Levelling up: The UK Shared Prosperity Fund

The UKSPF should take a holistic approach by promoting service integration, preventative action, and community cohesion. Issues related to health and wellbeing can make participating in productive local economies difficult for certain groups. Similarly, an individual’s ability to find work or take part in activities that increase their likelihood of finding employment can have a positive effect on other wellbeing factors such as mental health. Better co-ordination and partnership working between local actors – including frontline providers, public bodies, businesses, charities, communities and the public – would help to deliver more effective ‘wraparound’ support for people with multiple barriers while simultaneously helping agencies achieve shared outcomes.

A UKSPF founded on community partnerships that span sectors and organisations, combined with long-term funding, similar to ESF timeframes and across parliamentary terms, would not only facilitate better service integration, it could also provide significant cost savings for the Exchequer as highlighted by the NAO.^[1]

It is also important that the UKSPF is not used to subsidise existing state provision. As such there should be a condition made that it only funds provision which is currently missed by mainstream support, creating a clear route of support for disadvantaged groups and people with complex needs neglected by existing public services. The funding mechanism should be designed to go above and beyond existing services and engage with the hardest to reach.

By bringing together charities, statutory partners, LEPs, voluntary sector infrastructure organisations, skills, training, employment support providers and other partners with specific areas of expertise and knowledge of local and regional needs, the UKSPF could deliver more effective and better value services. At its heart, services should be designed around people, rather than people being expected to fit into existing service silos.

This will help achieve:

Service Integration

Support should be holistic and cater for people with complex and multiple needs. An approach to delivering education, training and employment support based on places and needs that spans organisations and sectors could simultaneously help address other issues such as poor housing, social isolation, health and fragmented service provision as these issues are often interrelated. The NAO has noted how the integration of public services and programmes offers government the potential for substantial cost savings and service improvements, highlighting how better coordinated primary, acute and social care has led to cost savings and better services for patients in some local areas.^[2] Similarly, a greater level of coordination between commissioners and providers would lead to a better fit between different programmes of support and help avoid overlap and duplication, particularly with existing state provision. It would also reduce the potential for service providers to compete for referrals.

An increasing number of examples of service delivery demonstrate how partnerships – for example between employment support and health professionals – are working successfully in practice through different programmes and in various geographies. These include Individual Placement and Support, NHS-Employability Partnerships social prescribing and more. As such, innovations in service integration should play a major role in the programmes developed through the UKSPF and how they interact with other public services.

Improved engagement

Closer working between delivery agents and statutory bodies would help to engage traditionally hard-to-reach groups by expanding the reach of a project or programme. For example, disadvantaged groups often know and trust local service providers, while these organisations often understand the challenges these communities face. Furthermore, specialist providers tend to already have existing support projects in place which can be used to complement the design and delivery of new programmes.

Better data sharing

A multi-agency and multi-sector approach to delivery would also facilitate the better sharing of information and good practice between organisations with different areas of expertise, for the benefit of service users. For example, Jobcentre Plus staff would be better aware of particular projects or programmes which they could either refer participants to or be aware that a participant was already taking part in, avoiding duplication of effort and unnecessary distress for the participant.

The UKSPF should be partly used to develop innovative ways of tackling entrenched social problems. By broadening the mix of delivery and development partners to include non-traditional actors with a good understanding and engagement with disadvantaged groups, the UKSPF could significantly improve support for inclusive growth.

These non-traditional actors should include:

Service users and volunteers

Service user involvement allows people who have experience of a service to become involved in its planning, development and delivery. Because of their experiences of using services, users have a unique insight into what works, which can then inform and improve services. For example, people with direct experience of employment, skills and learning programmes will be well-placed to identify challenges around referral processes and opportunities for the engagement of disadvantaged groups, as well as what works best. The UKSPF should therefore have a strong focus on enabling people with lived experience to be part of the commissioning process.

Similarly, volunteers can be an effective way to liaise with certain groups, as both mentors and befrienders, while volunteering as an activity can help move disadvantaged people closer to work by building skills and confidence, and providing work experience. However, it should be borne in mind that volunteering does not come for free and needs professional management or infrastructure.

Combined authority mayors and other local leaders

As the elected leaders of their areas, combined authority mayors will be able to raise the profile of entrenched problems relating to employment, skills and learning. As seen in Greater London, mayors can often influence policy areas and should play a role in the coordination of service provision which brings together councils, government bodies, frontline providers and businesses. Involving city mayors in the planning and development of employment and skills support for vulnerable groups would also align with, and support, the government’s local growth and devolution agenda.

The UKSPF should include programmes with a mix of short-term trials for flexibility and testing ideas, and long-term funding which provides stability for commissioners and providers, and allows for strategies to be forward thinking and preventative in nature. Under EU funds, projects are run and financed on a multiannual basis, allocated under the MFF. The MFF runs for seven years at a time, whereas UK spending reviews typically cover three or four years. Funding which works over several years makes sure there is scope for stability and ambition. It is imperative that the UKSPF has the capacity to support such projects, as well as shorter-term endeavours.

Short-term funding

The use of short-term funding, particularly through grants, can allow for innovative new ideas to be piloted and tested. Providing short term upfront funding can help providers develop proposals for longer-term solutions and help smaller specialist organisations participate in service delivery

Long-term funding

Long-term funding, such as contracts spanning three years or more, is particularly important as it provides financial certainty for commissioners and providers and enables continuity of support for service users. It enables the development of forward facing solutions, such as the use of preventative or early action initiatives which help overcome problems, including long-term unemployment, before they become harder to tackle, and allows beneficiaries to better address complex or entrenched issues by ensuring continuity in services. While most agree with the logic behind early action and its potential for long-term cost savings, current spending mechanisms limit investment in preventative initiatives. Longer-term programmes could help break away from the current patterns of spending and service delivery, which tend to focus on ‘downstream’ treatment and care. Not only would this benefit service users, it would make any proposed fund that replaces ESF more cost effective through what the Chartered Institute for Public Finance and Accountancy (CIPFA) labels a “public pound multiplier”, where targeting public investment effectively reduces financial pressures elsewhere.^[3]

In practice, a mixture of short-term pilots to test new ideas, leading to longer-term interventions will often be desirable, with all projects fully and independently evaluated from the start.

Distributing funding and identifying need

EU funding is managed outside of the Barnett formula. It is administered according to need rather than population (according to Annex XXII of the Common Provisions Regulation). The UKSPF must do the same. Contributions to an enquiry regarding the design of the UKSPF undertaken by the all-party parliamentary group (APPG) for post-Brexit funding strongly supported a needs-based allocation formula in England. The APPG was also highly opposed to any element of competitive bidding, which is likely to deflect from a strong focus on raising the performance of the less prosperous parts of the UK.

By avoiding the bureaucracy of EU legislation around co-financing, a replacement fund could better support a quicker process for identifying need and distributing funding. The asymmetric shape of the UK landscape in terms of disadvantage hotspots means that the distribution mechanism will require flexibility.

Identifying need and the distribution of funding should be determined by local boards consisting of statutory partners, local enterprise partnerships (LEPs), local voluntary sector infrastructure organisations, skills and training and employment support providers, alongside other partners with specific expertise and knowledge of local and regional needs.

Previously LEPs have been mentioned as a possible method for delivering the UKSPF, but questions have been raised about whether they are the best mechanism for doing so. If LEPs are chosen as the preferred method of identifying local needs and distributing funding, they should be required by law to have a dedicated UKSPF board with membership that reflects the local socio-economic landscape by including all relevant economic and community stakeholders, enabling inclusive growth planning to draw on the best local knowledge and insight. The involvement of local partners including voluntary organisations is key to this. However, despite being tasked with engaging deliberately and constructively with local partners, including ‘third sector representatives’ and ‘community interest groups’,^[4] a forthcoming assessment of England’s LEPs by NCVO indicates that around two-thirds of LEPs’ engagement with the voluntary sector is either inadequate or requires improvement.

LEPs should consider the voluntary sector as a key strategic and delivery partner to engage in all aspects of its business. The sector is major economic player in each LEP area,^[5] making it an important partner for identifying local challenges and opportunities when investment strategies are developed. Voluntary organisations are also embedded in the communities they serve which provides them with unique insight into local experience and ‘what works’ when LEPs are designing and commissioning service interventions.

Should LEPs end up being the appointed delivery mechanism, steps will need to be taken by both government and LEPs themselves to improve engagement with local communities and the organisations that represent them. Regardless of the delivery mechanism, it is important that, in line with the government’s devolution agenda, devolved administrations control the delivery of their allocated share of the UKSPF.

The effectiveness of any fund to deliver education, training and employment support to a range of target groups, such as young people, the long-term unemployed, people with disabilities and health conditions, ex-offenders, people with multiple complex barriers and those currently in work, requires a diversity of providers, each specialising in specific areas of activity. To achieve this, the UKSPF needs to ensure accessibility of funding to locally based providers of all sizes, who are closer to the needs of disadvantaged and vulnerable groups and have relevant specialist understanding.

Using appropriate commissioning processes and procurement methods is essential for maintaining a diverse market of providers and delivering value for money, making sure as much money as possible is channelled to the frontline.

Appropriate payment mechanisms

Where possible, grants should be the preferred procurement method. Competitive grant making often provides excellent value for money, from one-off projects to engage with beneficiaries to piloting a new idea where contract design and monitoring is deemed unnecessarily burdensome. The benefits of grant giving have been highlighted by the Lloyds Bank Foundation,^[6] and NHS England’s guidelines on the use of grants.^[7] This would help put smaller providers on a more sustainable footing and increase the quality of some education, training and employment services, while also enabling charities to use other in-kind help, particularly volunteering.

Using grants does not have to be a risky investment for funders. For example, foundations manage risks with staged payments, robust reporting, and grant agreements. Indeed, grant funding can avoid being overly prescriptive or locking providers into set ways of running their services.^[8]

Payment-by-results (PbR) is commonly used as a payment mechanism for government contracts. However, many organisations have expressed concerns about the continued use of this mechanism. In particular, PbR presents the following disadvantages:

• Recipients may face the need for pre-financing, higher monitoring and verification costs, and the difficulty of settling the incentive at the optimum level thereby This could leads to the risk of rent-seeking behaviour. This is likely to affect the diversity of the bidding market significantly.
• PbR contracts can see risk transferred away from authorities such as government and towards providers.
• Given the increasing importance of social value in the new government’s agenda, a focus on market prices and financial outcome will not allow for social value to be considered when assessing benefits.

As such, grants remain the preferred procurement mechanism where possible.

If, however, payment-by-results (PbR) is deemed appropriate for a contract (for example, following use of the NAO payment by results analytical framework^[9]), the proportion of upfront payments to outcome payments should be carefully considered. This should be calculated on an assessment of the ability of the provider market to cope with the financial risk and cash flow implications. For example, the more specialist provision that is required because of the difficulty of the target group, the lower the proportion of payments based on outcomes and the higher the upfront ‘attachment’ fee.

Regardless of funding term, overhead costs of service providers should be covered. This is particularly important for smaller organisations who often struggle to cover core costs in contracts and grants. At the heart of this is the need for a greater weighting towards upfront funding than was the case under ESIF.

Contract sizes

The UKSPF should ensure that a greater proportion of smaller providers are able to participate as prime or lead contractors in programmes, rather than just subcontractors. To do this, appropriately sized contracts should be used where possible, which are likely to be smaller for non-mainstream, specialist interventions. When deciding the suitability of different contract sizes, existing relationships with service users, the size of the target group, the ability and willingness of the provider market to deliver certain contract sizes, the degree of specialist services required and an assessment of whether larger contracts can deliver economies of scale and lower unit costs should be carefully considered.

Where organisations are involved as subcontractors, support should be provided for assessing the service-level agreement with their prime contractor. Similarly, toolkits to help subcontractors negotiate contracts with prime or lead contractors would help make sure contract agreements are deliverable and mutually beneficial. Extending the use of DWP’s Merlin standard^[10] would help promote sustainable excellence within any supply chains developed and ensure subcontractors are treated fairly.

Tender timescales

The time given to respond to invitations to tender should be proportionate to the size and complexity of the contract in question. Often smaller organisations do not have the resources and staff time to develop effective partnerships, budget and plan for projects and programmes at short notice. Where possible, commissioners should provide supportive dialogue and practical help and hold ‘market warming’ exercises at an early stage in the procurement process to help enable organisations to develop strong and effective partnerships for delivery.

Level of audit and administration

The UKSPF, while robustly and proportionately evaluating what works best, should seek to minimise the significant bureaucratic and administrative burden associated with ESIF programmes, which, due to audit requirements, have often undermined attempts to help the people who need support the most. For example, the new initiative should make sure that programmes are audited on factors directly related to value for money and quality of service, rather than providers’ ability to show what proportion of funding has been spent on minor overheads. By no longer having the regulatory burden caused by the EU framework, the collecting and submitting evidence for outcomes achieved could be minimised and reflect the value of the contract, the nature of the client group being supported, and the style of intervention required. Indeed, the focus should be on simplifying the regulatory burden, so that evidence relating to outcomes and costs can be better compared between different programmes.

The use of generic contracts which include unnecessary clauses and requirements unrelated to the intervention in question should be avoided. Not only does this produce excessive auditing and administration requirements, it has a detrimental effect on service users as valuable resources are diverted from frontline delivery to unnecessary contractual compliance. Similarly, incorporating pre-contract dialogue into the tendering process would help make sure that programme outcomes are achievable.

The UKSPF should have clear plain-English guidance on all of the above which is standardised across commissioning authorities to avoid misinterpretation and conflicting objectives.

The local growth fund

Since the UKSPF was proposed in the Conservative manifesto of 2017, there have been calls for it to include the local growth fund (LGF), which covers skills, housing and transport due to an obvious overlap with ESF. While there is some support for this idea, the LGF has different priorities and processes to EU funding, and is allocated to England’s LEPs by competitive bidding, unlike the data-driven allocation of EU funds. Its geography is distinct from EU allocations, meaning that some of the larger per-capita sums benefit relatively prosperous areas. The LGF is a distinct fund from ESIF in purpose, mechanism and design, and it should remain a separate fund to the UKSPF.

£12.1bn was committed to the LGF for the period 2012/13–2020/21. As such, if this fund were to be included in the UKSPF, it would require a significant increase in the total envelope for any such fund in order to make sure that all areas covered by both the LGF and ESIF are accounted for. A combined fund would reduce the scope for matching financing for some projects, requiring adjustments in rules and expectations, and the retention of competitive bidding would exclude many charities and voluntary sector organisations.

For a list of case studies detailing ESIF in action, see ERSA’s ‘Sharing Prosperity’ Report