The Good Law Project - a campaign group which has taken legal action against the Government on a number of occasions - is threatening to force a judicial review on the fund, which was announced at the Budget last month.
The Fund prompted controversy when Richmondshire, which contains the Chancellor’s North Yorkshire constituency, was placed in the highest priority group above areas such as Barnsley which according to official deprivation measures is more deprived.
However ministers later said criteria such as commuting time and productivity levels were used to assess the need of the fund, rather than the official government index of deprivation.
The Government has insisted all areas can bid for funding, but Shadow Communities Secretary Steve Reed compared the Conservatives to a “burglar” over the fund.
And the Good Law Project claims that because those areas with top priority will get £125,000 of funding to help assemble their bids, and are more likely to succeed, it makes the system illegal.
A letter of claim sent on March 29 alleges the Government had breached the Equality Act, the common law duty of transparency and good administration, and that there were “flaws in the criteria/methodology”.
The letter, which has been published by the Good Law Project as part of a crowdfunding bid for the action, said “decisions were tainted by irrelevant considerations/improper purpose, namely the electoral advantage (or potential electoral advantage) of the Conservative Party”.
And it drew comparison to the Towns Fund, which also faced criticism for the allocation of funding, adding: “The effect of the [Government's] unlawful approach is that areas where the Conservative Party has been, or wishes to be, electorally successful feature very highly".
The letter said that 31 out of the top ranked areas “were not ranked in the top third most deprived places” according to the Government’s official measure.
Founder of the Good Law Project Jolyon Maugham told the FT: “This could just be a coincidence, or it could be an attempt to buy votes with public money.”
And in a separate statement added: “There are serious questions for Government to answer over why the Chancellor’s own constituency, Richmondshire, was listed as category one in the Levelling Up Fund while more deprived places such as Barnsley were only allocated to category two. If these decisions are genuinely driven by tackling inequality, why is Government refusing to publish the evidence behind it?”
A Ministry of Housing, Communities and Local Government spokesman told the FT: “The £4.8bn Levelling Up Fund is open to all places in Great Britain and will play a vital role in helping to support and regenerate communities.
“The published methodology makes clear the metrics used to identify places judged to be most in need. It would not be appropriate to comment on potential legal action.”