making the UK a fairer place to live by reducing inequality. We were told that the lynchpin of that agenda—the levelling up fund—would seek to improve everyday life across the UK. However, after two rounds of funding, we see very little evidence that it is working.

In fact, Bloomberg analysis that was released in January shows that only 3 per cent of Scotland has levelled up, according to the metrics involved. That means that 97 per cent of Scotland has felt little to no impact from the funding or the UK Government’s interventions, so levelling up means losing out for many of Scotland’s communities. I will lay out the evidence for why that is the case.

First, there is the inept delivery of the fund, which has left the most deprived areas without any award. Secondly, there is the constitutional issue at the core of all this. The Scottish ministers have raised that issue time and again, and it demonstrates the disrespect that the UK Government has for devolution. The fund also exemplifies the UK Government’s tendency to shift the goalposts on stakeholders, making decisions without consultation or advance notice.

The first such decision occurred when the UK Government announced plans in its autumn 2020 spending review for a £4 billion levelling up fund exclusively for England, advising that consequential funding of £800 million would be provided for devolved Governments “in the usual way”. The “usual way” is of course via the Barnett formula for consequentials to allow expenditure in devolved areas. Through that, the Scottish Government expected to receive around £430 million, which we would have used in a manner that met the needs of all Scottish regions and that supported work to promote core policies such as community wealth building, tackling child poverty and regional economic development.

However, the introduction of the infamous United Kingdom Internal Market Act 2020 allowed the UK Government to backtrack at the last minute and to announce in the 2021 spring budget, without discussion with Scottish ministers, that the fund would be UK-wide. The UK Government then kept the consequentials and used them to increase the fund to £4.8 billion and apply it directly in devolved areas. It is unacceptable and undermines the devolution settlement for the UK Government to use powers that it has gifted itself through the United Kingdom Internal Market Act 2020 to bypass the Scottish Parliament and the Scottish Government in ways that could—and do—contradict Scotland’s devolved priorities.

It is concerning that, with approximately £80 million left for Scotland, just under half of all our local authorities have yet to receive any support from the fund. Think about that for a second. The UK Government has allocated £3.8 billion from the levelling up fund, and 14 councils in Scotland have not received a penny. It is the Scottish Government’s view that the remaining funding should be passed to the Scottish Parliament, as was initially intended, to enable targeted and focused support for the areas that are most in need of levelling up. Even though, as I have just said, most of the fund has now been allocated, we could at least make the best of a bad lot.

One of the most scathing criticisms of the levelling up fund came from the Conservative mayor for the West Midlands, Andy Street, who recently noted that

“this ... is just another example as to why Whitehall’s bidding and begging bowl culture is broken”.

He went on to say:

“the sooner we can decentralise and move to proper fiscal devolution the better.”

In Scotland, we could have used the funding in line with Scottish priorities. For instance, our recently published regional economic policy review sets out the trajectory for the future delivery of regional economic development and builds on the commitments made in the national strategy for economic transformation. We would seek to issue funding to our regional partners in line with all the recommendations that were made by the experts who led that review. Those would, for instance, deliver the core strategic projects that matter to our regions, build capacity in our local authorities, support sectoral strengths and create things such as the proposed intelligence hubs for every region.

The UK Government has not only shifted the goalposts for the Scottish Government by removing expected consequentials without consultation; it has treated our local authorities with the same disdain. A note on

“the assessment and decision-making process”,

which the UK Government produced months after bids were submitted, said that ministers had suddenly decided to take account of

“which local authorities had received funding in the first round, noting that this would help maximise the geographical spread of investment across rounds one and two”.

Put in plain English, that meant that anywhere that was successful in the first round would not get funding in the second round, regardless of the quality of the bid submitted. However, at no point did the UK Government think to tell the local authorities, which had invested time and effort in creating bids that were not even going to be considered. That lack of respect is astounding.

Susan Aitken, the leader of Glasgow City Council, confirmed in an article published in The Herald that

“bidders were not told about this in advance, resulting in huge expense to work up the detailed and labour intensive proposals.”

Councillor Aitken wrote to the Secretary of State for Levelling Up, Housing and Communities, Michael Gove, stating that, in the weeks leading up to the decision,

“your officials were in dialogue with ours and at no stage was there ever any suggestion that places successful in Round 1 would not be eligible for Round 2 funding.”

Because the UK Government did not make that clear from the outset, Scottish local authorities have wasted time, effort and money developing bids that were ultimately dismissed on the basis of geography rather than need. It is not for Scottish ministers to speak on the behalf of councils, but it is not unreasonable to suggest that many of them would have entered different projects into round 1, had they known from the outset that they would only get a single bite of the cherry.

Although Scottish projects have received 9 per cent of all awards from the fund, only 10 of the 29 Scottish local authorities that submitted bids in round 2 were successful. At a practical level, however, the social sector consultancy NPC noted last year that Scotland received only 3.5 per cent of levelling up funding, despite having 8.2 per cent of the population, and Scottish local authorities with the highest homelessness rates received less levelling up funding in 2022 than the areas with the lowest rates. The UK Government claims that the fund is about reducing inequality, but it has made it about geographical spread. As I said before, it has even failed to achieve that.

We know that it is not really about reducing inequality when we see the full picture of the awards. Rural and peripheral regions and areas of deprivation have not been prioritised or targeted by the UK fund. Although not all councils applied to the fund, possibly due to the convoluted processes involved, five of the least well-off council areas in Scotland received no award from round 2. Glasgow, North Ayrshire, Renfrewshire, South Lanarkshire and West Dunbartonshire are all ranked in the top 10 most-deprived areas, according to the Scottish index of multiple deprivation, yet they were overlooked for funding in round 2. In comparison, nearly £40 million was awarded to some of Scotland’s least-deprived areas.

It is difficult to reconcile the rhetoric of levelling up as the great reducer of inequality with the clip provided, for instance, by the New Statesman, in which the Prime Minister was captured last year telling Conservative activists that:

“I managed to start changing the funding formulas, to make sure that areas like”

Tunbridge Wells

“are getting the funding they deserve.”

Funnily enough, Mr Sunak’s wealthy Richmond constituency was awarded £19 million. How does that reduce inequality, when Glasgow’s most deprived areas such as Maryhill and Possilpark had projects rejected, or my constituency of Moray did not receive investment for its bid involving a similar sum for a similar regeneration package to that for which the PM’s back yard was successful in being given an award?

It is also worth noting that the biggest regional recipient was the north-west of England, which received £350 million. It just so happens to be the red wall where the Conservatives are most vulnerable to losing marginal seats to Labour. By comparison, the whole of Scotland was awarded £177 million—approximately half that amount.

Even a cursory analysis of the fund exposes that it is not about poorer communities being levelled up. It is clear that the fund is nothing more than a dash for cash, where political glad handing takes precedence over meaningful, strategic and targeted investment for our poorer communities.

Levelling up should not mean losing out, but it does. Recent Bloomberg analysis shows that, in 2019, 597 of the 650 constituencies were behind London and the south-east in at least six of the 12 levelling up metrics that were analysed. As I mentioned earlier, in Scotland, only 3 per cent of all constituencies were shown to be levelling up overall.

As we all know, levelling up cuts across many areas of devolved policy such as transport, justice, culture, skills and education. We fundamentally disagree with the principle of the UK Government making decisions in devolved areas. In 2021, as I said before, the UK Government changed its mind on plans to confine the fund to England and to deliver extra Barnett consequentials to the Scottish Government. Instead, it kept all the funding and is issuing it in a manner that fails to reduce inequality in any meaningful way.

If we had control of that funding, we would do the right thing with it and support Scotland’s priorities. We will now invite the Secretary of State for Levelling Up, Housing and Communities, Michael Gove, to a face-to-face meeting in order to discuss the future of the fund, setting out our intention to deliver true devolution through investment in accordance with our aim to create a wellbeing economy for Scotland.

The International Monetary Fund is forecasting that the UK will be the only major economy to contract in 2023, so the UK economy is fundamentally on the wrong path with no real alternative on offer within the current system. Communities have been damaged by UK policies such as Brexit and other UK budget decisions.

Therefore, the UK Government must devolve the remaining funding to the Scottish Government so that we can see meaningful support delivered to regions and regional stakeholders, bringing together public, private and third sector economic actors, so that we can tackle inequalities within and between their regions. That would be true and respectful partnership-working between all areas of Government, not the top-down, power-grabbing and ineffective fund that we see right now.

The minister will now take questions on the issues raised in his statement. I intend to allow around 20 minutes for questions.

I thank the minister for advance sight of that statement, although I hoped, if not expected, that it might be a bit more than page after page of reheated grievance. It is certainly 11 minutes that none of us will get back.

Although the Scottish National Party might not be able to find anything positive to say, the levelling up funding has been welcomed in communities across Scotland. Councillor Emma Macdonald, the leader of the Shetland Islands Council, said:

“It is no exaggeration to say that this funding from the UK Government has saved Fair Isle as an inhabited island. There would have been no other way for us to sustainably fund such a project. This is a truly great day for Fair Isle, and for Shetland, and we are grateful for the honest, open and productive dialogue we have had both with the Scotland Office and the Department for Levelling Up, Housing and Communities throughout the process.”

Councils across the country applied for support, including some run by the SNP. Many welcomed the fact that they applied directly for that additional funding on top of Barnett consequentials that the Scottish Government already receives and that it was not funnelled through the Scottish Government’s sticky coffers in Edinburgh. The minister failed to acknowledge that the percentage of the funding received by Scotland is higher than Scotland’s percentage of population. As a country, we are a net beneficiary of that UK support.

Does the minister recognise that the ministerial miserabilism from the SNP is in stark contrast to the welcome that the funding has received in communities across Scotland? Does he accept that communities across Scotland do not care where the funding comes from and that, if the UK Government is delivering support where the SNP ministers are not, it is for the Scottish Government to step up? Does he recognise that the Scottish public want to see their two Governments working together and working with local authorities on issues such as levelling up funding, city region deals and freeports? They do not want more nonsensical grievance mongering from SNP ministers.

The member’s question gets to the heart of the two key issues.

First, he mentioned the Shetland award. No one in the chamber or the Government blames local authorities for applying for funding that the UK Government makes available. However, Jamie Halcro Johnston will know that, in round 2, with the Highlands and Islands being identified by the UK Government as in the lowest level of need, only Shetland got an award. The rest of the Highlands and Islands did not get a penny. Argyll and Bute, the Western Isles and my constituency of Moray have not received a penny out of the £3.8 billion announced by the UK Government so far in both rounds. How on earth can he say that that is levelling up?

The second point is about the UK Government and the Scottish Government working together. The mess would not have happened had the UK Government been willing to work with the Scottish Government but the irony is that the UK Government used the United Kingdom Internal Market Act 2020 to change its mind on devolving the consequentials to the Parliament and decided to directly allocate funding and ride roughshod over Scottish devolution. [Interruption.]

Let us hear the minister.

Unlike on the growth deals and the green freeports, the UK Government is not willing to work with the Scottish Government on levelling up funding. If it had, we might have got it right and not been in a position where 14 local authorities in Scotland in Scotland missed out on getting a penny from the £3.8 billion has been announced for so-called levelling up so far.

I thank the minister for advance sight of his statement.

Between the lowest and highest-performing cities in Scotland, there is a gap of around a third in earnings per hour worked. Indeed, five local authorities in Scotland have seen a productivity decline in the past decade, so I agree that the levelling up fund is insufficient compared to the structural funds that it replaces. I also agree that it is not transparent and bypasses devolution. Indeed, my colleague Chris Bryant described it as corrupt, and I do not disagree with that assessment.

However, beyond city region deals, there is no relevant locus or structure in Scotland. I note that the report of 19 December from the regional economic policy advisory group states that there should be enhanced structures and autonomy for regional economic development. When will there be a formal response to the report, with clear regional economic plans and investment to back them up, so that we can close the gap between our lowest and highest-performing cities?

In my opening statement, I mentioned that we have 11 recommendations from a recent review of working with regional partnerships and taking forward regional policy. If that money been devolved to the Scottish Parliament, that is the way in which we would have approached this issue: we would have worked with local partners and local authorities and got this right. We would have made strategic interventions to tackle inequalities and support local economic development in Scotland.

We are taking a number of measures. We have, for example, the £325 million place-based investment programme, which includes the regeneration capital grant fund. We have many other measures in place. We work with local partners to identify local priorities, as well.

However, many issues are reserved. There is the £349 million that we could have allocated in line with Scotland’s priorities, if the UK Government had not overridden devolution and allocated it directly, missing targets and making a mess of the levelling up agenda.

I welcome the opportunity to ask about levelling up in the chamber. It seems that one of the UK Government’s central tenets is that its fund should bypass the Scottish Parliament entirely and avoid the inconvenience of democratic oversight. That is in contrast with what happened with decades of European Union structural funding, which was allocated through co-ordination between the European Commission, the Scottish Government and local communities, and was delivered through the LEADER programme, for example. Does the minister share my concern that Westminster has encroached on devolved responsibilities and failed to engage with communities directly?

Emma Harper is correct. This is another example of the UK Government’s aggressive approach to the constitutional settlement in the UK and of it riding roughshod over Scottish devolution and showing utter disrespect to this Parliament and the Scottish Government. A prime example is the fact that European funding, which Emma Harper referred to, identified Scotland’s rural and more remote areas as being areas of need, whereas the UK Government, in taking over the fund and changing its mind about devolving it to Scotland, decided that those areas are not in need and have the lowest need. That is an outrageous position. As a result, much of the funding has missed out areas in Scotland that are most in need.

I feel sorry for members of the Government party, who have clearly all got out of bed on the wrong side this morning, because not one of them has anything positive to say about the fund.

My constituents on the west coast are pleased that more than £100 million is being invested in Inverclyde, North Ayrshire, Renfrewshire and Dunbartonshire—but those are hardly Tory heartlands. The areas are still reeling from the lack of support for a freeport bid, and we lack a Scottish Government strategy on marine and port infrastructure. Over in the west we would like, apart from the welcome UK Government investment, a clear direction of travel from the Scottish Government on how it will properly invest in our marine infrastructure, which is underutilised by the Government. We want a strategy and we need it soon.

As I have said in my previous answers, we will continue to work with regional partners in rolling out the funding that I have already mentioned is available from the Scottish Government. We will continue to make representations to the UK Government that its funds take into account our strategic priorities.

Jamie Greene mentioned the welcome that projects in his part of the world have been given. I reiterate that no one blames local authorities for applying for funding that is made available by the UK Government. What we are saying is that the funding was sold as part of the levelling up agenda, but Jamie GReene was not, when he asked his question, able to say how the awards support that agenda. There are many different funds with many different objectives, but the purpose of this fund was to tackle inequalities across the country, to target the areas that are most in need and to deliver the levelling up agenda, which, in most cases, it has failed to do.

Not only is the UK providing less funding than Europe, but the Institute for Public Policy Research has calculated that the UK Government’s failure to inflation proof levelling up funding has cost communities more than half a billion pounds. Has the minister been advised whether the UK Government will rectify the shortfall and fill the inflation gap, which has been caused in part by the UK Government’s economic incompetence?

Kenneth Gibson has made an important point. We have had no feedback as yet from the UK Government about the future of the levelling up fund or about taking into account inflationary pressures or other factors.

As I said in my statement, we are asking the levelling up secretary for a face-to-face meeting to discuss the future of the fund, but I suspect that he will be so embarrassed by the negative response to the fund throughout the UK, including from prominent members of the Conservative Party, that there might be doubt about its future. We wait to hear formally from the UK Government about the fund’s future.

The minister rightly laments the failure of Glasgow to receive funding in this round of awards, despite there being clear economic need. However, how much pleading does the Scottish Government need to hear from Glasgow business leaders, who are being let down by that failure and by rejection of the Clyde freeport bid, despite there being high levels of deprivation across the region? Does the minister agree with me and local business leaders that Glasgow is of strategic importance to the economy and should be compared to cities such as Manchester? Does the Scottish Government recognise the need for a plan to enhance existing funding and to support the failings of levelling up?

Pauline McNeill is correct to talk about the strategic importance of the city of Glasgow to the whole of Scotland and the Scottish economy. I absolutely agree with that point.

She has made the Scottish Government’s point for us. We would like to do more to help the city of Glasgow: £349 million was meant to be devolved to the Scottish Parliament and Government so that we could work with Glasgow City Council and others to help the city’s future. However, the UK Government changed its mind and decided to allocate the money directly, thereby rejecting applications from areas in Glasgow that have the most need. I hope that Ms McNeill appreciates the challenges that we face in making sure that resources go to the right places.

A significant proportion of the so-called levelling up money seems to have gone to wealthier areas in England, including the Prime Minister’s constituency. Meanwhile, post-industrial areas like Ravenscraig, in my constituency, which have been betrayed for decades by Conservative Governments, continue to be overlooked.

Does the minister share my belief that the situation represents a missed opportunity to right past wrongs, and will he join me in inviting Tory members, who have been talking all afternoon about grievance, to come and speak to my constituents in Motherwell and Wishaw and explain to them why they are yet again being let down by a Tory Government?

I know that voters in that part of the world have for decades rejected the Conservative Party at the ballot box. I am in no doubt whatsoever that that rejection is set to continue in the years to come, given the Conservatives’ track record there.

I reiterate that we would have liked the UK Government to have stuck to its word and devolved the funding so that we could have worked with Clare Adamson’s local authority and regional partners to deliver funding where it would have been most effective, and to make strategic interventions to tackle inequality and support local economic development.

I understand that the minister is upset that he has been ignored by the Conservative Government, but is he not a little bit embarrassed that it has taken a UK Conservative Government to fund a lifeline ferry to Fair Isle when that should have been funded by the Scottish Government years ago?

Why should councils be stuck between two feuding Governments and their inability to agree with each other?

The reason why the Shetland Islands and other communities have to deal with two Governments is that Scotland is not yet independent. If we were, we would be able to get on with things and to do the right thing for Scotland, with the powers of an independent country.

Willie Rennie mentioned and hailed one specific project. As I said before, the local authority had every right to apply for the available funding. Does he think that it is right that, under the levelling up agenda, a £27 million ferry and infrastructure for Fair Isle is the only project that has been supported in all the Highlands and Islands—an area that Europe, this Government and others think has some of the greatest need for economic development and for tackling of inequalities, although the UK Government deemed it to be the area with the lowest need?

The minister said something that is worth mentioning again: only one of many bids from the Highlands and Islands was successful in this round of UK Government levelling up funding. My constituency previously—and rightly—benefited enormously from EU structural funding. Does the minister believe that the UK Government’s watered-down replacement for EU funding is equitable and fit for purpose, or does he believe that it again demonstrates how far removed the UK Government is from the needs of rural and island communities?

Alasdair Allan has highlighted how his constituents have been missed out and how his area has so far been deemed, by the UK Government, to have no need for levelling up funding. Out of £3.8 billion that has been allocated by the UK Government, not one penny has gone to Alasdair Allan’s constituency. He is quite right to raise that point, because it is not the first example of his part of the world being missed out. European funding will, following Brexit, decline as the UK Government breaks its promise to match European funding. Now we see what is happening with the levelling up fund. According to the UK Government, there is no need for levelling up in Alasdair Allan’s constituency.

That is why we will make representations to the UK Government that the remaining £80 million be forthcoming through consequentials, if the UK decides not to hold on to the money and not to allocate it under its warped formulas.

I welcome the minister’s call to devolve the remaining levelling up funding to the Scottish Government so that we can spend it on our own priorities. Round 2 of the funding yielded nothing for Highland Council and there were very few successful bids in the wider region. Among the projects that missed out were plans to improve Portree harbour, and improvements to the north coast 500 and the harbours at Wick and Ullapool. Indeed, the vital area of transport connectivity is excluded from evaluation of Scottish projects. Does the minister agree that the current scheme is vulnerable to Tory cherry picking and that it fails to address rural inequality, especially in relation to transport links?

Of course I agree with Ariane Burgess—and for a couple of reasons. First, the Scottish Government was cut out of the process of allocating the funding. Transport was one of the reasons that we gave the UK Government for why devolved responsibility should be taken into account and respected. Transport should feature heavily in the levelling up fund, but the UK Government refused to take into account or speak to the likes of Transport Scotland, or to look at its strategic priorities and the metrics that it uses for determining how to allocate transport funding. As a result, the UK Government made many wrong decisions and the priorities of our communities, particularly our rural communities in the Highlands and Islands, were completely ignored.

In his statement, the minister indicated that the funding would have had better impact if it had been delivered by the Scottish Government working with local government and communities. The reality is, however, that Scotland received 9.2 per cent of the levelling up fund, compared to its 8.2 per cent share of the UK population. Eighteen out of 32 Scottish local authorities benefited from the funds, and they have all welcomed the money that they will receive. How, therefore, can the Scottish Government maintain that Scotland is losing out when it is receiving more funding per head of population?

The member would do well to remind himself that it is called the levelling up fund, and that it is not a dash for cash for the local authorities that could most quickly put together applications when they were given a limited window of time in which to apply for the money. As a result, we have the mess that we are dealing with now. The funding should have been a strategic intervention through work by the Scottish Government and local authority and regional partners, so that we could have tackled inequality and supported local economic development. The levelling up agenda has failed the whole of Scotland.

As the minister highlighted in his statement, many local authorities, including Aberdeen City Council, invested significant resources in preparing comprehensive bids for round 2 funding, only to be told at the very last minute that they were not eligible. Does the minister agree that that shambolic state of affairs should urgently be rectified by the UK Government refunding the significant costs that have been incurred by councils that prepared unsuccessful bids? Does he also agree that the UK Government must urgently provide clarification on the criteria that are to be set for future funding rounds?

Yes. Local authorities not being informed about the change of rules showed utter disrespect to authorities, including Aberdeen City Council and others, that were unaware that those that had been successful in round 1 would not be considered for round 2. Given the tight financial constraints that face all local authorities in Scotland and the Scottish Government, at a time when every penny counts and public services are under so much pressure, it really was a terrible thing to do—to sit back and allow local authorities to waste hundreds of thousands of pounds, in some cases, on applying for funds when the rules had been changed without their being told and they did not have a chance of being successful.

It is certainly the case that the way in which the funding has been managed is deeply regrettable and frustrating—in particular, for Glasgow. The people’s palace remains derelict and there is no funding for Glasgow’s museums, yet Edinburgh’s museums are given national funding. The M8 is crumbling, although that project for levelling up funding remains as critical as ever. Those projects have had business cases developed and are ready to go: they are, to quote the Deputy First Minister, “shovel ready”. Will the Scottish Government look to collaborate with Glasgow City Council to raise funding, perhaps through issuing local government bonds, or will it investigate other ways in which we could capitalise those projects, which are needed as badly as ever?

I remember the people’s palace from my youth, and I am interested in Paul Sweeney’s question, but I suggest that he write to the Cabinet Secretary for the Constitution, External Affairs and Culture about what options the Scottish Government might have—or that it might not have, given the current financial constraints that we all face.

A lot of the investment decisions in Scotland are, quite simply, dependent on decisions that are taken in Westminster. The levelling up fund is yet another example of the wrong decisions being made, of the devolution settlement in Scotland and the other devolved Administrations being completely ignored, and of the UK Government choosing to ride roughshod over Scottish democracy.

That concludes questions on the ministerial statement. There will be a brief pause before we move to the next item of business.