Free to spend: big savings there for the taking as Treasury backs the idea of a single capital pot

The Treasury’s support in last week’s Budget for the testing of radical financial freedoms could have far reaching implications, ending wasteful bidding and making capital investment plans more coherent. It could even mean the end of transport departments and officers, as LTT 's Lee Baker finds out.

The Government announced in the Budget that it is prepared to give local authorities a single capital pot to allow them to make decisions on transport investment without stringent criteria, and in concert with other infrastructure, rather than in isolation.

The six ‘Total Capital’ pilots held this winter as part of the wider Total Place initiative highlighted the inefficiency of the number of different capital funding streams for infrastructure and the number of bodies administering them. The Homes and Communities Agency (HCA) had urged that “major investments are aligned in design, timescale and location so as to maximise the overall benefit to the local place”.

The Treasury, in its final report on the Total Place project, Total Place: A Whole Area Approach to Public Services, said that, when different public bodies come together to make joint investment decisions, this makes better use of public money.

It wants the public sector to, for example, “ensure investment in transport infrastructure and major housing developments supports effective use of a new health facility”. This is not only Whitehall encouraging an end to working within silos, however. The Treasury also acknowledges: “Overly restrictive conditions on the use of public funds can restrict value for money in spending decisions.”

Reducing or even scrapping the numerous Whitehall capital funding streams would be a radical step, ending the familiar, and exhaustive, process of assembling a ‘funding cocktail’ for the infrastructure necessary to transform places.

This would mean not having to bid for funding from the DfT’s proposed Urban Challenge Fund; not having to apply for money from the housing and planning delivery grant; and not having to lobby the regional transport board or the Regional Development Agencies (RDAs) that your project is a higher priority than that of other authorities.

Instead, high-performing areas would be able to make a ‘single offer’ to the Government on all infrastructure required in a place, and Whitehall would engage with them to negotiate on whether there is a need to remove ring-fences or even to provide a single capital budget. 

A major benefit of this approach would be that all the money spent on bidding to different funding streams in order to invest in one town would be saved. The Treasury is promising that the areas making these savings will be able to retain a share locally. It would also mean that local authorities could think from first principles what they wish to achieve in a place, rather than relying on devising projects that meet the specific funding criteria of different grants.

Durham County Council admitted in the final report on its Total Capital pilot that “a large percentage of funding streams were delivered in an opportunistic way rather than by design”. Highways improvements for a 21 hectare brownfield site in Durhamgate were, for example, to be delivered through a complex series of grants.

The county’s report said: “Major ongoing efforts have been contributing to the assembly of a funding package. Originally this was to be made up of £1.2m from a developer, £1.2m from Sedgefield Borough Council (pre-unitary local government) of which £700,000 was working neighbourhood fund and £500,000 community infrastructure fund (CIF); £6m from One North East and £100,000 from the county’s local transport plan.”

A sudden reduction in funding from the RDA of £3.5m and a failed CIF bid meant that Durham had to provide more money from the working neighbourhood fund, and also bid to the Homes and Communities Agency.

The HCA’s property and regeneration budget was under pressure, so it examined whether a case could be made for ‘national affordable housing programme’ money, before ultimately £1.5m was awarded from the former funding stream. This is why Durham recommended to Whitehall that 38 capital funding streams are merged, so that local partners can simply draw up an ‘integrated investment plan’ covering all infrastructure, rather than assembling a package of improvements through ad-hoc, opportunistic bids.

As well as being more efficient, this would mean that transport projects no longer have to have a transport justification. Durham’s final report bemoaned the fact that currently “key criteria for road improvements relate to reducing journey times and improving road safety, not supporting economic development”.

Leicestershire County Council and Leicester City Council, which ran another Total Capital pilot, also suggested that the broader objectives of capital projects should be considered. Their draft economic strategy outlines the infrastructure deficits holding the economy back, which include affordable housing and infrastructure to serve planned new housing.

The two authorities recommended that all the funding streams for projects to support economic development, including transport projects, should be merged. They highlighted that having separate streams has a heavy cost.

Their final report on the pilot said: “Based on the National Audit Office finding that 20% of funding in each funding layer [that it] goes through is lost, we estimate that it costs about £180m to administer the £230m of economic development expenditure in the sub-region. We envisage that efficiency savings of some 50% in the costs of administering funding could be achieved through a Total Capital approach, ie. £90m.”

The Government’s initial response last week to the ‘Total Place’ initiative was to remove ring-fencing from £1.3bn in revenue grants for local government, a further one per cent of funding that authorities can spend how they choose.

The Treasury said, however, that it wanted “to test more radical de-ringfencing and other funding and performance flexibilities,” including the idea of a single capital pot. This is why the Government is to run 11 Total Capital and Assets Pathfinders over the next year. These 11 pathfinders, which will be well positioned to make the case for a single capital pot, are: Cambridgeshire, Durham, Hackney, Hampshire, Hull, Leicester/Leicestershire, Leeds City Region, Solihull, Swindon, Wigan and Worcestershire.

These pathfinder projects will go further than the two-month ‘Total Capital’ exercises that concentrated on mapping the capital spending in the pilot areas. They will be charged with finding a way of devising a better system.

The HCA will work with the pilot areas to draw up local investment plans for the delivery of housing, intended to achieve alignment of capital funding streams, says Alison Quant, director for economic development at Hampshire County Council. “However,” she says, “it is not clear how they will commit the capital funding programmes of other Government departments such as transport, who have their own funding pots and competitive processes.”

The pathfinders will also be charged with developing “models to improve strategic decision-making, investment planning, governance and accountabilities, collaboration between local authorities, and procurement and delivery”.

Andy Robinson, Leicestershire’s assistant chief executive, told LTT that the pilots could fully consider the benefits of having an aligned or single capital pot, which he considers would remove the barriers to putting together investment plans. “A hospital redevelopment would not be jeopardised by a problem with assembling the funding for a transport scheme, for example, because there wouldn’t be multiple funding decisions.”

A single offer approach, which could remove the multiple funding bids that Quant has attacked, would be something that Leicester and Leicestershire would be “well-placed to benefit from,” Robinson says.

“We already have a public service board and a joint approach to commissioning.” These meet the Treasury call that changes to local governance need to be considered alongside the Total Capital approach. The board, which has members from the two authorities and a representative from the county’s districts, the RDA, HCA and the business community, strategically commission investment together.

Strategic commissioning does not, says Robinson, mean that all the capital work agreed by different bodies has to be let in a larger contract. It does not even mean that the money would be provided as one lump sum.

It would be a ‘virtual’ single capital pot, a total sum for the area, but still channelled through various bodies. Simply making decisions on capital spending by different bodies at the same table would generate savings by replacing bidding processes with simplified decision-making. This would also allow the design, timescale and location of projects to be aligned. Transport strategies would be better able to consider changes to health care provision.

However, Total Place: A Whole Area Approach to Public Services suggests that the public sector might go further than simply better aligning investment decisions.

The report states: “Further benefits could be generated in terms of supporting economic growth and inclusion by using this commissioning approach in procurement... it is clear that substantial savings can be made by wrapping up a number of projects into a larger programme”. The private sector views this as an opportunity (see box).

While Robinson says that there would be major benefits from aligning funds – provided that the single commissioning decision is followed by a single appraisal of projects – the Leicester/Leicestershire report says this is still a “sub-optimal” solution “based upon us broadly keeping the current public sector landscape with all the existing organisations”.

However, a future Government might not keep the public sector landscape as it is, opening up the scope for even greater efficiency savings.

Both the Conservatives and the Liberal Democrats would abolish RDAs, transferring the funds to local authorities. There will be every incentive to maximise efficiency savings, particularly for capital spending, given the fact that overall capital investment will be reduced by half by 2013/14 under Treasury plans.

Nonetheless, the extent to which a Government of whatever stripe or stripes is prepared to give capital funding without directing how it is spent remains to be seen.

And the extent to which traditional silos can or need to be broken down is another moot point. The New Local Government Network claimed before the Budget that having each separate local authority department “spawns its own processes, vested interests, programmes, assessments, and therefore inherently it results in duplication”.

Torbay Council, by contrast, has replaced traditional chief officers with strategic commissioners focusing on outcomes rather than processes.

The think-tank urged that local areas follow suit and establish “integrated local public services workforces” responsible for strategic outcomes, replacing officers in highways and transportation, economic development, planning and other sectors.

Given the new delivery mechanisms LTT has charted, a future where local authorities step away from providing technical expertise, and where the private sector steps in instead, is a possibility.