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Localis responds: 2025 Spending Review

While the first year of this government has been far from without its challenges and missteps, no one can accuse them of inertia. This spending review represents the latest step on a journey of state transformation that still at times seems lacking in an overarching vision that can be clearly articulated to voters, businesses and local government alike. The vision thing aside, however, there is plenty of note for those of us in the policy game in the spending review and its associated raft of announcements. Below is an initial analysis of some key points from a Localis perspective, concluding with some suggested further reading from our report archives.

Joe Fyans, head of research

Capital and capacity

To begin, it must be stressed that there is positive news for local government in this spending review, with some of the sector’s most well-rehearsed requests being granted to some extent or other, alongside some pleasantly surprising capital allocations. The major investment announced into social and affordable housing is a significant win for MHCLG in the push to get anywhere near their housing target whilst also providing homes that are actually accessible to a portion of the people who need them. The £39bn affordable homes programme, alongside the new Local Growth Fund with its 10-year capital settlements for mayoral authorities, greatly increases prospects for the creation of credible pipelines to attract place-based impact investment and drive inclusive growth – particularly within the new policy framework of growth plans and spatial development strategies. Combining these measures with longer-term and more consolidated funding settlements, the spending review can be viewed as part of a concerted effort to increase the strategic purview of the state beyond Whitehall.

This positivity must however be balanced with the acknowledgement of several gaps which only look to widen. The funding gap in local government remains ever-present and serves to exacerbate the capacity gap caused by a longstanding issue with recruitment and retention, both of which widen perhaps the most important gap: the one between what residents expect of their local public services and what can realistically be delivered in a context of tightening budgets and growing demographic challenges. Amidst our touted transformation into an investment nation, local government finances remain parlous and the probability of council tax rises with no noticeable improvement in service quality remains well above zero in many authorities.

This strikes to the heart of the immense challenge facing this government as it rounds the corner into its second year. To arrest the sense of decline which drives so much dissatisfaction with government and politics in this country, public services at place level must be improved. Doing so requires services to be redesigned for greater efficiency and local input, as well as better funded, which can only happen if the economic growth rate is improved. Both of these tasks require a great deal of coordination and dedication at the local level, which is increasingly hard to come by when councils are put in a situation of perpetual decline management. This is not to say that many councils are not managing to transform service delivery to be more efficient and democratic, or that many councils are not finding ways to drive local investment in a sustainable and inclusive manner – many certainly are, but it is far harder than it needs to be if real material improvements are to be felt by voters.

A delicate balance needs to be struck between carrying out reforms to the wiring of the local state and maintaining capacity for an increasingly heavy burden of delivery, which includes the need to deliver not just investment but the right sort of investment, not just new housing but the right mix of housing. The borderline frantic pace at which local government restructuring proposals have been commissioned, formulated and submitted by various opposing groups of county and district councils speaks to how fraught this process can become. As the resounding rejection of business-as-usual seen in the May local elections demonstrates, there is little public appetite to wait for all this to be sorted out before service improvements start to trickle down the pipe. It is therefore important to think about what the spending review portends for both the drive for growth via devolution and the day-to-day public service experiences of residents, particularly those in the most underserved areas.

Planning for plans for growth

All the above is an, admittedly long-winded, way of saying that the detail of how funding will be distributed and what sort of funding it will be is critical to success on the ground. The detail on integrated settlements, provided alongside the spending review, explains that established mayoral strategic authorities will be given a cross-departmental funding settlement to deliver on a range of ‘thematic policy areas’, including economic development and public service reform. This is a significant step for decentralised government. While the subregional mayoral combined authorities are not exactly ‘local’, the idea of public service innovation being devised and funded outside of direct central government command-and-control is heartening and may help to drive improvements in the design and delivery of services which will make a meaningful difference to residents’ lives.

Beyond the established strategic authorities in Greater Manchester and West Midlands – soon to be followed by another tranche of urban areas – the new Local Growth Fund will provide 10-year capital settlements for a group of mayors in the North and Midlands. With some of these authorities likely to be nascent, and most subject to an increasing level of internal political division, diverting this cash into improved quality of environment and of life at the local level may be a more challenging task. Delivery may well depend on the success of the statutory local growth plans, of which more detail was also provided yesterday.

It must be said that the overall framing for the growth plans is encouraging, representing the kind of coherent yet broad approach that we at Localis envisioned for local industrial strategies back in those heady days. Growth plans are to act as “guiding stars” for economic development across a subregion, bringing together spatial development strategies, local skills improvement plans, employment service policy and a host of other activities to provide the framework for the socio-economic future of an area. This is exactly what growth plans should be, learning the lesson of the non-statutory and quasi-nongovernmental nature of the local industrial strategies to work towards growth visions which are comprehensive and work across silos. Potential stumbling blocks include the need to establish ‘shared priorities’ with Whitehall, which may prove challenging where mayors are elected on platforms diametrically opposed to the current government, as well as the issue of timeframes. Although no deadlines are laid out in the policy document, the trend so far has been for rapid turnarounds, and this has already proved challenging for a government in a hurry.

Sweating the small stuff

Part of the reason for the rush is the aforementioned desperate need for visible uplift in local environments, something which successive growth agendas have been criticised for underplaying with a focus on ‘big ticket’ infrastructure projects. As we and many others have argued, such policy must be balanced by hyperlocal spend, particularly in the ‘left behind’ places that need it most.

This government’s attempt to look through the other end of the telescope includes the long-term plan for neighbourhoods and its associated wave of funding. Added to this yesterday was the promise that 350 ‘deprived communities’ will receive their own piece of the local growth fund pie, targeted towards improving the public realm. This speaks to the criticism of the levelling up agenda articulated by Rachel Wolf, who stressed that government must target small wins like cleaning up graffiti and maintaining hanging baskets to show people that change is being delivered. If the local growth fund can be used to do so in these as-yet-unnamed 350 places, it may end up being more immediately important to the government’s long-term prospects than any growth plan or investment prospectus.

Perhaps most significant though is the announcement of 25 ‘trailblazer neighbourhoods’ set to receive £20m each over a decade. As well as receiving this long-term investment, yesterday’s announcement pledges that these communities will receive capacity support to decide how it is spent. We know from programmes like the Local Trust’s Big Local that long-term, patient capital alongside support in building local capacity can help develop social infrastructure.

This policy then falls somewhere in between big-ticket growth strategies and the immediate need to get cash out to communities, aiming to develop civic pride, fight alienation and build cohesion over a long period of time but at a small scale. It represents the most significant investment in such a project since the lottery-funded Big Local began well over a decade ago and as well as the benefit to the communities it covers, the hope must be that the programme increases understanding of the need for social infrastructure and service co-design in Whitehall and across all levels of the British state.

Power and the people

Lastly, it is worth briefly commending the renewed commitment to delivering net zero and energy security through expanding investment in renewables, infrastructure upgrades and pushing ahead with growing nuclear capacity. We have covered the importance of achieving net zero and local government’s role in multiple reports over the years, most recently focusing particularly on how councils and communities can help deliver through the Local Power Plan.

While the overall suite of investment announced yesterday is entirely welcome, we still await more detail on how local and hyperlocal action will be integrated into delivery. As with public services, giving people a direct stake in energy generation can help achieve buy-in and develop capacity for local self-sufficiency, fighting against portrayals of decarbonisation as a top-down and remote process with little regard for the lives of individuals.

Further reading from Localis