4.1.3  Making local net zero funding more efficient

752.  The net zero funding landscape is extremely complicated and inefficient for local authorities. The Local Government Association (LGA) highlighted retrofit as an area with particularly diverse funding streams. Local authorities could deliver on retrofit through all of the following eight schemes, many of which had multiple funding rounds: the Local Authority Delivery scheme, the Public Sector Decarbonisation Scheme, the Social Housing Decarbonisation Fund, the Energy Company Obligation, the Home Upgrade Grant, the Warm Homes Fund, the Boiler Upgrade Scheme, and its predecessor the Renewable Heat Incentive. This list does not include funding streams for related energy efficient power such as heat networks, let alone other areas of net zero delivery.

753.  The need for funding reform featured in virtually every evidence submission to the Review from local government. One county council told the Review:

"Constant last-minute competitions for short term projects results in huge inefficiencies for local government, lots of wasted effort discussing and co-ordinating bids, multiple monitoring methods/criteria for effectively the same outcomes."539

754.  The County Councils Network recommended government should "Provide a streamlined funding process that is easier to navigate and less resource intensive." The LGA noted:

"One of the biggest obstacles for delivery has been short lead in times for funding schemes, short delivery timescales and a lack of joined up (systems) thinking in the programme design phase."540

755.  This is despite welcome commitments in the Net Zero Strategy and the Levelling Up White Paper to simplify and consolidate funding, which have not yet made an impact on the funding landscape.

756.  One local authority told the Review that the rules around use of government funding are so restrictive, and change so frequently between funding rounds and competitions, that a delivery model they had developed through one funding pot was no longer eligible for funding in the next round.541

757.  Research from the University of Sheffield found that local authorities spent an estimated £63.5 million bidding for the Future High Streets Fund, Towns Deals and the Levelling Up Fund.542 While these funds are not directly related to net zero, the figures are illustrative of how expensive the current funding system is for local authorities. Research for the LGA found that the average cost of bidding for a competitive grant was around £30,000.543

758.  The Review heard of similar experiences on net zero funding, with local authorities spending hundreds of thousands of pounds preparing and managing bids across net zero funding competitions. The Review heard that some local authorities see the costs as so prohibitive that they simply choose not to bid for certain funding.544

759.  If such a funding landscape continues, it risks creating significant disparities in the ability of local authorities to deliver. As the Climate Change Committee (CCC) noted:

"Funding competitions are problematic, focusing resources into the local authorities with sufficient staffing and capacity to apply for funds, often at short notice."545

760.  Authorities that have experience, local expertise and have been able to use previous funds to develop supply chains and skills will continue to receive funding. Others - which often tend to be smaller authorities - will struggle and likely fall behind.

761.  This funding landscape is clearly economically inefficient for local authorities and counter-productive for central government. Short-term, one year funding competitions are a particular problem and restrict the ability of local authorities to respond and deliver on such short timeframes, making systems-level planning much more difficult.

762.  This funding landscape also holds back growth in local economies. For example, the CCC notes that:

"Funds also have to be spent rapidly, which prevents a skilled local supply chain being developed [...] Short term, unexpected funding opportunities fail to deliver the best schemes."546

763.  A longer-term, simpler funding landscape would allow local authorities to form a more coherent plan of action from which they could develop supply chains, build local skills, and coordinate action to benefit from economies of scale and attract private finance.

764.  There is value in maintaining a competitive nature to some funding (mainly due to the size of some funding pots), and it is difficult for individual government departments to alter their funding plans within a Spending Review, which defines spending levels for government departments over a certain period. For the next Spending Review, BEIS, DLUHC and HMT should work closely to deliver local net zero funding reform. For all local authorities, there should be a simpler and consolidated net zero funding system that provides greater lead-in times and transfers money from central government more quickly. Where possible, funding should be non-competitive to reduce administrative burdens and ensure that allocation of funding is based on need and opportunity rather than bidding capacity. It should be medium- rather than short-term, with multi-year funding arrangements where possible, and additional support should be provided to local authorities with less bidding capacity.

765.  For authorities with the greatest devolution and the strongest track record, government should explore how it can provide long-term funding with greater flexibility. This approach is explored in more detail later in this pillar.

766.  As a condition of simpler, less competitive, more devolved funding, central government should require strong economic evaluation of net zero funds. This will help build a rigorous evidence base on what works locally, which can be used to inform and improve future action.