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

Examination of Witnesses (Questions 367-376)

ARLENE MCCARTHY, Member of the European Parliament, examined.




  367. Can I welcome you to the Committee and to this session on the need for a new european regeneration framework and ask you to identify yourself for the record, please.
  (Ms McCarthy) My name is Arlene McCarthy, Member of the European Parliament and I am Labour Spokesperson on regional policy and the Labour Spokesperson on legal affairs and the internal market and I also convene the European Parliament's All-Party Urban Affairs working group.

  368. You have sent in some written evidence; do you want to add anything to that this morning or are you happy to go straight to the questions?
  (Ms McCarthy) Simply by way of introduction to say that I very much welcome the fact that the Committee has singled out this issue to take evidence on and that it will be very useful in terms of trying to change the approach in Europe on regeneration policy and State Aid policy, and I am very willing, follow this evidence giving today, to also assist in any further efforts where necessary whether in providing papers or indeed assisting you with meetings that you may want to follow up in Brussels.

Mr Cummings

  369. Before I move on to the questions, can I ask how you yourself feel about the changes which have taken place away from the private investment programme to what we are discussing today, the new European regeneration framework?
  (Ms McCarthy) I would say that all of us who are parliamentarians who represent areas that have severe urban deprivation problems that are in need of regeneration have felt very frustrated by the process, but I have felt more optimistic in recent months because I think that we are now managing to break through with the campaign and we are building up a head of steam in trying to change the approach. I was particularly keen to see that the European Regional Commissioner's office, Commissioner Barnier's office, informed me two weeks ago in a meeting I had with their civil servants that they have now been given the task to produce a paper on urban regeneration and financial innovation. So I think that is a very positive approach now. As I have said, we have been frustrated with the length of time it has taken to try and get any acknowledgement of the need for a new approach in this area.

  370. May I wish you every success in your endeavours. In your memorandum you state, "The use of long term contracts to provide private financing for public works is growing in several countries ... such methods should be promoted and used more widely as they help states save public money." How many European countries now recognise the importance of the role of the private sector in the regeneration framework?
  (Ms McCarthy) I think there has been a change of approach because of the work that is going on between the urban ministers through the informal council and through the inter-governmental approach and that particularly came to the fore at the Lille 2000 conference when the ministers for urban policies specifically noted that the first priority which they needed to look at was public/private partnership for urban regeneration, and there I think there was a real acknowledgement that public measures are not enough and that they are not appropriate to meet the challenge. I would have to add a rider here that there is of course a large cultural and traditional difference in how co-operation in the public and private sector works between different Member States. I think that is what is now clearly happening is that we have new approaches in certain Member States. I think in the past where we have seen that perhaps the Southern Mediterranean Member States who receive quite large subsidies particularly from the European Union now realise that there is a need to look at the advantages of public/private partnership and we know, for example, that, in terms of the work that is going on in the Netherlands and also in France, there are offices being set up to look at how we can actually improve expertise in this area. So I think that there is a change in attitude by Member States and I think that probably the foremost of those would be the Netherlands, Belgium and the UK who are pushing the boundaries in this area I think that now other Member States are beginning to follow suit because they recognise that the pressure on public funding means that there needs to be a new approach to regeneration with the use of public/private sector funding.

  371. What lessons do you believe that the United Kingdom should learn from the approaches being developed in countries such as Germany, Sweden, Italy and Portugal?
  (Ms McCarthy) I would have to say that the whole thrust of our campaign probably has been the other way round, in the sense that we believe that, in the UK, we are operating some very innovative financing mechanisms both with venture capital funds and in particular public/private partnerships on urban regeneration, for example the gap funding schemes. We would like in some ways to get other Member States to acknowledge the benefits of those kinds of schemes because again this would enable us to take pressure off public funding. I know for a fact in conversations that I have had that both the Belgians and the Dutch are very interested in looking at the kind of the gap funding schemes that we have been operating and thus the DTLR organised this conference in March to try and look at different forms of public/private partnership in urban regeneration with a view to actually setting up, if you like, exchange of experience, best practice and new models of how this can be done in Europe and not just the UK.

  372. Do you think that the DTLR have really embraced the changes with enthusiasm and imagination?
  (Ms McCarthy) I am not quite clear what you mean by "embraced the changes."

  373. Embraced enthusiastically, moved forward with a degree of confidence.
  (Ms McCarthy) I think that the Government's civil servants have been very much on the back foot on this issue because I think they did not expect to have, for example, the PIP scheme to be challenged because they did not feel that it was a breach of State Aid. Therefore, they have spent a lot of time defending the approach, repackaging schemes and putting schemes in in order to make sure that they pass through the State Aids Unit.


  374. They caved in very, very easily to the pressure from Europe that the schemes might breach the rules, did they not?
  (Ms McCarthy) The arguments that were given to me when I personally asked why we did not challenge this or why we did not take a legal case was that the legal advice was that we would not win a case in court and what therefore would happen would be that an injunction would be taken out and the PIP scheme would be stopped immediately whereas, as I understand it, what we were trying to achieve was to make sure that there was no retrospective stopping of programmes, i.e. no claw back of money or paying back money. The approach was rather to try and work with the Commission to get the optimum approach which was to actually continue with the schemes that were already ongoing, to have no retrospective claw back of money and also to try and persuade the Commission at the same time of the need to have a more flexible approach to this. I think that, in some ways—and I do not wish to exonerate civil servants here—they were caught between a rock and a hard place in the sense that the last thing that we wanted was an injunction to stop us doing any regeneration activity which had already commenced.

  375. There are some good examples in other European countries, particularly France, who have quite happily taken no notice of instructions, have they?
  (Ms McCarthy) I think that the experience of other Member States is generally that they do a lot more direct development; they do a lot more development which is actually publicly funded and less privately funded. I think that there is an issue about how we package the schemes and I think that is a lesson that civil servants would appear to have learnt in the sense that successors schemes which are being pushed through are being very carefully packaged and checked to make sure that they are cleared through the State Aid system. One could perhaps then surmise that the French have always done that and that they have found a way to actually pass them, if you like, under the thresholds in order that they do not trigger State Aid investigations or breach State Aid rules.

Mr Cummings

  376. Perhaps it is a case of faint hearts never winning battles against European bureaucrats.
  (Ms McCarthy) Perhaps I could add to that—and it is one of the recommendations that I have made—that I think one of the difficulties with this issue is that whilst I have certainly been in the company of ministers and met with ministers as they have been pressing the case in Brussels and I was also privy to those meetings as I helped with some advice and briefing notes in that area, I do feel that what did not help the situation was that this has been always divided between two different departments, namely DTI and DTLR, I feel that there is a need—and that is one of the recommendations that I have made—to have a coherent approach and, in my recommendations, I have asked that perhaps this is best taken on board by one single minister who co-ordinates different departments. Of course the Treasury has a vested interest in this area particularly related to regional venture capital funds where again the Chancellor had difficulties in persuading the Commission to let our regional venture capital funds through the State Aid clearance system. We got it through in the end, but I think that it is unacceptable that we have to wait sometimes two years to get a response on these issues. Therefore, for me, it is important that there is a very clear lead by one ministerial department in this area and I also think there is a clear role for a cabinet minister to pursue this agenda, working closely in co-ordination with the three key departments who are involved in this area.

  377. You tell the Committee in your memoranda that there needs to be more economic analysis than input on State Aids cases. How do you believe this can be accomplished? What can be done to strengthen the economic case rather than rely upon the legal case only?
  (Ms McCarthy) I think there is a view generally that the DG Competition Directorate is full of lawyers. Infact it is lawyers who make decisions on these issues without due deference to the economic arguments/the economic case for why we should actually have a more flexible approach to State Aid on regeneration issues. I think there is a case now for actually having economists supplement and support any projects or schemes that we propose. I also think, although it is not in my memorandum, that there is a need for a good economic expert who understands these issues perhaps in terms of a national expert who could be seconded from the UK into DG Competition to help the civil servants understand the approach that is being taken in this area but also to understand the longer term approach that needs to be taken when they are currently reviewing the State Aid process. As I have said in my memorandum, there is a review of the State Aid process under way which we very much support, which is trying to look at more specific distortions of State Aid in terms of competition policy but allowing more flexibility in precisely those areas related to regeneration policy.

  378. Are you saying that all Member States that wish to participate and benefit from such a regeneration issue ought to have the same governmental structures with the new deal?
  (Ms McCarthy) No, I think that would not be possible. I think you have to accept the diversity ofapproach in different member states.


  379. You were fairly critical about the way in which things were split up in the UK between different departments.
  (Ms McCarthy) Yes.


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