Guidance

Funding Simplification Doctrine: guidance and further information

Published 10 January 2024

Background

1. The Levelling Up White Paper set out the government’s ambition for a simpler and more streamlined funding landscape. We are committed to continually improving the way funding is delivered and unleashing the potential of our coastal, rural, and urban areas across the United Kingdom.

2. Following the Levelling Up White Paper commitment to streamline the local funding landscape, the government published its Funding simplification plan in July 2023. This plan sets out the government’s ambition for increasing the effectiveness and efficiency of the current funding system. By reducing administrative burdens, the plan will support local authorities to maximise their return on spending, generating the best outcomes for communities.

3. The government stated that Phase 2 of the plan would involve establishing a new Funding Simplification Doctrine with the aim of ensuring that central government chooses the most suitable distribution methodology when designing new funding for local authorities. We are now setting out the details of that Doctrine, which will take effect from 1 January 2024, to enable government departments to effectively consider it as part of policy development.

Scope and eligibility

4. This Doctrine covers all new funds that are made available exclusively to local authorities by central government, but explicitly excludes funding within the Local Government Finance Settlement and services mandated by statute such as:

• funding for schools
• children’s and adult social care
• the police
• fire and rescue authorities (including those that are part of a county council or unitary authority)
• public health

5. In this case, central government includes all UK government departments, and local authorities refers to any tier of local government (including MCAs and the Greater London Authority but excluding police and crime commissioners).

6. Where arm’s length bodies (ALBs) linked to government departments provide funding to local authorities, those departments will work with the ALBs to ensure that they operate consistently with the Doctrine. Any reference to ALBs in this guidance is to those ALBs that provide funding to local authorities within the scope of this Doctrine.

7. Funding programmes which are in-flight when the Doctrine comes into effect are out of scope.

8. We will monitor the impact of the Doctrine on an annual basis to ensure it is meeting its policy aims.

What is the Funding Simplification Doctrine?

9. Government departments developing new funding within scope will need to ensure that the Doctrine guidance is being followed. This will support our efforts to reduce the burden on local authorities and enable them to drive value for money and deliver optimum outputs and outcomes when implementing UK government schemes.

10. The Doctrine is a cross-government policy with DLUHC responsible for its administration, supporting departmental investment boards and HMT as the ultimate arbiters of the provision of new funding. As part of the approval process for new funding, DLUHC will provide the relevant department designing the funding with confirmation as to whether the Doctrine has been properly considered in the funding design.

11. The Doctrine will promote 4 principles:

• Principle 1: Building from existing programmes: where practicable, new investment should be delivered through an existing funding programme rather than creating a new funding programme (for example, the Rural England Prosperity Fund being delivered through the UK Shared Prosperity Fund).
• Principle 2: Selecting a distribution methodology that best achieves funding objectives: if an activity cannot be delivered through an existing programme, consideration should be given to the use of allocation. The option that is best placed to target a specific type of funding or set of desired outcomes and would deliver better value for money should be chosen.
• Principle 3: Testing: prior to deployment of any new funding stream, government departments should consider feedback from a selection of councils and/or local authority associations.
• Principle 4: Data: in any case, requirements for local authorities to provide data to government departments should be aligned to existing requirements where possible. Departments should work with local authorities to design a monitoring regime that provides accountability, insights and enables robust evaluations without creating needless bureaucracy.

How the Doctrine will work in practice

12. When seeking approval for new funding for local authorities, departments will need to demonstrate that all four principles of the Doctrine have been considered. With the design of new funds not being a linear process, departments must consider these principles from the outset of the design phase.

13. Departments will demonstrate they have considered the Doctrine by completing the pro forma. They should consult their finance and legal advisers to ensure this is completed effectively.

14. Once complete, this should be sent to DLUHC, who will provide feedback on it in advance of the department sending their outline business case or the first programme business case for the fund to their relevant departmental investment sub-committee and/or HMT. If the business case does not require this level of approval, the pro forma should be completed before approval is sought from the delegated decision maker.

15. Departments will submit this pro forma to DLUHC through a digital platform, with DLUHC providing confirmation in a timely manner in line with departments’ business case deadlines as to whether they have properly considered the Doctrine.

16. The decision maker, as referred to in paragraph 14, will consider DLUHC’s assessment as part of the process for determining whether the business case should be approved.

17. Where new funding streams are required to be set up quickly, for example because of an external shock, we encourage departments to seek engagement with DLUHC early via FundingDoctrine@levellingup.gov.uk to discuss how the Doctrine can best be considered in these circumstances.

18. DLUHC will be available to provide informal advice about the Doctrine throughout the funding design stage and departments should get in touch if they have any questions about the application of the Doctrine that aren’t covered in this guidance.

19. The government is committed to reducing the administrative burden on grant recipients and bidders and increasing the efficiency of its own processes. This Doctrine forms part of this commitment. Alongside this, departments should continue to focus on other ways they can reduce internal and external burdens, for example by taking account of guidance on the Public Sector Equality Duty (PSED).

20. More detail on how to consider each principle is set out below.

Principle 1: Building from existing programmes

21. At the core of this Doctrine is the government’s commitment to value for money (VfM), which will drive decision-making on the most appropriate choice of funding mechanism.

22. When submitting the pro forma, departments will need to demonstrate the steps they have taken to integrate their new funding into an existing scheme and if this has not been possible, why this is the case.

23. Where practicable, delivering new funding through existing programmes can reduce the burdens on local authorities in navigating, applying for and delivering different but overlapping funding streams.

24. Delivering through an existing fund would involve the new funding being delivered as part of the same delivery model and within the broad parameters as the fund currently in operation. Where possible, departments could seek to provide local authorities with flexibility over funding decisions and avoid establishing ringfences between different funding streams. However, the new funding could retain a distinct identity for communications purposes.

25. It may be appropriate to provide ringfences to ensure spending is compatible with departmental ambits, or it may be appropriate to undertake budget cover transfers to DLUHC to achieve departmental policy objectives, while also respecting parliamentary authorisation of expenditure.

26. This model of fund integration has been adopted for the Rural England Prosperity Fund, which is being delivered as part of the UK Shared Prosperity Fund (UKSPF) in England and involves eligible local authorities receiving ‘top-ups’ to their original UKSPF allocation.

27. However, other models are possible, for example adding ring-fenced top ups. While this reduces the benefit of integration, the streamlined monitoring and reporting regime would still remain.

28. The first question to consider here is whether there is an existing fund that is broadly aligned with the investment theme(s) the new funding will seek to deliver or that could be adapted to suit these needs without compromising the integrity of the original scheme. Unless there is an overlap in the investment themes, it will be difficult to integrate the funding into a coherent programme. Government departments and ALBs should also consider what the impact of integration on the local authority receiving the fund will be.

29. When a fund with compatible intervention themes has been identified, it is also essential that the existing fund is compatible with the new funding, when considered in relation to these four criteria:

• Timelines: timelines for existing and new activity are aligned or can be aligned without impacting delivery.
• Distribution across nations: the new funding will not be delivered in any nation that is ineligible for the existing programme.
• Compatible legal framework: both the legal powers used and the envisaged contractual arrangements are compatible.
• Geographic tier of delivery: it should be delivered at the same tier of local government.

30. It is important to consider additional factors such as whether the funding streams will have similar geographical coverage, whether similar levels of local autonomy can be provided, and whether a consistent monitoring approach can be adopted. If necessary, departments should consider whether amendments could be made to the existing fund to enable the consolidation of the new fund.

31. Choosing an existing fund also has benefits for government departments and ALBs, as it will often reduce the administrative burdens in managing and monitoring funds and could facilitate a more strategic approach to the distribution of funding. It means that scale effects can be realised, reducing the staffing requirements for delivering on departmental agendas.

32. Where delivering new funding through an existing programme is not possible, departments should seek to learn from current funds to improve the design of their new funding. This includes, but is not limited to, learning from how existing funds are provided, the governance structures underpinning them, how they engage local stakeholders including MPs, and how they approach monitoring and evaluation.

Principle 2: Selecting a distribution methodology that best achieves funding objectives

33. When considering VfM, it is crucial to consider the administrative and other costs of the distribution methodology on the local authorities delivering the fund and on the relevant government department(s) administering it.

34. We acknowledge that running competitions can create additional financial and resource burdens on local authorities and affect their ability to deliver existing programmes for central government, diverting capacity to write bids for an uncertain outcome.

35. The Doctrine also acknowledges the valuable contribution of competitions to driving VfM and identifying the best projects for certain programmes. We will continue to deploy competitions where they make sense, including to encourage innovative locally driven solutions, such as for the UK City of Culture bid, but we will also encourage allocative approaches where they can best achieve specific outcomes while minimising demands on local authorities.

36. The use of ‘allocative’ funding distribution methods does not imply a universal allocation to all local authorities. Rather, it puts the onus on government departments to present clear and transparent methodological justifications for the determination of allocations to places. Just as with competitive bidding processes, allocation can result in some places receiving funding and others not.

37. Where a department chooses to use an allocative approach rather than a competition, the methodology should be guided by the policy aims, which will shape the decision as to whether the funding will be allocated to all places (universal) or to those places scoring highest/ lowest on a given metric.

38. This methodology will need to be designed in tandem with departmental monitoring and evaluation and/or analytical colleagues to ensure there is a clear rationale for the allocative methodology. Where this is not possible, other options for distribution can be explored. Cut-off points will need to be identified with a robust policy rationale.

39. Allocations can and, in the vast majority of cases, should also be conditional on achieving outputs/ outcomes. This may well include local authorities having to provide information to determine whether they meet the allocation criteria and could also include mechanisms to withhold or recover funding if mutually agreed criteria are not met.

40. Before filling out the pro forma (see Annex A), please consider the taxonomy below, which gives an idea of different degrees of competition and allocation:

• Fully competitive: a centrally run competition where places bid against each other for a finite pot of money according to fund-specific criteria. Variations of this can involve additional support being provided to places with lower levels of capability, and criteria may have a formula-based element, to help level the playing field. Example: Levelling Up Fund Round 1 & 2
• Expression of interest: places bid into a finite pot of money, but don’t directly compete against each other – instead, they are judged against pre-published fund-specific criteria but theoretically every bid could be successful provided it meets minimum quality standards. Example: Changing Places Fund
• Conditionally allocative: no competition, places receive a centrally determined share of allocations from a finite pot. Funding is only released subject to central sign-off of individual projects or an overall investment plan, which has to meet fund-specific criteria. Example: UK Shared Prosperity Fund, Local Growth Fund, Growth Deal 3 Fund, Get Building Fund
• Criteria-based allocative: funding is only awarded to places that meet a centrally determined set of criteria, but those places that are eligible don’t have to compete for it. Example: Long-term Plan for Towns
• Bespoke allocative: one-off tranches of funding negotiated with specific places that don’t draw down on a wider fund and are not always restricted by a centralised set of investment priorities/outcomes. Example: The investment fund element of mayoral devolution deals.
• Formula-based: funding is distributed to places according to a formula that can take into account any number of criteria. Places don’t have to do anything in order to unlock the funding; they simply receive it. Example: Local Government Finance Settlement

41. Some funds (like the Towns Fund) are a mixture of more than one of the above grant-making models.

42. Allocative funding can result in a less arduous moderation process, with bids not needing to be assessed, and can reduce resource requirements for both local authorities and central government. It also means that funding can be targeted to areas based on metrics and indices, allowing departments to focus their resources on areas where the opportunity for improvement is greatest.

43. Where a competition will be run, departments should consider how they can reduce the amount of information that bidders are required to provide. This will reduce the burden of competition on private and voluntary sector bidders, where relevant, as well as councils.

44. Departments will also be asked which of the Levelling Up missions (PDF, 862 KB) their fund will contribute to. This will enable a better understanding of the types of funding that are most effective in progressing each mission, helping to further improve funding design.

Principle 3: Testing

45. Departments will need to seek feedback on their proposed delivery model and fund design from a selection of councils and/or local authority associations.

46. The extent to which the department builds up the evidence base should reflect the scope and breadth of the fund. The specific details of how departments engage is down to policy makers who will be best placed to use existing relationships, but broadly they should cover an appropriate number of local authorities for the size and scope of the fund and should seek to cover a range of likely perspectives. As part of the assessment process, DLUHC will expect departments to demonstrate how any feedback has been taken into account when developing the fund.

47. This principle explicitly relates to how the policy is delivered and should not be read as a requirement to consult with potential recipients of funding about the quantum they may receive, or about the policy aims themselves. However, it may of course be desirable to involve local authorities separately in the formulation of policy.

48. The aim is to stress-test the proposed model to ensure that it can achieve the intended outputs and outcomes without placing an undue burden on local authorities. It should also give government departments an indication of the likely cost of delivering their funding stream, which should be considered in relation to any capacity funding they may make available to local authorities.

49. Departments can use this evidence base to better understand how the policy will land and to amend the policy design accordingly. Testing their delivery model up-front also reduces the need to make further changes in-flight, allowing both departments and local authorities to focus on delivery.

Principle 4: Data

50. Data requested from local authorities, for example for performance monitoring, can provide a valuable source of information for departments. However, this information can be onerous for local authorities to collect and submit. Additionally, there may be challenges with the quality of this data if, for example, the data requirements are too onerous considering a local authority’s capacity and capability or there is a lack of guidance to ensure data is consistent across local authorities.

51. Departments should make use of existing and alternative data sources, such as from the Single Data List, to reduce the burden on areas: there are increasing opportunities for data to be centrally collected, for example through administrative datasets. Utilising data which is centrally held will improve consistency while reducing the burden for local authorities.

52. Departments should engage their departmental monitoring and evaluation colleagues when designing the data requirements.

53. Before requesting data from local authorities, departments should critically assess their data needs. This includes ensuring:

a. they have a clear, specific use for data requested. Departments should avoid asking for data where they are not sure if they are going to use it or how it will be used as this could result in unnecessary burdens for local authorities

b. they are not able to obtain the information through a suitable and proportionate alternative source (e.g., primary data collection by the department, or administrative and public data)

c. there is not a disproportionate burden on local authorities in collecting the data compared to the intended benefit to the government department from having the data

d. the data is likely to be of sufficient quality for the intended use.

54. Following these guidelines should help ensure that data requested from local authorities is reasonable and proportionate.

55. Even where these guidelines are satisfied, departments should consider if there are suitable opportunities to reduce burdens on local authorities. This may involve, for example, aligning performance processes and indicators for monitoring local authorities’ performance with those used in similar funds or reducing the frequency with which local authorities are required to submit data.

56. By carefully thinking through data requirements, departments and local authorities can focus on the data that adds the most value.

57. Once departments have considered these four principles, they will need to complete the pro forma and send it to DLUHC, who will provide feedback in advance of the department sending its business case to the relevant approval body.

Who can I contact for further advice?

58. We advise departments to contact DLUHC via FundingDoctrine@levellingup.gov.uk early in the process to seek advice when designing a new funding programme.