Select Committee on Transport, Local Government and the Regions Minutes of Evidence


Examination of Witnesses (Questions 320-339)

MR JOHN EDWARDS, MS HEATHER HANCOCK AND MR IAN PIPER

TUESDAY 5 MARCH 2002

Ms King

  320. So what kind of budget Direct Development best equal to?
  (Ms Hancock) I think you have to be very clear in that about what you mean by "Direct Development" and I think one of the things that the RDAs share is the view as John has expressed, that we have a very constrained role in pure Direct Development. I think we are all looking as quickly as possible to get the private sector into a scheme and frankly to get us out of a scheme. I think the areas where we have most to contribute from experience of using CPO powers or other options for acquiring land on sites and overseeing infrastructure and also on larger sites are doing, I suppose, the leg-work upfront with private sector partners on the strategic future for that site, so putting the resource at that element which is an area where the private sector is less willing to invest.

  321. I will not bother asking the question of whether Direct Development has delivered less value for money, but do all of you agree with that figure?
  (Mr Piper) I would like to make a point on it because I think the key thing there is that it requires more resources upfront, but very often what you will then see is that when you have actually serviced the land you will have an asset to dispose of to a developer and we can recycle those revenues and actually the end result should not be that different, but the key difference is that it needs resources upfront.

  322. It should not be that different or it should actually be more profitable?
  (Mr Piper) Well, it could be beneficial to the public sector because if the joint venture with the private sector is structured correctly, we can actually then get the benefit of the longer-term improvement in values which gap funding was less well able to do and that is the type of framework and approach that we are trying to use in the South West.
  (Mr Edwards) It is also worth adding to that that as we go forward into the single pot and as we invest in site assembly and remediation, making assets available to the private sector, the money that flows back into that can be reused by the regional development agencies.

Chairman

  323. It can be reused, but it is a question of how quickly it can be recycled and it does take quite a long time to get the money back, does it not?
  (Mr Edwards) Well, it will take time to get the money back. That, I think, is an argument potentially for the public sector through the regional development agencies intervening to bring difficult sites forward for development and recognising that there is a constraint because of the time required for the private sector then to take an interest.

  324. But then it is very much an issue of resources, is it not?
  (Mr Edwards) Well, it is an issue of resources. It is also an issue of very sound financial planning.

Ms King

  325. Are receipts from Direct Development ring-fenced for future regeneration?
  (Mr Piper) The rules will change from April where now we are able to retain those receipts within the RDA and use them as part of our single financial framework, so they will be used for all the RDA's activities.
  (Ms Hancock) It is worth mentioning there that there is still a slight imperfection in how that works in terms of one would expect the incentive to be for the public sector to extract itself and let the market take the lead as quickly as possible as we want to see the market operate fully. At the moment it is proposed that looking forward there will be some element of the returns on that investment being recycled, but that will simply be deducted from our grant-in-aid, so we do not actually get any net benefit from recycling the investment as quickly as possible and that for us seemed to be a disincentive to operate efficiently.

Christine Russell

  326. Can I ask all three of you if you are actually comfortable with and do you feel it is appropriate that the same body that develops economic development strategies also is the developer of the subsequent construction projects?
  (Mr Edwards) Yes, I do. The regional development agencies have a clear input to develop an economic strategy which is used to influence the spending of all economic development and regeneration monies in the region. If we take the West Midlands as an example, we estimate that over the next ten years there will be something like £30 billion of public sector investment in economic development and regeneration in the region and only 5 per cent of that will come from the Regional Development Agency, so it is how we brigade those resources collectively over that period to lever an improvement in regional economic performance. The regional economic strategy is not the RDA's economic strategy; it is the region's economic strategy. We have developed it in partnership. Ours certainly in the West Midlands is a joint document with the regional chamber, now the regional assembly, so it is the region's economic strategy. We just happened to help develop it and help to implement it and we look after it on behalf of the region, but it is the region's, not ours.

  327. And you agree with that point of view?
  (Ms Hancock) Yes.

  328. Can I go on to ask you how you ensure that your Direct Development is not directly competing with the private sector?
  (Ms Hancock) The approach we take is always to challenge why is Yorkshire Forward becoming involved at all and what is the actual market area, the obstacle to development that require us to become involved, be it with simply our money or with other of our resources. The second approach we take is always then to look for the earliest possible relationship with the private sector in taking forward a scheme and agreeing our exit strategy. Of, I think, the seven new schemes we have got coming forward under the single pot which would fall within the Direct Development definition and the replacement gap funding scheme, PIP schemes, only one of those is not a joint venture or will not be a joint venture with the private sector and that is simply because of a complication over the inward investor.
  (Mr Piper) If I can add to that, many of the Direct Development schemes that we are actually pursuing have come about because the private sector have actually failed to deliver on a particular piece of land, the land has lain idle for ten years or more, or in fact where particular land or property was in the ownership of a private developer and they actually failed to deliver and we took control and ownership in order to stimulate the investment. Like Heather, we are looking then to sort the problems out and get the private sector and their skills back involved in the development as quickly as possible.

  329. Are there not occasions where you are actually directly competing or is what you are trying to say to the Committee that you only go in to a site where the private sector has no interest in it, it is too difficult a site?
  (Mr Edwards) I think it will certainly be the latter where the site is very difficult to develop and the only way to bring it forward is for the RDA to intervene. To give you another example, one of the latest sites that we are looking to acquire at the moment which is linked to our strategy for technology corridors in the West Midlands, we are purchasing from the receiver a difficult and contaminated site. Now, the private sector would snap it up tomorrow if it were to be entirely a housing development, but the local authority wants to see clear mixed use taking place and less than 20 per cent of that site going for housing, so in that context we are supporting the strategy set out in Regional Planning Guidance and the Local Development Plan to deliver a mixed-use development on that site. We will bring the site in, "remediate" it, put it out to the market with a development brief attached to it, so it is not direct competition necessarily, but it is delivering a good that the region requires.

  330. Do you consider that all three RDAs that you represent have staff on board who have the right kind of skills which are necessary for Direct Development work?
  (Mr Piper) Well, we have got 25 qualified surveyors in the South West RDA and I would doubt—

  331. So why is the Royal Institute or whatever critical of the fact that, they argue, you do not have the skilled people? Why are they saying that if you have got 25 surveyors?
  (Mr Piper) I cannot speak obviously for their experience elsewhere, but certainly we are heavily involved with the RICS. We have held common property seminars with them and our Director of Development is actually on the regional board of the RICS, so we have a strong relationship. I would suspect that 25 qualified surveyors is probably more than most developers in the region have actually got.

Chairman

  332. It is of course the mix of skills, is it not, to bring forward some of these fairly complex schemes? It is not just necessarily the surveyors.
  (Ms Hancock) I think the difficult skills to bring on board, where we have spent a long time in the market looking for the right people who are willing to make a move into the public sector and at the minute into RDAs who have a relatively unproven track record in this is in the commercial negotiation and development project management skills. Those are the areas where it is hardest to recruit and that is partly pay and it is partly track record. Having said that, there are ways in that if you are in a relationship with the private sector, they will bring those skills, so you do not actually necessarily need it and we only have a property team of ten.
  (Mr Edwards) Can I just add one point which is that I think there is actually a general skill shortage in this area, in the whole regeneration agenda, which is one of the reasons that the regional development agencies are looking to establish regeneration centres of excellence in the region, which is to pick up the Chairman's point, that it is more than just surveying skills, and that it is negotiation skills, it is an understanding of community enterprise, community development, so you need a very broad range of skills to deliver proper sustainable regeneration. We do what others do. We do find it difficult in the West Midlands to recruit at the moment partly for the points that Heather has made, but also because we happen to be based in the only hot-spot in the West Midlands region, right in the centre of Birmingham where those sorts of skills are in short supply, so we have to work with the private sector to use their skills to deliver the sorts of schemes that we want to see delivered.

  333. Presumably you should have moved to Tipton or somewhere like that.
  (Mr Edwards) That would be a very good idea, Chairman, and I will mention that when I get back.

Mrs Ellman

  334. Do you think it is right that the RDAs are put in a position where they appear to be defensive about Direct Development? Should not RDAs be entrepreneurial? Should they not consider the development assets against which the borrowing can take place? Why are they all so defensive?
  (Mr Edwards) I do not necessarily feel that we are being defensive. I think what we are doing is trying to explain where we believe Direct Development plays a critical role in helping to deliver the regional economic agenda. I think where the problem is is that it is seen as some sort of either/or; you can only have one or the other, either Direct Development or gap funding. There is a role for both of them to play. We would certainly welcome a more flexible regional framework than the current one we have and we will still use it to deliver the regional economic strategy and not necessarily to be project-led all the time, but to be driven by strategies to which the region collectively, the public, private and voluntary sector, have signed up.

Ms King

  335. I do not know if you saw the transcript from last week's Select Committee—what a shame!—but we were very surprised when we were asking developers where they would get information on what funding is available and what criteria. They just did not know, that they could not find out. In theory, it is the RDAs, but in practice, it is a bit of a nightmare. What is your situation? Do you have clear statements?
  (Ms Hancock) I have got mine with me. We held a property conference last year and we repeat it annually. There are 300 of the main property players in the region at it jointly with the RICS. We have an annual easy-to-access leaflet which sets out what we do, why we do it and who to talk to about it.

  336. So why do you think they just could not find anything out? Perhaps they live in the wrong place.
  (Ms Hancock) I do not know.

Chairman

  337. Does that explain then how to go about the new gap funding schemes?
  (Ms Hancock) No, it explains that we are not interested in operating reactive grant programmes. It says, "This is the kind of property issue that we are concerned about in the regional economic strategy and these are the kind of techniques we have got to tackle it. Please come and talk to us if you are dealing with a property constrained which fits within that sort of system". Then we say, "We will find a solution to it".

Mrs Dunwoody

  338. So that is why they have no idea what you are talking about! Frankly that is nonsense, is it not? You are not saying firstly you have a conference at which you arrange for people to come along. Fine. Secondly, when you are asked, "Do you have easily accessible information?", because frankly if property developers are sitting in an office trying to decide where their project is going to go, they are not really going to want to spend time having a long discussion if they are not clear what the terms and conditions are, how much is available, when it would be available, how it is payable and how to use the scheme, the reality is that you have not got that information readily available.
  (Ms Hancock) Our experience is that they are very happy to come and have those discussions and they would rather have them and to understand what the drivers are for the RDA agreeing to make an investment into a scheme and the drivers for us, the criteria are a secondary issue, the drivers for us how much brownfield land is involved, how is it going to contribute to the regional economic strategy and how many jobs will it create.

  339. With the greatest respect, that was not actually what you were asked. We know what the drivers are or we hope we know what the drivers are for you because we hope we know what your responsibilities are, but you were asked how would a developer know easily, quickly where to go to find out what the terms and conditions were.
  (Ms Hancock) Because they have got all the contacts here.


 
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