Treasury tightens reins on DLUHC spending decisions

Minister says new regime is a “delegation approach” that gives HMT sign-off on capital spend
Levelling up secretary Michael Gove with chancellor Jeremy Hunt. Photo: Mark Kerrison/Alamy Live News

By Jim Dunton

10 Feb 2023

The Treasury has introduced new spending restrictions on the Department for Levelling Up, Housing and Communities, limiting DLUHC’s autonomy over decisions on capital projects.

The move comes three weeks after the department announced the successful bidders in the £2.1bn second round of its capital-focused Levelling Up Fund, prompting anger from areas that missed out – most prominently from the Conservative West Midlands mayor Andy Street.

Local government and building-safety minister Lee Rowley was called to parliament yesterday to answer an urgent question on the new regime, which requires DLUHC to secure Treasury consent for all capital spending.

Rowley insisted the tightened spending restrictions placed on DLUHC did not alter the department’s budgets, policy objectives or ambition. However, he confirmed that the Treasury had increased its involvement in the department’s authorisation processes.

“We are working within a new delegation approach with the Treasury, which involves Treasury sign-off on capital spend,” Rowley told MPs.

Answering a question by shadow levelling up secretary Lisa Nandy, he said: “We will always work closely with the Treasury. We value its focus on value for money; it values and shares our mission to level up the country as a whole, and we will continue to do that.”

Rowley said the government was “making good” on its promise to spread opportunity across the country and said £9.6bn of levelling-up funds had been announced since 2019.

Nandy asked whether the Treasury’s concerns related to slow progress being made with projects for which funding has so-far been allocated by DLUHC and its predecessor departments.

“The rumours are swirling that there is huge underspend in the department,” she said. “We are in the midst of a housing crisis, yet I understand that the affordable housing budget has not been spent and that there are levelling-up funds that have not been spent either, which will now be clawed back by the Treasury.”

Nandy called on the government to publish the correspondence between HM Treasury and DLUHC related to the new sign-off arrangements.

Rowley responded: “There has been no change to budgets, capital or revenue. There has been no change to our policy objectives, no dilution of our ambition to level up, and no implications for the government’s policy agenda.”

An earlier FT report on the new spending restrictions drew a direct link between the measures and concerns over the value for money of spending on levelling-up projects. However it also suggested that the decision to clamp down on DLUHC’s expenditure had followed a speech made by secretary of state Michael Gove at the Convention of the North summit in Manchester two weeks ago.

At that event, Gove announced a £30m funding package for improving social housing in Manchester and the West Midlands. The FT reported that the secretary of state had been prevented from announcing a different, larger package of funding.

At that time £30m was the largest amount of capital spending DLUHC could sign off without Treasury approval. Under the new “delegation approach”,  all DLUHC capital spending needs Treasury approval.

In parliament Nandy said the government appeared to be in the “absurd situation” where the secretary of state at DLUHC did not even have the authority to sign off on a park bench.

“Is this true?” she asked. “If so, what is the government’s assessment of what that means for the levelling-up agenda, of which a third round of spending has just been announced, and for tackling the housing crisis?”

At yesterday’s session, Rowley also referred to the machinery of government changes announced on Tuesday that saw the breakup of the Department for Business, Energy and Industrial Strategy and the creation of a new Department for Energy Security and Net Zero.

DLUHC perm sec Jeremy Pocklington has taken the helm of the new energy department. His replacement at Marsham Street is former Department for Digital, Culture, Media and Sport perm sec Sarah Healey. DCMS was also subjected to a “refocus” as part of Tuesday’s changes.

“There has been significant focus on the mechanics of government in recent days,” Rowley said, drawing a comparison between the departmental changes and the new spending controls imposed on DLUHC. “It is absolutely the case that processes change and may apply at times in different ways.”

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