Examination of Witnesses (Questions 280-299)|
TUESDAY 5 MARCH 2002
280. Can I ask you what your direct experience
of Direct Development is and what you feel are its strengths and
its weaknesses and also perhaps on what types of project does
Direct Development by the RDAs work best?
(Mr Shelton) There is a plus of Direct Development
in that it does allow organisations to take the more strategic
approach, as Alison Nimmo was explaining earlier. You can actually
set out your priorities and ensure that you are bringing schemes
forward in line with your overall strategy, so there is an advantage
to that as an approach. Direct Development, though, is incredibly
labour- intensive. Within the staffing resources, which are available
to the public sector, it is difficult to resource a major programme
of that kind.
281. Do you think they have got the skills to
(Mr Shelton) I think skills and numbers are major
issues as are the set of risks involved in Direct Development.
The public sector is not best placed to manage many of them risks.
I can see a useful role in the public sector in perhaps site assembly
and initial upfront remediation to prepare a development platform,
but when it comes to putting up buildings, it is difficult to
see that there are the sort of risk that the public sector is
normally used to dealing with and managing.
282. If you were here at the beginning of the
session, you would have heard one of the surveyors saying that
he believes that most developers have closed down their regeneration
teams. Have you got any evidence either that that has happened
or that the developers are just now shying away from difficult
and challenging sites?
(Mr Shelton) Yes, the answer is that mainstream developers,
housing developers in particular, are moving resources away from
their specialist regeneration teams. I think that the impact is
actually beginning to show up in the housing completion numbers,
for example. Housing completions are now at the lowest level since
the early 1920s. We have a situation where government policy,
quite rightly, is directing development to brownfield sites, but
the absence of an effective replacement Partnership Investment
scheme outside the assisted areas means that we have not got,
the proactive tool available to address the abnormal costs of
dealing with those brownfield sites.
283. So what you are clearly saying is that
without a new EU regeneration framework, then housing on these
kind of inner-urban sites is really at risk or indeed the mixed
use of these sites, and that we need a new framework? Is that
what you are saying?
(Mr Shelton) Just for illustration purposes, English
Partnerships contributes to the creation of the National Land-Use
Database which seeks to identify every brownfield site with a
development potential throughout England and 65 per cent of those
sites are located outside assisted areas. The only tool that is
available to the public sector at the present time is Direct Development
to bring those sites into productive use if the cost-value equation
does not work.
284. Can I just ask you about this Direct Development
issue in that is the problem to you that in a sense Direct Development
has attendant risks in that a public body has an accountability
issue and is losing public money and not losing private money?
Is that the reason why Direct Development is saying you are not
likely to be enthusiastic about it?
(Mr Shelton) It is a mixture of resources. Genuine
Direct Development is incredibly labour-intensive. Under the Partnership
Investment Programme we literally had hundreds of developers out
there, working up schemes and bringing schemes to us to appraise
and approve as much as the case may be.
285. So accountability for bad risks is not
(Mr Shelton) There is an issue about risks, I believe.
I think there is a set of risks that the public sector can effectively
manage which are all about site assembly, treating sites for remediation.
The set of risks that the public sector does not deal with very
well are risks associated with actually building offices, building
shops and building housing and it is because you need to be close
to the marketplace actually to be able to get the product right
and the right quantum, and the private sector is in there when
the public sector is not.
286. Mr Hall, I believe your previous post was
(Mr Hall) That is right.
287. And Scotland has not had the benefit of
PIP schemes for a long while. Have you got any lessons or experience
that you would like to share with the Committee about what happens
in Scotland where they have had to operate there more within the
constraints of State Aid?
(Mr Hall) Yes. Scottish Enterprise developed in 1992/93
a scheme called RAPID, Resources and Action for Private Industrial
Development, which was approved by the European Commission, but
only for operation within assisted areas. It did cause great problems,
I believe, in the Scottish market because the assisted areas tended
to be the central belt of Scotland.
288. And there are a lot more assisted areas
(Mr Hall) Yes, that is right, but it did mean that
peripheral areas like the Borders, Galloway, Dumfries areas, suffered
because we could not invest in those areas. There were not high
populations, there were small populations, but the property market
was not active because it was too risky, but we could not intervene
in those areas.
289. My question is to English Heritage. When
did you become aware that heritage funding was in conflict with
State Aid rules?
(Ms Souter) We were advised when we were putting together
our Heritage Economic Regeneration Schemes at the end of 1998
that there could be issues that we would need to be careful of
in terms of State Aid and we spent some brief months actually
in discussion with the Department about how to handle that set
of schemes. We also had a question following the ruling on the
PIP schemes that led us to look at our overall main schemes. So
for the HERS schemes which we planned to launch in December, or
we were planning in December 1998, it was agreed in March 1999
that those schemes would be de minimis and so non-notifiable,
but we have notified our main historic buildings, monuments, gardens
and parks scheme and we are waiting for the Commission to rule.
290. When you say you are waiting, is that a
matter of a couple of weeks?
(Ms Souter) Unfortunately not. No, it was the middle
of last year that we notified of the scheme and we have not yet
heard, but it was an ongoing scheme, so the Commission are not
required to respond within a specific time-frame.
291. Do they not have a target for responding
to these sort of requests?
(Ms Souter) I am not aware that they have a specific
target. We have not benefited from one anyway.
292. So you were first aware of a problem at
the end of 1998, so what kind of representations did you make
or were you invited to make any?
(Mr West) Could I answer that one? At the end of 1998
we were preparing to launch a scheme called, rather provocatively
in the circumstances, the Heritage Economic Regeneration Scheme,
and this caught the eyes of the DTI who got in touch with us and
said that, as one of the objects of this scheme was actually to
use conservationof historic buildings as a catalyst for economic
regeneration, then prima facie it constituted State Aid,
and we had discussions with them about that. It was decided that
as the grants to individual enterprises were so small, it was
de minimis, so that scheme has always been administered
as State Aid, but as non-notified State Aid. There are cash limits
on the amount of non-notified State Aid that any one enterprise
can receive in any running three-year period, and we have to operate
the scheme within those limits and the local authorities who administer
it for us have to operate within those limits. A completely separate
issue arose in relation to our principal grant scheme following
the decision of the Commission in December 1999 about the PIP
scheme. The object of that scheme had always been to assist the
repair of outstanding historic buildings and parks and gardens.
It has been running in one form or another since 1953, and it
still runs under the 1953 Historic Buildings and Ancient Monuments
Act. Before English Heritage was set up it was administered by
the Historic Buildings Council. So it was an ongoing scheme, very
much directed at heritage conservation and we did not think that
that would constitute State Aid. After the PIP ruling, which caught
I think everyone by surprise, we had long discussions both with
the DTI and with our sponsor Department, DCMS, and indeed with
UKREP and the European Commission, at the end of which we decided
that it would be prudent actually to notify it, which we did in
July last year, but as yet we have not heard the result. We are
confident, I have to say, that it will be approvedand it
will be a great problem for us if it is not, or it is approved
only with conditions that make it unworkablebut at the
moment we are confident. There is a specific derogation in the
European Treaty for heritage conservation, (I think we quoted
the subsection in our written evidence and you have that information),
and on the back of that we fully expect it to be approved.
293. Were you at any time asked to make a written
submission on the value of your schemes to regeneration?
(Mr West) Not on regeneration. Obviously we have made
written submissions to the DTI in connection with the HERS scheme
and we have submitted a formal notification to the European Commission
on our principal scheme, but that was really to explain what it
was, how it was administered, what we are prepared to grant aid
and what not. It did not specifically address the question of
their effect on regeneration.
294. Do you find it surprising that in the middle
of a major dispute about the eligibility you were never asked
to say why the work you were doing was important to regeneration?
Was it never put to you in that way?
(Ms Souter) I imagine that we were regarded as a very
small player in that field frankly. The work that we have done
on regeneration is a major part of our activity, but as with any
organisation we have to keep reminding some parts of government
and other parties of the role that we take, so I suspect that
it was more that we were a small body for them to be talking to
295. So could you clarify what the current position
is? You said before that you were waiting to hear, so is it uncertain
at the moment or are you telling people that the schemes cannot
(Ms Souter) I think in relation to our Heritage Economic
Regeneration Schemes, because we believe confidently that they
are de minimis and non-notifiable, those are continuing.
There have been some areas where other partners have been concerned
about the operation of the State Aid rules, so there are some
schemes where people are going back and seeking advice through
government offices and through DTI to assure themselves that they
can put in their funding to the schemes.
296. Who are these other partners?
(Ms Souter) Primarily local authorities who have concerns
about the way in which they behave.
297. So you are saying in effect that there
is not a problem in principle because none of this is principal
because if the amounts are small enough, nobody cares.
(Ms Souter) I think for the people involved in our
schemes, the amounts are relevant to those schemes, so for this
particular set of schemes, the Heritage Economic Regeneration
Schemes, the de minimis rule is fine because we are applying
small grants to a large number of recipients and that is fine
for them. In terms of our main scheme, because, as Jeff said,
we are confident that the derogation will apply, we are continuing
the grants under those schemes and do not believe that we need
to suspend that scheme at all.
298. In relation to the privately-owned projects
that you fund, could you just say from the English Heritage point
of view how much of your grants budget goes on privately-owned
projects? How do you decide whether or not to fund such projects
and how have they so far been affected by the State Aid problems
which are around?
(Mr West) If I could answer the last part of that
question first, because I think it actually is the most important.
I think our principal concern about the way the State Aid rules
are being applied at present has been the increasing difficulty
that partners involved in trying to rescue historic buildings
and areas at risk, and do regeneration, are having in putting
together funding packages. It is not the availability of our grant
which is relevant, which is almost always a relatively a small
part of the eventual package, but the difficulty they have in
raising the other match funding, or more than match funding, that
is needed to make a scheme economically viable. We are aware of
a number of very important, very successful schemes, a lot of
them involving the conversion of historic industrial buildings,
for example, for housing, or schemes that have gone ahead in the
past outside Assisted Areas, and it is going to be very difficult
to do similar schemes in the future either because of the problems
we have been hearing about today about funding housing schemes
or about getting funding outside Assisted Areas. There is a particular
issue that is concerning us which is that if this issue of limiting
this sort of funding to Assisted Areas remains unchallenged, the
UK, and England in particular, will face increasing difficulties
after 2006 when the present regime for structural funding changes
following enlargement. If there are far fewer Assisted Areas in
England after 2006, unless we can get the principle changed that
we can operate these schemes outside Assisted Areas, there is
going to be a very serious problem indeed in getting the match
funding that we need to make our grants work.
299. Quite a lot of schemes have stopped now,
which otherwise would have been going ahead, because we are currently
waiting to see what the rulings are?
(Mr West) Exactly that.