Select Committee on Transport, Local Government and the Regions Twelfth Report


Introduction

TWELFTH REPORT

The Transport, Local Government and the Regions Committee has agreed to the following Report:

THE NEED FOR A NEW EUROPEAN REGENERATION FRAMEWORK

Conclusion

The loss of PIP has been a disaster. At the start of this inquiry we heard that the five new physical regeneration schemes which the UK Government notified to the European Commission following the closure of PIP are inadequate. Some progress has since been made, as the Government has started to look at imaginative ways to develop new schemes that are consistent with State aid rules, including a new gap funding scheme for housing.

However two and a half years of urban regeneration activity and outputs will have been lost by the time that the new housing scheme is approved. This will be compounded by an overall loss of momentum and most importantly, a loss of private sector interest and willingness to take part in regeneration, with many developers closing their regeneration arms. We have also heard how the lack of gap funding means that even the most innovative developers are now less inclined to develop difficult sites.

The Government has also begun to press for a new European Framework for regeneration but we remain concerned about how long it will take before this is agreed. We recommend that our successor Committee sees the Minister again in six months time to hear how much progress has been made.

1. Towards an Urban Renaissance, the 1999 Report of the Urban Task Force said, "Developing on brownfield land and recycling existing buildings must become more attractive than building on greenfield sites."[2] Financial mechanisms are an essential part of this. During our predecessor Committee's inquiry into the (then) proposed Urban White Paper, we heard that 'gap funding' through the Partnership Investment Programme (PIP) was one of the most important of such mechanisms.[3]

2. In December 1999, the European Commission ruled that PIP was an illegal State aid and the programme was closed to new applicants. In July 2000, our predecessor Committee undertook an inquiry into the Implications of the European Commission Ruling on Gap Funding Schemes for Urban Regeneration in England. This Report, published in September 2000, set out the Committee's disappointment at this decision and its hugely damaging effect on regeneration.[4]

3. The Government's response, of December 2000 stated that it had notified five new physical regeneration schemes to the European Commission (described below) and would seek in the longer term to agree a new regeneration Framework with the Commission.[5] The five new schemes were approved last year. The evidence that we have received suggests that these are universally considered inadequate and that the effect of the European Commission's 1999 ruling has gone much wider than PIP. The National Lottery, the European Structural Funds and other funding sources have been affected. It was clear, two years after the closure of PIP, that the effect of the European Commission's decision was as bad as we had originally feared, if not worse.

4. We therefore decided to return to this issue. Our terms of reference were to consider:

  • the effectiveness, usage and coverage of the five, new, European Commission approved, land and property regeneration schemes--direct development, speculative and non-speculative gap funding schemes, community regeneration and environmental regeneration;
  • any barriers to regeneration caused by the current framework;
  • the consequences for the urban renaissance in terms of outputs, outcomes and value for money; and
  • the need for a new European Regeneration Framework.

5. We received 28 written memoranda and took oral evidence from 17 organisations over 3 evidence sessions held at the House of Commons, culminating in evidence from Lord Falconer, then the Minister of State for Housing, Planning and Regeneration. David Lunts advised us until March 2002 and Dominic Williams advised us thereafter. We wish to thank our advisors and all who gave written and oral evidence to us.

6. In our Report we consider:

  • the wider consequences of the 1999 European Commission decision;
  • the adequacy of the replacement schemes agreed last year;
  • new schemes which the Government has proposed; and
  • a new European Regeneration Framework.

We have also included a Glossary of some of the terms most commonly used when dealing with State aid, as an Annex to the Report.

The wider consequences of the 1999 European Commission decision

7. Our predecessor Committee took evidence from the Rt Hon Hilary Armstrong, MP, then the Minister for Local Government and Regions, in July 2000. She told us that the 1999 ruling had affected PIP and the Single Regeneration Budget,[6] but did not know whether other funding streams such as the National Lottery or English Heritage's regeneration programmes[7] were affected.[8] The Office of the Deputy Prime Minister (ODPM)—formerly the Department for Transport, Local Government and the Regions (DTLR)—has only recently commissioned a study to investigate how widespread the consequences of the 1999 ruling are.[9] Our evidence suggests that the consequences are very wide indeed. We have received evidence that the following funding programmes and mechanisms are amongst those affected:

  • the National Lottery;[10]
  • English Heritage's Historic Buildings, Monuments, Parks and Gardens Scheme;[11]
  • all Regional Development Agency (RDA) expenditure through the 'single budget';[12]
  • English Partnerships' activities, including Priority Sites and the English Cities Fund;[13]
  • the European Structural Funds;[14]
  • local authority regeneration grants;[15]
  • Urban Regeneration Companies;[16] and
  • fiscal measures such as tax credits.[17]

8. Many regeneration projects receive funding from a number of Government programmes. The presence of matched funding complicates matters, not least because the State aid rules require that the cumulative value of all public sector funding contributions should not exceed a specific percentage of the project cost.[18] Jeff West of English Heritage told us:

    "I think our principal concern about the way in which State aid rules are being applied at present has been the increasing difficulty the 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 and which is almost always a relatively small part of the eventual package but it is the difficulty they have in raising the other matched funding."[19]

9. Dave Chetwyn of Stoke on Trent City Council told us that taking together all the affected programmes, approximately £100 million of funding to the city has either been prevented, reduced or modified, following the 1999 decision. He estimated that this translated into 10,000 jobs.[20] Lord Falconer told us that:

    "The general view of people involved in this field is that this is a very important issue, and that it has had a detrimental effect on a large number of schemes, or prevented schemes going ahead. So until there is statistical evidence to the contrary, we should take the view that this is an important issue."[21]

We look forward to the Office of the Deputy Prime Minister's full report on the wider effects of the 1999 decision on all regeneration programmes.

10. It is particularly disappointing that two of the measures introduced to meet the objectives of the Urban Task Force have been constrained by the State aid rules:

      (i)  the Urban Task Force recommended that public-private investment funds should be established to attract additional private funding into areas needing regeneration.[22] The Government intended that the English Cities Fund would be a way to meet that objective.[23] However English Partnerships told us that the Fund is restricted to the Assisted Areas[24] or small and medium sized enterprises (SMEs)[25] and subject to Aid Intensity Ceilings.[26] Lord Falconer admitted that this was not the original intention for the Fund.[27] The fact that the English Cities Fund, which attracts significant private investment into a regeneration investment vehicle, has been affected by the 1999 ruling is a particular disappointment. We recommend that the Government tries again to develop a new vehicle that fulfils the objectives of the Urban White Paper, within the State aid constraints; and

      (ii)  another of the key recommendations of the Urban Task Force was the creation of Urban Regeneration Companies (URC).[28] Euan Hall of English Partnerships said that the activities of URCs outside the Assisted Areas will be constrained as a result of the PIP ruling.[29]

11. The poor response by various public sector bodies in the UK has compounded the effect of the European Commission ruling. Central government departments appear to have some understanding of the problems but they have not communicated this very well to front-line staff who deal with grant applicants. We heard how the "official position" of English Heritage and the Heritage Lottery Fund was that their funding programmes were subject to State aid rules but that "many of the people working in those organisations were probably not aware of that."[30] This lack of information leads to confusion and delays. In the case of the Middleport Waterfront Townscape Heritage Initiative in Stoke on Trent, it took eighteen months before any of the funders identified that the project was subject to the State aid rules.[31] The DTI admitted that it was "not doing enough" to explain the complications of the State aid rules to front-line staff.[32] We recommend that the Government provides more training about State aid to front-line staff. A full-time State aid expert should be appointed in each region. Within the Office of the Deputy Prime Minister there should be an information point which can give advice over the telephone or e-mail giving people instant answers.


The Middleport Waterfront Townscape Heritage Initiative-Stoke on Trent

The Middleport Waterfront Initiative in Stoke-on-Trent is a heritage based regeneration initiative along the Trent and Mersey Canal. It is proposed that derelict buildings (in private and charitable ownership) along the canal would be refurbished to bring them back into use.

Stoke-on-Trent is in a Tier 2 Assisted Area. Under the Regional Aid Framework, the maximum total public sector investment in a project developed by a small or medium sized enterprise there is 25% of a project's cost.

In the Middleport Waterfront Initiative, the refurbishment costs are high-a number of the buildings are listed-and property values in the area are very low. The Council described how this creates a significant funding 'gap' of up to 70-90% of the refurbishment cost for some buildings within the Initiative, making these projects unviable with public sector investment limited to 25% of the cost.

However, the council's memorandum points to the special provision in the Treaty of Rome for culture and heritage projects and argues that for this and other reasons, its initiative should be treated differently.[33]



The five 'PIP replacement' schemes

12. Following the closure of PIP, the Government notified five new physical regeneration schemes to the European Commission, for use by English Partnerships and the RDAs:

13. Hilary Armstrong, then the Minister for Local Government and Regions, told our predecessor Committee that the new schemes were consistent with the Regional Aid Framework. As a result she thought that the Commission would approve them relatively quickly. She told the Committee in July 2000 that she expected them to be approved later that year.[35] In fact, the Government has clarified that the new schemes were notified to the Commission on 19 November 1999 and approved on 28 February 2001 (substantially longer than the two or three months that Lord Falconer suggested in his oral evidence to us).[36] This does not bode well for future approvals.

14. We have received very little evidence about the community and environmental regeneration schemes. We therefore consider the use and effectiveness of gap funding and direct development below.

Speculative and non-speculative gap funding

15. We have received much critical and no positive evidence about the speculative and non-speculative gap funding schemes. They appear to have been very little used. Lord Falconer could only mention two projects proposed under the new schemes:

He told us, "I have asked my officials for details of schemes under the speculative and non-speculative one, and apart from the two un-named examples that plainly exist I have been given no examples of any such schemes."[37] The DTLR's written memorandum showed no forecast expenditure on gap funding by the RDAs in 2001/02.[38]

16. Our evidence suggests that the new schemes have not been effective for two reasons:

      (i)  the rules governing them makes them a weak replacement for PIP; and

      (ii)  they have been poorly promoted.

THE RULES GOVERNING THE SCHEMES

17. Witnesses have identified a range of problems with the schemes:

18. We heard from both a developer and an RDA that the omission of loan and rent guarantees from the new schemes was a failing.[45] DTI told us that it should be possible to support loan and rent guarantees within the State aid rules.[46] We recommend that the Office of the Deputy Prime Minister seeks amendment to the 'PIP replacement' schemes to include loan and rent guarantees.


Major leisure development—Barnsley

A private sector developer is currently attempting to undertake a major leisure development in Barnsley (which is in a Tier 1 Assisted Area),[47] including a cinema and restaurants. One of the objectives of the scheme is persuade the local population to spend leisure time and disposable income in the town, rather than travelling by car to the Don Valley in Sheffield.

The developer argues that the cost of the development exceeds its investment value. Under PIP, the public sector could have considered providing a loan or rental guarantee and we were told that if the RDA could guarantee the rent generated by the development for three or five years, this would go a long way to give confidence to a potential investor.[48] An advantage of loan and rental guarantees is that if the guarantee is not called upon, the public sector will have supported the project by providing confidence rather than grant support.

19. Some problems like this might have been avoided had the Department consulted practitioners before notifying the schemes to the Commission. We heard from both the Royal Institution of Chartered Surveyors (RICS) and the South West RDA that this did not happen.[49] The Government must in future ensure that practitioners are consulted on the detail of any new regeneration schemes, prior to notification to the Commission.

INFORMATION ABOUT THE SCHEMES

20. The problems have been made worse by the fact that some of the RDAs are choosing not to openly advertise the schemes and their funding criteria.[50] We heard from both developers and the surveyors who advise them how difficult it is to find out about the new schemes. Mel Burrell of St Paul's Developments said,

    "It is quite mystifying as to how to access such funds."[51]

Some RDAs, for example Yorkshire Forward, do not to provide information because the Agency is not operating "reactive grant programmes." They argue that making grants available to all potential applicants is inconsistent with strategic working.[52] However, there is a concern that the RDAs are in fact only supporting the biggest projects, not necessarily those which will make the greatest difference to local communities. The Local Government Association identified a tendency amongst RDAs "to support regionally significant developments to the detriment of sites which, although not of regional significance, may be able to bring local benefits."[53] We also heard that where RDAs are allowing developers to apply for funding, the application process is mired in bureaucracy, with projects having to prove their worth to layers of partnerships[54] and in accordance with numerous strategy documents.[55] All Regional Development Agencies should advertise the gap funding schemes, setting out clearly their criteria for awarding grants.

21. The RICS told us that there is no national guidance available to developers.[56] Gordon Hood of King Sturge said, "I deal with private sector clients and the only advice we have is the advice that has been given to the RDAs by DTLR. There is nothing else; there is no material at all for developers."[57] Lord Falconer admitted that the Department's guidance to the RDAs, "looked very complicated."[58] He also told us that the guidance was available on the then DTLR's website.[59] The Department's supplementary memorandum states:

    "In our evidence we said that the Department's guidance to RDAs and EP [English Partnerships] on the PIP replacement schemes are on the Department's website. In fact, as this is internal guidance, it has not been placed on the DTLR website. It is open to RDAs to put their advice on using the schemes on their websites."[60]

The Office of the Deputy Prime Minister and the Regional Development Agencies should place the guidance on the PIP replacement schemes on their websites now. The Office of the Deputy Prime Minister should also publish a plain English guide to the new schemes immediately.


St John's Urban Village-Wolverhampton

St John's Urban Village is a regenerative development in the centre of Wolverhampton. The private sector owner of one of the most strategically important sites within the Urban Village has proposed a mixed use development to create 100 residential units. This fits with one of the main objectives of the Urban Village, which is to bring residential uses back into the city centre. The residential market in the city centre is 'untested' but it is hoped that this project will increase confidence amongst potential investors.

Wolverhampton is an Assisted Area and public sector support of up to 30% of the cost of a commercial project is permitted (depending on the size of the developer).

We heard that the funding gap on this mixed use project is anticipated to be lower than 30% but it cannot receive any public sector support because over 50% of the scheme is residential. The developer argues that the scheme will not go ahead without this gap funding.[61]

Direct development

22. We heard from a number of witnesses that in the ideal situation, development agencies would have both gap funding and direct development powers available, with direct development used on the most difficult sites. Imelda Havers of St John's Urban Village, Wolverhampton said:

"In any of the projects and for any of the problems in the Urban Village, we are talking about a light touch to just level the playing field so that the private sector can come in and do the job they do best. They do it better than the public sector. They know what they are doing. They need to be allowed to get on with it. We are not talking about direct development, which is excellent in perhaps very contaminated sites and sites that will really not stack up any other way."[62]

23. Unfortunately, as a result of the 1999 ruling, direct development is the only mechanism available to the RDAs and EP outside the Assisted Areas (unless the recipient is a small or medium sized enterprise). Our evidence identified a number of problems as a result:

  • the loss of private sector expertise and understanding of the property market;[63]
  • the loss of private finance;[64]
  • a commensurate reduction in value for money-Advantage West Midlands estimate that direct development could be up to three times as expensive as PIP;[65]
  • increased risk to the public sector;[66] and
  • a shortage of relevant skills in the public sector.[67]

24. RDAs face a conflict when deciding which sites to develop, as they are both developer and regeneration agency. Tom Bloxham of Urban Splash said:

    "I think there is a conflict and a very deep conflict in that Yorkshire Forward on the one hand see themselves as developers trying to make money. On the other hand, they are helping regeneration where the market has failed. Do they then decide to put their investment in the safe bet where the private sector go as well, in established locations, or do they put their money in the risky bet where it is very deprived and they may lose all their money but it may help with regeneration?"[68]

We received worrying evidence from the RICS that the RDAs were choosing the easy option and not observing the principle of "urban, brownfield first"[69] when identifying direct development sites. Chris Brown told us,

    "They are in my view more interested in schemes, for example, to develop work space on greenfield sites next to motorway junctions where they believe they will attract business than they are to do urban regeneration."[70]

Lord Falconer told us that central Government does not give the RDAs specific guidance on the types of sites that should be given priority for direct development (beyond the general planning policies which apply to all developers).[71] Although the RDAs told us that they do not promote greenfield development,[72] we were disappointed that they do not record financial data in a way that allows expenditure on urban renaissance projects to be compared to expenditure on out of town developments.[73] Regional Development Agency direct development must in future be undertaken according to the principle "urban, brownfield first."

25. The Government has recognised that undertaking direct development is more expensive than gap funding. As a result, it has made more funding available to the RDAs to cover the higher cost, "Significant extra resources were made available to the RDAs-£60 million in 2000/01, £150 million in 2001/02, thereafter land and property funding will form part of a new single RDA economic development and regeneration budget within increases of £350 million in 2002/03 and £500 million in 2003/04 compared with current budgets-to reflect the higher expenditure costs of these schemes."[74] Lord Falconer told us that this money has not been ring fenced and that RDAs have flexibility as to how it is spent under the single budget.[75] The Government should ensure that additional funding given to the Regional Development Agencies as a result of the higher cost of direct development should be spent on physical regeneration and not redirected to other purposes under the single budget.

Organisations

26. The consultants' report on Stage 1 of the EP review reported a confusion about the relative roles of English Partnerships and the RDAs.[76] This confusion has not yet been resolved and Lord Falconer admitted that it will take "some time to get to a point where the precise roles of the two are clear."[77] The outcome of Stage 2 of the English Partnerships review will only be considered to be successful if the relative roles of English Partnerships and the Regional Development Agencies are clearly defined. Even more importantly some RDAs appear to take their responsibilities in achieving the urban renaissance less seriously than others[78] (echoing evidence received in our Empty Homes inquiry[79]). We were not reassured by Lord Falconer's statement that the RDAs have "committed themselves to being just as committed to regeneration as they had ever been."[80] Whoever is held to be responsible for brownfield redevelopment should pursue it with vigour.

New schemes

27. The Office of the Deputy Prime Minister is now pursuing a 'twin track' approach to seeking approvals from the Commission to allow more public sector support to regeneration-first by working within existing European Frameworks and case law to notify new schemes to the Commission and second by negotiating a new regeneration Framework.[81] We welcome the Government's new 'twin track' approach to dealing with the European Commission but are disappointed that it did not pursue this approach from January 2000.

Housing

28. It seems bizarre that housing has been caught by rules intended to stop State aids to businesses[82] as the end users are individuals.[83] The DTLR clearly lacked any sense of urgency in dealing with the barriers to regeneration caused by the absence of a housing gap funding scheme.[84] The UK Government finally notified a new housing gap funding scheme for England to the Commission in March 2002,[85] nine months after it was made aware of the need.[86] By contrast, the Scottish Executive notified a housing gap funding scheme to the Commission in July 2001.[87] It is clear that the Scottish Executive found a solution to this problem well in advance of the UK Government. The Office of the Deputy Prime Minister and the devolved administrations should develop protocols to ensure that when schemes are notified to the Commission, they can be used by all parts of the United Kingdom. The Office of the Deputy Prime Minister must ensure that England does not lag further behind Wales and Scotland in regeneration initiatives.

29. The Department consulted the RDAs, EP and the Government Offices for the Regions on the housing gap funding scheme before it was notified to the Commission[88] so we hope that practitioners do not identify any practical difficulties with it, when we next return to this subject. The notified scheme does not distinguish between greenfield and brownfield sites.[89] Office of the Deputy Prime Minister guidance to those operating the housing schemes in the UK (once approved) must make it clear that regeneration funding should not be used to develop greenfield sites.

30. We were disappointed in the differences in approach to housing by the RDAs and their lack of enthusiasm when consulted by the DTLR on the need for a housing gap funding scheme in November 2001—"Three RDAs replied. SW RDA[90] were strongly in favour of a housing scheme. NW RDA[91] and Yorkshire Forward did not believe that a housing gap funding scheme was required."[92] Despite significant housing market failure in the region,[93] Yorkshire Forward continues to argue that its strategic property agenda is focused on economic regeneration and it would only use housing gap funding where residential development is proposed as part of a mixed use scheme.[94] It is imperative that all the Regional Development Agencies use the housing gap funding power once approved, wherever there is housing market need.

31. During our Empty Homes Inquiry, we heard about the importance of housing gap funding in housing market renewal.[95] We also recommended that Government should establish a Housing Market Renewal Fund.[96] The Government has since announced a number of pathfinder Housing Market Renewal Areas[97] but has not yet assessed their State aid compliance.[98] It is imperative that housing market renewal does not get caught by the State aid rules and the Office of the Deputy Prime Minister should make sure that Housing Market Renewal Areas are assessed for State aid compliance at a very early stage.

32. The differences in approach to housing by the RDAs reinforces other evidence received during our inquiry into Empty Homes which found that there was insufficient co-ordination between Regional Housing Strategies, Regional Economic Strategies and Regional Planning Guidance.[99] The new Regional White Paper - Your Region: Your Choice recognises the need to increase co-ordination between these regional strategies.[100] We also received evidence that the five 'PIP replacement' schemes did not come with identified budgets.[101] It is essential that the Government identifies a ring-fenced budget for the housing gap funding scheme. The Office of the Deputy Prime Minister should direct the responsible agencies to advertise it openly and make the funding criteria clear.

Derelict land and heritage

33. The ODPM is developing two new schemes to be notified to the Commission-derelict land and heritage.[102] These new schemes rely on powers that have been available for some time-the Environmental Protection Framework (which came into force in February 2001)[103] and Article 87 of the Treaty of Rome, under which Aid to provide culture and heritage conservation may be considered compatible with the common market where it does not adversely affect trading conditions.[104] As with many other elements of its response to the European Commission's 1999 decision, it seems that the Government has been slow to act on derelict land and heritage.

34. The Commission also approved a Framework which allowed Aid for Undertakings in Deprived Urban Areas in 1997. This approval has now come to end. The Framework established the principle of providing support to businesses in deprived, urban areas outside the Assisted Areas[105] although the Department told us that there were a number of limitations in its current form.[106] We were pleased to hear that the Government will be talking to the Commission about whether a successor to the Deprived Urban Areas Framework could be agreed and recommend that it looks at its potential role in the work of Urban Regeneration Companies or other regeneration initiatives.

Timing

35. Lord Falconer told us that he hoped that the housing, derelict land and heritage schemes would be approved by the Commission by the end of October 2002.[107] We will monitor progress.

Administration

36. We describe above the confusion caused by the 1999 decision. The introduction of the new schemes described in this section will increase the number of rules and regulations and will inevitably make life even more complicated for those seeking grants to develop their projects. The Government has so far given this whole area insufficient priority. Only 1.5 full time equivalent staff were working on the issue between January 2000 and February 2001.[108] We were pleased to hear proposals to allocate more staff-four in all—to this issue.[109] However, we are concerned that a team of four people is not enough to undertake negotiations with Brussels, develop new schemes, undertake 'lateral thinking' to ensure that projects comply with the State aid rules, provide training and advice to front-line staff and give advice to potential applicants.

A new regeneration Framework

37. Our evidence overwhelmingly identified the need for a new European regeneration Framework,

Lord Falconer described the activities that he envisaged would be covered by a new regeneration framework:

    "The purpose of the Framework is, basically, to seek to draw a distinction between a scheme that is intended to be regenerative and one that helps a business and, therefore, should be State aid. The sorts of activities that one would like to see covered by the regeneration framework are things like housing, heritage regeneration, remediation of contaminated land, the building of both speculative and non-speculative premises for offices, both for SMEs and bigger organisations-the whole range of things that have been covered by PIP but on a different basis, namely a basis that accepts this is regenerative rather than something that affects trade between Member States."[111]

38. The UK is seeking to persuade its European partners of the benefits of such an approach. We heard that a number of European countries now recognise the role of the private sector in regeneration. Arlene McCarthy, MEP told us how the Netherlands, Belgium and the UK have been developing expertise in public/private partnerships and 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."[112] She also told us that other European countries, for example France, Germany and the Netherlands clearly understand the distinction between urban regeneration and Regional Aid.[113] However, not all Member States have yet been convinced "there is not a 100 per cent view that we need to have reform in this area."[114]

39. Although the UK Government needs to build a consensus amongst other countries, it is the European Commission which makes decisions on State aid issues. We continue to be appalled that the Commission has sole competence on State aid with no democratic scrutiny by the European Parliament and no need to refer to Member States.[115]

40. In our predecessor Committee's inquiry into the Implications of the European Commission Ruling on Gap Funding Schemes for Urban Regeneration in England we heard about the differing views of the Commission's Competition Directorate (which has responsibility for State aid) and its Regional Policy Directorate (which has responsibility for regeneration).[116] Arlene McCarthy told us that this division persists:

    "The Regional officials accepted the need to address market failure through PPPs [public/private partnerships] and viewed these schemes as playing an important regeneration role... Whilst the view from DG Regional Policy is supportive, the Competition Directorate does not see this as a priority. It is clear that there is a need for better co-ordination on State aids and regional policy within the Commission."[117]

Rather than the sometimes innocuous generalities regularly traded at European Summits, Heads of State should address the issue of 'joined up thinking' in the Commission with specific reference to the conflict between the Regional Policy Directorate and Competition Directorate on regeneration funding issues. The UK Government needs to be proactive in pursuing UK interests in regeneration before Commission policies are formulated and in creating a consensus among our partners on the pressing need for changes in attitude.

41. Arlene McCarthy explained that there are three key issues within the European Commission which could influence the timing of a decision on a new European regeneration Framework:

      (i)  the mid-term review of the European Structural Funds in 2003;

      (ii)  the State aid reform process in 2004; and

      (iii)  the next round of European Structural Funds which will run from 2006.[118]

Jeff West of English Heritage stressed the importance of 2006, when the area of the UK covered by Assisted Areas might be reduced:

    "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 [of the European Union]. 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 matched funding that we need to make our grants work."[119]

42. Lord Falconer was not able to give us a timetable for the agreement of a new regeneration Framework.[120] There are many people in the UK ready to undertake regeneration projects to restore confidence in and the physical environment of deprived urban and rural areas. For them it is very frustrating that there is no end in sight. The Government has begun to press for a new European Framework for regeneration but we remain concerned about how long it will take before this is agreed. We recommend that our successor Committee sees the Minister again in six months time to hear how much progress has been made.

43. We heard that co-ordination between UK Government departments needs to be improved.[121] Better co-ordination is needed between central Government departments. In addition, the United Kingdom Permanent Representation to the European Union will need to monitor the Commission to ensure that it is not delaying the approval of schemes unnecessarily and report back to Ministers and civil servants in the UK.

Conclusion

44. The loss of PIP has been a disaster. At the start of this inquiry we heard that the five new physical regeneration schemes which the UK Government notified to the European Commission following the closure of PIP are inadequate. Some progress has since been made, as the Government has started to look at imaginative ways to develop new schemes that are consistent with State aid rules, including a new gap funding scheme for housing.

45. However two and a half years of urban regeneration activity and outputs will have been lost by the time that the new housing scheme is approved. This will be compounded by an overall loss of momentum and most importantly, a loss of private sector interest and willingness to take part in regeneration, with many developers closing their regeneration arms.[122] We have also heard how the lack of gap funding means that even the most innovative developers are now less inclined to develop difficult sites.[123]

46. The Government has also begun to press for a new European Framework for regeneration but we remain concerned about how long it will take before this is agreed. We recommend that our successor Committee sees the Minister again in six months time to hear how much progress has been made.


1   Nigel Smith, Chairman RICS Regeneration Panel, Q237 Back

2   Page 11, Towards an Urban Renaissance, DETR, 1999 Back

3   Paragraph 145, Eleventh Report from the Environment, Transport and Regional Affairs (ETRA) Committee, July 2000, HC185-I Back

4   Sixteenth Report from the ETRA Committee, September 2000, HC714 Back

5   Paras 12-13, DETR Response to the ETRA Select Committee Report on the Implications of the European Commission Ruling on Gap Funding Schemes for Urban Regeneration in England, December 2000, CM4923 Back

6   Q178, Sixteenth Report from the ETRA Committee, September 2000, HC714 Back

7   English Heritage was advised that it needed to be aware of State aid issues at the end of 1998 (Q289) Back

8   Q177, Sixteenth Report from the ETRA Committee, September 2000, HC714 Back

9   Q467 Back

10   ERF14 Back

11   ERF12 Back

12   Q314 Back

13   ERF19 Back

14   Q476 Back

15   Q296 Back

16   Q228 Back

17   Q140 Back

18   Page 27, European Community State Aids, Guidance for All Departments and Agencies, DTI 2001 Back

19   Q298 Back

20   Q75 Back

21   Q470 Back

22   Page 267, Towards an Urban Renaissance, DETR, 1999 Back

23   Pages 63 and 151, Our Towns and Cities: The Future - Delivering an Urban Renaissance, DETR, 2000 Back

24   See Glossary for definition Back

25   See Glossary for definition Back

26   See Glossary for definition Back

27   Q539 Back

28   Page 154, Towards an Urban Renaissance, DETR, 1999 Back

29   Q278 Back

30   Q71 Back

31   ERF10 Back

32   Q172 Back

33   ERF10 and Q66 Back

34   ERF17 Back

35   Qq149-152, Sixteenth Report from the ETRA Committee, September 2000, HC714 Back

36   Q413 Back

37   Q463 Back

38   ERF17 Back

39   65% of brownfield sites (as identified by the National Land Use Database) are located outside Assisted Areas, Q283 Back

40   The mixed-use St John's Urban Village project in Wolverhampton requires a level of gap funding which is within the Aid Intensity Ceiling yet cannot be supported as it has over 50% housing within it, ERF04(a) Back

41   The maximum intervention rates are shown under the heading 'Aid Intensity Ceilings' in the Glossary. Under PIP, the level of public funding was determined by the size of the 'gap' between costs and values. Under the new schemes, the maximum public investment is specified according to the size and location of the business. For example, under the rules, a medium sized enterprise in Stoke on Trent could receive up to 25% of the project's cost yet we heard how property values in the area are so low that intervention rates of 70-90% are required, Qq66-67. Back

42   ERF15 Back

43   "This is again an unintended side effect," Hugh Savill, DTI State aid Policy Unit, Q169 Back

44   Q354 Back

45   Qq37-39 and Q354 Back

46   Q167 Back

47   ERF11 Back

48   ERF21 and Qq37-39 Back

49   ERF15 and Q365 Back

50   Qq337-339 Back

51   Q25 Back

52   Q337 Back

53   ERF13 Back

54   Q192 Back

55   ERF22 Back

56   Q192 Back

57   Q192 Back

58   Q418 Back

59   Q419 Back

60   ERF17(b) Back

61   ERF04, ERF04(a) and Qq50-65 Back

62   Q78 Back

63   Q285 Back

64   ERF02 Back

65   Q318 Back

66   ERF02 Back

67   Q332 Back

68   Q29 Back

69   Government's Response to the Transport, Local Government and the Regions Committee's Report on Empty Homes, May 2002 Back

70   Q218 Back

71   Q431 Back

72   Q310 Back

73   ERF17(b) Back

74   ERF17 Back

75   Q442 Back

76   Pages 6-7, DTLR, Quinquennial Review of English Partnerships, Outcome of Stage 1 Back

77   Q533 Back

78   Qq208-210 Back

79   EMP28, Sixth Report from the Transport, Local Government and the Regions Committee, March 2002, HC240-II Back

80   Q427 Back

81   ERF17(a) Back

82   Q220 Back

83   EMP83, Sixth Report from the Transport, Local Government and the Regions Committee, March 2002, HC240-III Back

84   Gordon Hood of King Sturge told us, "I have a number of residential schemes that are ready to go but cannot because of the existing rules." Q223 Back

85   ERF17(a) Back

86   Q222 Back

87   ERF17(b) Back

88   ERF17(b) Back

89   ERF17(c) Back

90   South West Regional Development Agency Back

91   North West Regional Development Agency Back

92   ERF17(c) Back

93   Q245 Back

94   ERF16(e) Back

95   Q484, Sixth Report from the Transport, Local Government and the Regions Committee, March 2002, HC240-iv Back

96   Recommendation (dd), Sixth Report from the Transport, Local Government and the Regions Committee, March 2002, HC240-I Back

97   Government's Response to the Transport, Local Government and the Regions Committee's Report on Empty Homes, May 2002 Back

98   Q482 Back

99   Paragraph 140, Sixth Report from the Transport, Local Government and the Regions Committee, March 2002, HC240-I Back

100   Paragraph 2.2, Your Region: Your Choice, DTLR, May 2002 Back

101   ERF02 Back

102   ERF17(a) Back

103   Page 17, European Community State Aids, Guidance for all Departments and Agencies, DTI, 2001 Back

104   ERF14 Back

105   Page 18, European Community State Aids, Guidance for all Departments and Agencies, DTI, 2001 Back

106   Q503 Back

107   Q542 Back

108   Q408 Back

109   Q410 Back

110   ERF16 Back

111   Q525 Back

112   Q370 Back

113   See Glossary Back

114   Q394 Back

115   Q388 Back

116   Alliance for Regional Aid, Q88, Sixteenth Report from the ETRA Committee, September 2000, HC714 Back

117   ERF28 Back

118   Qq390-393 Back

119   Q298 Back

120   Q542 Back

121   ERF28 Back

122   Q282 Back

123   Q15 Back


 
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Prepared 31 July 2002