Relationships between local public spending, employment and wages within local authorities in England - a longitudinal ecological analysis

Patient and public involvement

This study formed part of a larger project examining the health and health inequalities impact of a place-based community wealth initiative. We organised several bespoke workshop style events to involve participating service users, carers, members of the public and representatives of established community groups in this project. Active public participation was encouraged using activities designed to inform, listen and foster critical thinking about the project.

Study design and setting

We performed a longitudinal ecological analysis using data collected between 2016 and 2020, across lower tier local authorities in England. There are currently 296 lower tier local authorities in England. We analysed data from 2016 to 2020 because during this period local authorities in England were legally required to publish details of their expenditure, and the end of 2020 coincided with the UK’s exit from the European single market.

Data sources and measures

We used data provided by Tussell (Tussell, 2024) to derive our primary exposure variable – local authority spending per capita on local suppliers. Tussell compile publicly available data on local authority spending at invoice-level, which can include details of the supplier’s registered address. Invoices where the supplier address was provided were used to calculate the value of spend that went to local suppliers, for each local authority per year. Local authority suppliers with registered addresses that fell within the administrative boundary of said local authority, were defined as local suppliers, with administrative boundaries determined using the National Statistics Postcode Lookup (Office for National Statistics, 2023). Local authority spending was adjusted for inflation using Gross Domestic Product deflators (HM Treasury, 2024). Local authorities where >50% of the total value spent in any one year went to suppliers with no known address, were excluded. The City of London and the Isles of Scilly were also excluded due to their small population size.

For our outcomes, we used annual local authority level data provided by the Office for National Statistics (ONS) on the employment rate of those aged 16–64 years, measured using the Annual Population Survey (Office for National Statistics, 2025). Additional outcomes of interest were median weekly wages, as well as weekly wages at the 20^th percentile, derived from the Annual Survey of Hours and Earnings (Office for National Statistics, 2025). Wage data were adjusted for inflation using the Consumer Prices Index including owner occupiers’ housing costs (CPIH) (Office for National Statistics, 2024). Full details of the measures and data sources can be found in the Data Availability statement.

Statistical analysis

We used linear fixed effects regression models to investigate the associations between changes in local spending per capita and changes in employment and wages, within local authorities. These models include a fixed effect for each local authority, and thereby indicate the relationship between trends in exposure and outcome whilst controlling for all time-invariant differences between local authorities (Clarke et al., 2010). We included in the models an annual measure of total net service expenditure per capita (Alexiou & Barr, 2020) for each local authority and an annual time trend term. For the employment rate outcome, we also investigated interactions between local spending and the local authority level of income deprivation (Office for National Statistics, 2021). We used clustered robust standard errors for all models and weighted the analysis by local authority population aged 16–64 years. The residuals from each model were plotted to assess whether model assumptions were likely met. Analyses were conducted in R (version 4.2.0).

Sensitivity analysis

We repeated the analysis including all local authorities regardless of the amount of missing supplier address information provided. We also repeated the analysis using a log (as opposed to identity) link function, and including yearly fixed effects, to see whether our results were sensitive to these changes. Finally, we calculated the percentage of local authority spend that went to local suppliers, and repeated the analysis using this as our primary exposure variable.

Ethical approval

This study analysed openly available data aggregated to local authority level. Ethical approval was therefore not required.

Sensitivity analysis

We observed very similar results when repeating the analysis including all local authorities regardless of the amount of missing supplier address information provided (Table 4). We also found similar results including yearly fixed effects within the models (Table 5) and using a log link function which suggested that for every additional £100 per capita increase in local spending, a 0.3% and 0.2% change increase in employment and wages at the 20^th percentile, respectively, would be expected (Table 6).

When examining the proportion of local spending as our primary exposure variable (Table 7), we found that for every additional 10% point increase in the share of local authority spend on local suppliers, the employment rate would be expected to increase by an additional 0.4% (95%CI [0.02% to 0.77%]). Increasing trends in the share of local authority spend on local suppliers were associated with increasing trends in wages, however these associations did not reach statistical significance (Table 7).

Strengths and limitations

This study addresses a critical gap in the literature by examining the impact of local public procurement on local economic outcomes. To our knowledge, this is the first study to investigate associations between local spending, employment and wages within English local authorities. We used fixed effects regression models to compare trends in local spending and economic outcomes within local areas, and therefore differences that remained constant between areas could not confound the results. Our results for the employment outcome were also robust to several sensitivity analyses.

There are limitations, however, that should be considered when interpreting the results. Methodological limitations of ecological studies can include ecological bias whereby associations present at the group-level are not apparent at the individual-level, possibly due to unmeasured confounding (Greenland & Robins, 1994). In this longitudinal ecological study however, for ecological confounding to occur there would need to be a correlation between the change in the confounding variable and the change in the outcomes within each local authority area over time.

In addition, the majority of local authorities did not provide complete supplier address data. We excluded from our analysis local authorities where >50% of the total value spent in any one year went to suppliers with no known address, which resulted in the exclusion of eight local authorities. Our results did appear to be robust when we repeated the analysis including all local authorities regardless of the amount of missing supplier address information provided. We used a company named Tussell to compile local authority invoice-level data. Local authority awarded contract data compiled by Tussell has been used by others to examine predictors of regional sourcing (Eckersley et al., 2023). To advance research in this field, strategies to improve the recording and collection of local authority spend data are needed. A well-coordinated, open-access database of local authority spending could enable rapid analysis to inform investment decisions and would provide greater levels of transparency into local government accounts.

Implications for policy

Various policies to address regional inequalities have been implemented by successive UK governments. Most recently, the government’s ‘Levelling Up’ White Paper sets out goals to increase productivity, pay, jobs and living standards, especially in places where they are lagging (UK Government, 2022). This agenda has, however, attracted criticism for representing a form of inadequately funded, centrally led devolution that lacks clarity regarding which places are to be ‘levelled up’ (Fransham et al., 2023). Furthermore, the government’s strategy is based on the principles of agglomeration economics and attracting inward investment into disadvantaged places (McInroy & Lloyd-Goodwin, 2020; UK Government, 2022), and such approaches have not always reduced inequalities (Organisation for Economic Co-operation and Development, 2018).

Alternative approaches, such as community wealth building and using public procurement to create and retain local wealth, have garnered much interest because theoretically they have considerable potential to stimulate regional economic regeneration to address economic differences between places (Day & Merkert, 2023; Eckersley et al., 2023). Increasing the revenue of local firms could lead to increases in employment and wages within these firms, but may also generate positive effects throughout the local supply chain, for instance, the newly employed and those benefitting from wage rises, spending within the local area (What Works Centre for Local Economic Growth, 2023a). Our research shows for the first time, associations between local authority spending and economic outcomes in England, and our findings indicate that local authorities could increase local employment rates by spending more on local suppliers. Our findings suggest that if a hypothetical local authority with a working age population of 250,000, increased spending on local suppliers by £100 per capita, an additional 525 jobs would be created locally. Whilst our results are modest, it is important to note that increasing local procurement would require no additional investment from local authorities. It is possible that favouring local suppliers could increase costs and reduce value for money for local authorities compared to more openly competitive procurement. However, support could be offered to smaller local suppliers to be able to tender for contracts, and efforts made to sub-divide tenders so that local suppliers can bid for proportionately smaller and manageable quanta of work. Further research is needed in this area.

In a context where pressures on local authority finances are rising, innovative approaches to stimulate economic development in disadvantaged places are urgently needed. Following the coalition government’s 2010 austerity programme, funding for local government has fallen considerably with central government grants cut by 40% in real terms from 2009/10 to 2019/20 (Atkins & Hoddinott, 2020). The most disadvantaged local authorities, who have less capacity to raise their own revenue, have been disproportionately affected by these cuts (Tinson et al., 2018). Recent analysis suggests that in 2022/23, on average, the most deprived fifth of areas received 9% less local government funding than their share of needs, whilst the least-deprived fifth received 15% more (Ogden et al., 2023).

We did not observe any statistically significant modifying effects of deprivation on the association between local spending and employment rates within local authority areas, however, in recent years, spending per capita on local suppliers increased to a greater extent amongst local authorities with high levels of income deprivation compared to low. It may be that local authorities covering more disadvantaged areas are implementing strategies to increase local procurement in response to central government funding cuts. These local authorities may have some opportunity to escape the disbenefits of reduced total capacity in their own spending by increasing the proportion they spend locally and encouraging large employers anchored within the community to do likewise, as demonstrated by Preston City Council (Centre for Local Economic Strategies & Preston City Council, 2019). Although additional evidence is needed, increasing local procurement within socioeconomically disadvantaged areas could help to reduce regional economic inequalities over time.