Levelling up in doubt as £1bn a year cut from post-Brexit regional funding, MPs warn Rishi Sunak

A £1bn post-Brexit annual cut in regional development funding raises major questions about how the Government will deliver levelling up, MPs on an influential committee have warned Chancellor Rishi Sunak.

A Treasury Committee report into October’s Autumn Budget and Spending Review highlighted that the UK Shared Prosperity Fund is worth just 60 per cent of the EU Structural Investment Fund it is replacing.

The UK Shared Prosperity Fund, which is due to be launched this April, was described in the Spending Review as the “centrepiece” of the Government’s levelling up ambitions and is due to be worth £1.5bn a year by 2024/25. But the committee’s report highlighted that it is the replacement for the EU Structural Fund programme, which it said had been worth £2.5bn a year before Brexit.

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The committee said: “If the new fund is intended to be one of the ‘centrepieces’ of the Government’s ambition, it is surprising that the size of the fund is being reduced to such an extent.

Chancellor Rishi Sunak's Budget and Spending Review has been scrutinised by the Treasury Committee.

“The Government will need to demonstrate how these reduced funds will achieve their defined metrics for levelling up.”

While the Government has said the new fund “will better tailor funding to local needs across the UK”, recent research has suggested that even when the additional Levelling Up Fund is taken into account the North of England is due to lose out on up to £300m per year under the new system - double the average cut per head than the rest of the nation.

The Treasury Committee also noted that while the phrase ‘levelling up’ was mentioned 91 times in the Budget and Spending Review, there is still a lack of detail on how it will be measured and achieved. It added: “Rebadging existing programmes may not have the impact the Government is seeking.”

The report also questioned whether Michael Gove’s Levelling Up Department will be able to deliver on the Government’s ambitions to tackle regional inequality with its current budget.

Mel Stride, chair of the Treasury Committee.

“Once the increases in social care funding are excluded, the spending power for this department’s activities are being kept flat or falling. If the levelling up agenda is to be carried out in a sustainable way, it may be that this will need to be reflected in the spending power of the Department of Levelling Up, Housing and Communities.”

Mr Gove is expected to deliver a White Paper next month outlining the Government’s policy programme for levelling up. It has been reported that no extra money will be made available by the Treasury for the plans Mr Gove is to outline.

When questioned earlier this month about whether he had enough money to achieve the Government’s ambitions, Mr Gove said he saw levelling up as a cross-departmental effort.

“The amount of public spending already committed in the Spending Review is higher than any government has committed to public spending in history,” he told the BBC.

“Those budgets, both in my department but also in the Department for Education, in DWP, in the Department of Health and so on, are there to be used, deployed and allocated to support levelling up.”

Mel Stride, chair of the Treasury Committee and a Conservative MP, said: “With the nation recovering from the pandemic, the Budget and Spending Review were especially important.

“The Chancellor had a difficult job on his hands, balancing calls for increased spending from numerous departments with financing the Government’s net zero and levelling up commitments, all the while getting the public finances under control.

“With inflation rising significantly, concerns about pressure on the cost of living are growing.

“While the Prime Minister’s ambition to promote high wage growth is worthy, focusing on increasing wages without improving productivity is likely to be inflationary, and risks contributing to a wage price spiral.”

The Treasury said multiple measures had been taken in the Budget to pursue levelling up.

A spokesperson said: “We’ve taken a major step in levelling up right across the UK, with the Budget and Spending Review funding an ambitious domestic agenda to boost investment to improve people’s everyday lives.

"This includes investing billions to improve connections in our city regions and transform local bus services outside of London, boosting skills training, and launching the multibillion-pound UK Shared Prosperity Fund.

"The upcoming Levelling Up White Paper will set out the next steps in how the huge investment set out in the Spending Review will deliver on this central mission.”

Market-sensitive information 'was leaked'

Politicians on the Treasury Committee have accused the Government of leaking market-sensitive information in the run-up to the Budget.

They criticised leaks of details about hikes to the National Living Wage, saying they are “deeply concerned” and calling for an investigation.

The Treasury said the minimum wage rise announcement was being co-ordinated by the Department for Business but said it would review arrangements to avoid future leaks.

Permanent secretary to the Treasury, Tom Scholar, said he did not believe the announcement constituted market-sensitive information because it was an “economy-wide measure”.

However, the committee hit back, saying it believed the announcement could be seen as market sensitive because it affects certain companies with high numbers of low-paid workers compared to other businesses.

In its report on the Autumn Budget, the committee said: “We are deeply concerned that the rate of the National Living Wage was disclosed to ITV in an unauthorised fashion prior to the Budget, and we agree with the Treasury that this could have caused confusion in the market as to whether the information was accurate.

“The rate at which the National Living Wage is set will clearly affect some companies and sectors which have large numbers of staff at the minimum wage more than it affects others who do not.

“Some of those firms will be listed on the stock exchange. We therefore believe that the policy may be considered to be inside information as defined by the FCA’s Best Practice Note on the Market Abuse Regulations.

“In addition, given that the ONS (Office for National Statistics) deems retrospective wage data to be market sensitive, we believe it is not unreasonable to conclude that the announcement of the change to the National Living Wage rate might have been market sensitive.”

It added: “The Government should investigate how this policy came to be leaked prior to the Budget and should publicise its findings.”

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