Islands Programme capital fund 2021/22 to 2024/25: grant awards - evaluation

6. Alternatives to the current approach

6.1 One of main aims of this evaluation was to consider whether the current competitive bid process is the most effective way of allocating capital funding to improve local outcomes, address the priorities of local communities, and deliver on the objectives of Scotland’s National Islands Plan. At the same time, stakeholders were asked to consider the advantages and disadvantages of other possible mechanisms – including, specifically, direct allocation to local authorities, and allowing community organisations to bid directly for funds. However, discussions were not limited to these two options. Stakeholders were also invited to propose alternative mechanisms, and to share their experiences of other funding programmes they were familiar with, and which they thought worked well. A summary of the views expressed in these discussions is presented here.

Direct allocation

6.2 The version of direct allocation used in Year 1 of the Islands Programme (2021/22) was seen to be somewhat untypical given the context of Covid recovery, and the fact that the funding was made available so late in the year – leaving local authorities with just three months to fully commit it. Stakeholders agreed that this had not been ideal.

6.3 Nevertheless, local authorities have continued to argue for Islands Programme funding to be disbursed to them as a direct allocation (see Annex 1 and the representations made by local authorities to the RAI Committee in 2023). Local authority representatives interviewed for this evaluation also generally indicated a preference for direct allocation. Just one local authority expressed some ambivalence about this, as the awards made to this local authority each year under the competitive bidding process were substantially larger than the allocation they would have received under the 2021/22 allocation formula. Representatives of this local authority made the point that they would not feel it was worth bidding for funding if they only managed to secure awards equivalent to the allocation they received in 2021/22, given the time and effort required by the application process.

6.4 Local authorities and some other stakeholders highlighted the following advantages of a direct allocation process:

• Direct allocation is the most efficient approach in relation to the use of local authority resources and capacity, which are very stretched.
• Subsidiarity should be the guiding principle for decision making in respect of capital infrastructure funds. Specifically, island authorities argued that better decisions will be made if funding is devolved to local level and elected members are able to determine their priorities working in partnership with island communities.
• The National Islands Plan describes an ethos based on collaboration and partnership. A direct allocation process is better able to achieve this, and avoids the situation where island areas are competing with each other for limited resources.
• A direct allocation would give local authorities a pot of money which they could use to leverage funding from other sources.

6.5 The following additional points were made:

• There are many projects that need support, but they are not necessarily appropriate for a competitive process – for example, small projects that are too small to compete against big projects.
• A prioritisation process is likely to be required within each local authority, as the available funds received through a direct allocation may not be sufficient to fund all the potential projects that would benefit from it. It was suggested that this prioritisation process could be designed to ensure a fair and transparent distribution of resources among island communities.
• It would be possible to include a process of Scottish Government ‘sign off’ to ensure that projects selected for funding under a direct allocation arrangement meet Scottish Government criteria for Islands Programme funding.

6.6 There was considerable discussion about the formula that should be used in any potential new direct allocation system. The formula used to allocate funds in Year 1 (based on population and road length) was not supported by all local authorities. Some authorities (especially those with smaller island populations) favoured a formula that did not place so much emphasis on population size, arguing that this fails to take into account the impact of visitor populations. In addition, a population-based approach generally focuses resources in more populous island areas, while island areas with smaller populations (which may perhaps be at greater risk of further population decline) would be disadvantaged.

6.7 Most other stakeholders involved in this evaluation – including representatives of community organisations – did not favour a direct allocation mechanism for disbursing Islands Programme funding to local authorities. The disadvantages of a direct allocation mechanism were seen to be the following:

• A direct allocation mechanism would provide less certainty that expenditure is fully aligned with Scottish Government priorities for the fund (which are linked to the National Islands Plan strategic objectives). There was concern that the money might get ‘lost’ within local authority budgets and be used to meet the local authority’s own priorities, particularly in the current tight financial context.
• There was a perspective that there could be less scrutiny of funding decisions made at local authority level – interviewees noted concern about the degree of ‘rigour’ or ‘due diligence’ that would be applied, and the lack of external oversight.
• Direct allocation may not foster meaningful community involvement or collaborative working or the development and funding of innovative or high impact projects. It may not result in the ‘best’ or ‘best value’ projects being funded.
• There would be less scope to fund large-scale expensive projects in individual areas, regardless of their merit and potential impact, as local authorities would be limited by their allocation in any one year. Additionally, it was noted that not all local authorities may be able to spend their allocation every year.

6.8 Community organisations sometimes made similar points, suggesting that local authorities were more likely to spend their allocations on their own priorities and projects – which are likely to be based in areas of higher population density – rather than on community priorities and projects.

Competitive bidding by community organisations

6.9 On balance, the view among all stakeholder groups (including among representatives of community organisations) was that the current model of competitive bidding was preferable to one where communities bid directly for the funding. The following points were made:

• A range of funds are already currently available to community organisations.
• The capacity and capability of community organisations to develop and manage large capital projects is very variable. Many community organisations are run by volunteers. These groups are disadvantaged in relation to competitive bidding compared to organisations with paid staff and high levels of capability.
• Island community organisations would be competing with each other for funding; this was not thought to be helpful.
• Such an approach would raise expectations – and consequently levels of disappointment when applications are not successful.
• Opening the fund to community groups would run the risk of attracting large numbers of applications of varying quality. A large administrative resource was likely to be required to assess applications and provide advice and feedback to applicants.

6.10 Representatives of community organisations who preferred the current competitive bid model rather than one which would involve community organisations as the applicants made the following additional points:

• They valued the role their local authorities played in helping them to develop their applications and felt that the current process encouraged partnership working between their organisation and their local authority.
• The local authority’s involvement in the application process created a sense of buy-in from the local authority to the work of the community organisation. This buy-in might not exist if the community organisation applied for the funds themselves.
• They thought their local authorities had wider, more strategic perspectives on (i) local infrastructure needs and (ii) the ambitions of community organisations across the area. Thus, the local authority was in the best position to assist with project development and avoid duplication in terms of the types of projects submitted and ensure that applications are put forward at the most appropriate time.
• They preferred a situation in which the local authority was responsible for formal reporting activities in relation to the project.

6.11 Support for an Islands Programme disbursement model that involved direct bidding by communities tended to come from representatives of organisations whose projects were not awarded Islands Programme funding through the current competitive bid process. These interviewees had not found working with their local authority to be a positive experience and would have preferred to deal directly with funding bodies and bid for funding in their own name. Occasionally, other interviewees also expressed reservations about the local authority acting as a filter or gatekeeper for funding applications, and / or suggested that another avenue should be available for those who did not wish to work with the local authority or whose projects had not been selected for submission as a local authority bid.

6.12 Some panel members were also open to the idea of a model where communities bid directly for Islands Programme funding but said that such a move would require careful thought and planning. They said that they had not previously given any consideration to what such a model would look like.

Hybrid approaches

6.13 Some interviewees with experience of other capital funding programmes highlighted the existence of (what was sometimes referred to as) a ‘hybrid approach’ which would comprise both a direct allocation component and a centrally run competitive component. Examples of funds using such models are the Place-based Investment Fund (RCGF is the competitive component of this fund), and the Carbon-Neutral Islands Fund. The benefit of this type of dual approach is that ‘everyone gets something’, but there is also an opportunity for local authorities to also bid for more funding than they would receive through an allocation alone.

6.14 More generally, interviewees often did not see a simple binary choice between a central competitive process and direct allocation of funds to local authorities; rather, they touched on a range of different ways in which a funding scheme might be better designed to incorporate different aspects of direct allocation and / or competition while also ensuring that the scheme maintained its focus on government policy priorities. For example:

• Direct allocation to local authorities with the allocated funds ring-fenced for specific purposes or governed by particular conditions which could, for example, include the requirement to spend it on community led projects
• Direct allocation in which projects have to be approved by the Scottish Government before the funding is released
• Direct allocation with local competitions then used as the mechanism for disbursing the funds at the local level – it was suggested that the Scottish Government or SFT could be represented on local assessment panels for applications
• A competitive process with a separate pot reserved for direct bids from community groups
• A fund (central or local) offering both capital and revenue grants.

6.15 There was also a suggestion that a pilot could be run to assess whether a locally based competitive bidding process for community organisations would be viable.

An integrated fund for all capital projects on the islands

6.16 Greater integration of funds for all capital projects on the islands (or, at least, more coordination between funds and funders) was discussed as a solution to the challenge of the cluttered landscape of funding programmes. It was suggested this could involve the management of similar funds by one body or the pooling of all infrastructure funds for the islands into one consolidated programme of funding. Interviewees suggested that those applying for funding generally did not care where the money came from or who was providing it, and that such an approach would be administratively easier for applicants to negotiate. It would still be possible for smaller funding pots to be created within this overall fund with a focus on particular types of projects or applications, and to require the source of funding to be recognised in any publicity and promotion.

Outsourcing the management of Islands Programme funding

6.17 Finally, there was a suggestion that Islands Programme funding could be outsourced to a third-party organisation with expertise in fund management, economic development and / or infrastructure development, to manage on behalf of the Scottish Government. The disbursement process could involve formal applications from local authorities, with the Scottish Government involved in decisions about which projects are funded.

6.18 This type of solution would enable a move away from the current process – that involves annual calls for bids and a deadline of 31 March for incurring funding – towards a system that was open to applications on an ongoing, rolling basis. Thus, it would remove much of the pressure on local authorities created by the current process of competitive bidding.