Inflation surge forces councils to cut UK ‘levelling up’ projects

Inflation is hitting the government’s ability to deliver its flagship local regeneration agenda as soaring building costs force projects across Britain to be delayed, scaled back or potentially cancelled, councils warn.

Plans to spend £4.8bn on its “levelling up” programme — designed to reduce regional economic disparities by rejuvenating high streets and upgrading infrastructure — are central to the Conservative party’s electoral promise.

But with inflation expected to hover in the low double digits this autumn, councils are already reporting that funds crucial to delivering projects before the 2024 general election will no longer be sufficient, creating a looming political headache for the new prime minister Liz Truss.

“It’s a massive issue for our councils,” said Sharon Taylor, vice-chair of the District Councils Network, a cross-party group of 183 councils.

“The government has to recognise the increasing cost or these projects won’t get done and we’ll end up in 2024 with half the number . . . or lots not completed,” she added.

A DCN membership survey this summer found that 40 per cent of respondents said the effects of inflation would force them to delay proposals, or make them unviable in their current form.

The survey found that 12 developments, with a value of £184mn, were at risk, including a high-street project where costs had increased by 10 per cent, and a leisure centre where they had gone up 15 per cent.

Delivering projects from the various “levelling up” pots, including those for towns, high streets and levelling up, is key for Conservative candidates, particularly in “red wall” areas — seats in the north and midlands that traditionally voted Labour, many of whom were won by the Tories for the first time in 2019, often with by slim majorities.

Will Tanner, director of the Onward think-tank, which has been instrumental in developing Tory thinking on the policy, said inflation would present serious challenges for Simon Clarke, the new levelling-up secretary.

“We may see projects scaled back, or terminated entirely because they can’t be delivered and the politics of that are very difficult for the PM and the Conservative party,” he said.

Among the options for Truss would be to uprate the fund in line with inflation, which Tanner said was unlikely given other budgetary pressures, or ask the Treasury to raid other underspent budgets.

The levelling up department said it was working with councils to understand the effects of inflation. “We are working closely with all levels of government to relentlessly drive forward our shared ambition to see improvements delivered through our levelling up, towns and high streets funds,” it added.

However, councils and Whitehall insiders said there was no expectation of extra cash from central government.

Shoppers at Bury market. The local council has warned that rising construction costs were weighing on grants that it had received for upgrades © David Bagnall/Alamy

Eamonn O’Brien, opposition Labour council leader in Bury, a town in north-west England with a hyper-marginal Tory parliamentary constituency, said rising construction costs were weighing on grants that the authority had received for local upgrades.

“So far, the government has been adamant that they will not top up the successful projects, despite some estimates showing millions more being needed,” he added.

In nearby Bolton — an area with two marginal Tory seats that has had £20mn from government for a new college — Conservative leader Martyn Cox said contractors were inflation-proofing contracts, demanding a cost review every few months.

In Bolton, contractors are inflation-proofing contracts, the council leader has said © Mark Waugh/Alamy

“Anyone with a fixed amount to spend recognises they need to spend it sooner rather than later,” he said, but warned the rush to deliver was likely to create a construction capacity crunch.

Councils are also facing a wider budget squeeze, making it harder for them to make up shortfalls in their spending plans.

In the eastern city of Norwich, plans for a £1.7mn refurbishment of a 1960s office building with 4,000 new homes clustered around have been reshaped due to rising costs.

Stephen Evans: ‘In allocating money, the government has to be considerate of construction pressures councils are facing’ ©

Stephen Evans, Norwich council chief executive, said that with the authority’s budget gap expected to triple to £6mn thanks to inflationary pressures, carrying out its capital investment programme was becoming harder than ever.

It was “highly unlikely” that the government would uprate grants, he said, and would need to think of ways to help councils, such as by giving more flexibility to shift grants in order to prioritise delivery of at least some projects.

“In allocating money, the government has to be considerate of construction pressures councils are facing,” he added.

In the former mining area of Barnsley, South Yorkshire, the council won £20mn from the towns fund to regenerate the former pit town of Goldthorpe.

With construction sector inflation running at about 13 per cent, adding millions in extra costs, the entire capital programme is being reviewed. Labour leader Steve Houghton said some schemes “would have to be deferred”.

Delayed levelling up projects would leave a big dent in the Conservatives electoral plans, he said, adding: “They’re not going to get those wins in the timescale they thought they would.

“They’re going to struggle to achieve that — that’s a fact.”

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