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Inflation concerns ease slightly but rising costs remain biggest barrier to making progress, the latest LGC and PIC local government regeneration survey finds.
A growing proportion of senior council figures say their authorities are being forced to cut back or scrap regeneration schemes amid financial pressures and uncertainty ahead of a general election, LGC research has found.
However, the local government regeneration survey also found that a significant number of projects are still going ahead, and fewer people are citing inflation as a barrier to delivering projects.
Almost 80 local authority figures took part in a survey in January and February to assess the changing state of regeneration at a local level across the country.
The research, carried out in partnership with Pension Insurance Corporation (PIC), a specialist insurer of defined benefit pension schemes which invests in infrastructure projects, also reveals differences between those councils in areas with devolution deals and those without.
Responses from 78 individuals at councils across the UK, including chief executives, council leaders, executive directors and heads of service, are included in the findings.
This is the second iteration of the twice-yearly survey examining the regeneration landscape and how councils are responding to the challenges they face. Read the results of the first survey on the LGC website here.
The government’s decision last year to cancel the northern leg of HS2 was a reminder of the cost pressures that can see regeneration schemes scaled back or scrapped.
Almost eight out of 10 (77%) survey respondents said their councils had been forced to cancel, postpone and/or scale back regeneration projects in the past six months – a slight increase from 75% in the last survey, carried out in June and July 2023.
But while the total value of regeneration schemes being cancelled rose from £250m to £323m, the total value of those postponed halved, from £2bn in the previous survey to £1bn in this year’s survey.
At a council in Yorkshire & the Humber where several schemes have been cancelled or postponed, a regional partnership director referred to a “lack of revenue funding to derisk and develop projects correctly”.
A director of place in the east of England blamed construction prices for delays to a number of schemes, while a change in political control was cited by a county councillor in the south-east, where a £25m project has been scrapped in the past six months.
At a council in Yorkshire & the Humber where several schemes have been cancelled or postponed, a regional partnership director referred to a “lack of revenue funding to derisk and develop projects correctly”.
An economic growth and enterprise manager at a council in the south-east, where some programmes have been scaled back, said: “We have had to value engineer levelling up projects.”
And budget pressures “mean everything is under review – or has already been scaled back,” according to an assistant director for placemaking & growth in the south-west.
Nearly a quarter (23%) of respondents said their councils have not had to scale back, cancel or postpone projects, and there are some positive indicators. For instance, regeneration schemes amounting to around £6.5bn are at the planning stage and projects valued at £1.7bn are currently under construction.
Sentiment about the year ahead is mixed, but the survey found an increase in the proportion of respondents with a pessimistic outlook about their ability to secure investment in regeneration projects in their area over the next 12 months. This corresponded with a reduction in those describing themselves as neutral.
In total, 49% of respondents were pessimistic or very pessimistic about their ability to secure investment for regeneration projects over the next 12 months, up from 43% in the last survey.
A lack of government funding was a common theme. A regeneration lead in the south-east said: “The environment is more cautious and government funding is limited and often short term.”
The amount of available funding for regeneration is “too little and too superficial” a councillor in the East Midlands said. And a council chief executive in the West Midlands said there had been “no news re future rounds of levelling up fund or other government funding”.
Others commented that levelling up no longer appears to be a major political priority. A head of financial management in the north-west said: “Funding for regeneration projects appears to be less readily available than a few years ago. Levelling up appears to now be off the agenda.”
Much depends on the election, both in terms of the government trying to get ‘good news’ stories in advance, and in terms of new priorities with whoever takes charge.
Political uncertainty was another common concern among those who are not confident about the year ahead. As a council leader in the East of England put it: “The current government uncertainty makes it hard to develop long term strategy, as government priorities seem to change so fast.”
Some respondents are playing a waiting game, citing the political uncertainty around which party will be in power after the next general election.
An economic development manager in the East of England said: “Whilst our authority is quite adept at securing and effectively utilising funding and investment, uncertainty around funding sources, plus a potential change of government, means there is a question mark over where exactly the money will be coming from.”
An assistant director for placemaking and growth in the south-west said: “Much depends on the election, both in terms of the government trying to get ‘good news’ stories in advance, and in terms of new priorities with whoever takes charge.”
The proportion who described themselves as optimistic or very optimistic about the 12 months to come was unchanged, at almost a third (29%).
A council chief executive in the West Midlands said: “No current need to do anything other than internal borrowing, which helps when there is such general negativity over the sustainability of council finances.”
A leader of the opposition in the East Midlands was optimistic because it is an election year and politicians “need the votes”.
Revitalising town centres is the top challenge councils are looking to tackle through regeneration schemes, cited by 82%. Local jobs and skills development (69%) and tackling homelessness and the housing crisis (68%) were also identified as key aims.
More than half (56%) said community development/placemaking is one of the major aims of their regeneration programmes.
Fewer than half (49%) said their regeneration projects are aiming to address environmental challenges such as creating more green spaces and redeveloping derelict land. Just over a third (36%) gave industrial development as a major reason for regeneration.
A councillor in the east of England gave the creation of new market towns as the reason for regeneration, while a council leader in the East Midlands wanted to bring the economy “back to where it was before the pits closed”. Others were more focused on specific issues, such as a senior engineer in Yorkshire who wanted “improved roads”.
The complexity of needs in some areas was highlighted by a town clerk at a council in the south-east.
“We are lacking suitable sports and leisure facilities to support demand now, let alone support future growth. Our town’s community facilities are at capacity, and the highway network is not fit to support further growth,” they said.
“We lack the right sized business units to meet the enquiries in this area from smaller enterprises and large-scale industries, and the affordable housing ratios are being reduced by developers when they argue viability, which means most new homes being built are three-bed-plus executive homes.”
Inflation remains the single biggest obstacle to the delivery of regeneration projects, rated as a “high” or “very high” barrier by 73%, although this is down from 84% in the previous survey. The next most cited barriers were a lack of supporting local infrastructure (61%, up from 45% previously) and difficulty getting public sector funding (61%).
Another “high” or “very high” barrier is the difficulty in securing private sector investment (57%), while more than a third (36%) referred to the lack of council funding for planning. The percentage who said private sector partnerships are a major barrier was 32%, up from 26% in the last survey. Availability of construction materials and lack of local skills remain significant barriers and were cited by 31% of respondents.
Almost one in three (29%) identified public sector partnerships and lack of available sites as big barriers, while 18% regard the availability of planning expertise at their council as a major obstacle, and 12% see the planning system itself as a significant barrier to regeneration happening.
Even where funding has been sourced, programmes can suffer lengthy delays before they get under way.
Respondents were asked how much longer the planning process is taking for key local projects – those worth more than £25m – compared with a decade ago. Almost a third (29%) said planning is taking at least a year longer. One in four (24%) said it is taking an extra six months. Fewer than half (44%) said the planning process is taking about the same amount of time, while just 3% said it was quicker than in 2014.
When asked what would make a significant difference to their council bringing forward regeneration projects, removing competitive bidding against other local authorities for central government grants as a component of regeneration funding topped the list, chosen by 77% of respondents.
Greater financial devolution was the next most commonly selected option (68%).
Around a third said a focus on the key national priorities for regeneration to help inform local plans would help (35%), as would having access to more detailed data on investment in their area (32%). Having access to more trained planning officials to help capacity constraints was selected by 31%.
A significant number also specified the need for more funding. A regeneration lead in the south-east said “less financial pressure on the council and greater ability to access grants“ would help. Others called for a reduction in the interest rates charged by the Public Works Loan Board. Greater “joined up working” between planners, developers and councils would also help, according to a town clerk in the south-east.
Perception was also raised as an issue. A council chief executive in the West Midlands called for “less pessimism in local government press – it frightens private sector partners regardless of our local financial security”.
There has been little change in the sources of funding councils intend using for regeneration projects in the next three years.
Traditional funding sources such as using the council’s own resources (88%) or central government (86%) continue to dominate, while more than two-thirds (68%) still plan to work with private sector partners – just ahead of public sector partners (63%).
The Public Works Loan Board was named as source of funding by around half of respondents (45%), but barely one in 10 plan to use pension funds (12%) or the UK Investment Bank (11%).
The most significant change since the last survey was the rise in the proportion of respondents seeing tax increment finance as a source of funding, at 10% up from 4%. Those who are considering overseas investors remain in the minority, at 8%.
When it comes to the most important factor when choosing which source of funding to approach and/or use, the cost of borrowing is the top criterion, selected by more than half of respondents (56%).
One in five people cited the flexibility of borrowing arrangements, such as being able to defer drawdown. Only one in 10 viewed the existing relationship with a lender as the most important criterion, while just 9% regarded the sector expertise of a lender as the key consideration.
A housing portfolio holder in the north-west described how having a “local connection” and being an “ethical investor” are the top factors when deciding on a funding partner. And a leader of an East Midlands council listed “shared vision and values” as the most important consideration.
Respondents were also asked their views on devolution and the extent to which they were gaining from being in a region with a devolution deal, or missing out if they were not.
Those in areas with devolution in place were significantly less likely to see it as making a big difference. Fewer than one in 20 (4%) said it had improved the ability to deliver regeneration projects to a “very large extent” and only one in seven (15%) said it had improved things to “a large extent”.
Just over half (52%) described devolution as helping to a medium or small extent, while almost one in three (30%) did not think it had made any difference.
In contrast, those in places where devolution has yet to happen placed a far greater premium on its impact.
The survey found 40% of respondents believed their area had lost out to a large or very large extent to places with devolution deals. Only 13% said their area had not lost out at all on investment in regeneration to areas with devolution deals.
