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

Memorandum by David Hodgson (ERF 21)


  I have been employed in regeneration since 1995. My first position following graduation from De Montfort University with a BSc (Hons) Land Management degree was with Citex in Sheffield.

  Here I was a member of the Urban Development Consultancy, a team involved in the preparation and submission of a number of Gap Funding applications and appraisals, primarily under the former Partnership Investment Programme (PIP) regime but also the Single Regeneration Budget and European Objective 2. I also undertook a year long secondment to the Yorkshire Forward Regional Development Agency in Doncaster, Leeds and Hull in the position of Development Manager.

  Since June 2000, I have been in the employment of Miller Developments, based in Barnsley. A proportion of my time is being responsible to Miller Developments in the role of Development Surveyor as part of the Industrial Development team, concentrating on B2 and B8 of the Use Classes Order (1987) schemes. As part of this role, I am involved in actively seeking contaminated sites which Miller can undertake employment use development in conjunction with partners involved in the reclamation of brownfield sites.

  The remaining element of my position is as a surveyor for the Barnsley Miller Partnership Limited (BMPL), a 50/50 joint venture between Miller Developments and Barnsley Metropolitan Borough Council. BMPL undertake development solely within the Borough of Barnsley and it is through this vehicle that I have become exposed the Objective 1 grant application process


  At present, Yorkshire Forward have taken a policy decision not to offer the new Gap Funding regime to the market. The only tool made available to developers in Yorkshire to bring forward small scale unviable projects is to secure funding through the Objective One regime. This presents its own problems.

  Objective One is, quite rightly, targeted at attracting major investment into South Yorkshire through the provision and assembly of sites offer major strategic development. Its bureaucracy and terms of engagement are not well suited to the support of individual small-scale projects, either in terms of timescale or method of appraisal. Specifically:

    —  the application exercise requires the developer to form a view on not only the physical aspects of the deal, but also "soft" regeneration outputs such as Social Inclusion and Education. Whilst appropriate for larger schemes, I would suggest that this creates simply another hurdle for the developer in undertaking smaller schemes, something which is made difficult enough given the obvious economic disadvantage of pursuing schemes in Objective One areas;

    —  the application process, including the level and type of information required, is laborious and requires a significant level of input from already stretched council departments on cross-cutting theme and wider community and regeneration issues;

    —  the complexity in applying for, securing and drawing down Objective One funding is substantial and is a major negative factor;

    —  the developer is required to form a close relationship and understanding of the potential tenant's business. There are the problems of having to pursue an application on the basis of having an identified tenant of a certain business type and number of employees etc whilst not having this tenant legally signed up—something it is not possible to do until an offer of grant is forthcoming. Should the tenant not sign, the process and work is unravelled; and

    —  clawback provisions under Objective One are also very onerous with the developer becoming responsible to repay grant should the status of the occupier change in the future.


  Of the five schemes stated, I feel qualified to respond to the Direct Development, the Speculative and Non-speculative Gap Funding Schemes.

3.1  Lack of Regional Development Agency (RDA) take-up

  In some ways, a Yorkshire based developer is unable to provide an in-depth first hand account of the effectiveness, usage and coverage of the five new, EU approved land and property regeneration schemes. This is due to the local body through which these schemes are administered, Yorkshire Forward, making a policy decision not to utilise these powers and therefore not offer Gap Funding as a regeneration tool. Instead, the message has been one of joint venture with the private sector to bring forward substantial schemes to act as regional economic drivers.

  Yorkshire Forward is not the only RDA to have made a policy decision not to offer Gap Funding to individual schemes. In fact, it is my understanding that the North West RDA is the only one to have adopted a scheme.

  In some aspects, I am supportive of the joint venture approach offered by Yorkshire Forward as this will bring forward major strategic sites through a public/private approach to form new markets in areas. One such example in which Miller Developments are involved would be working alongside English Partnerships to deliver over seven million square foot of commercial space at Omega, Warrington. This development will soak up unsatisfied demand from Manchester and Liverpool, ease city centre congestion and bring international investment into the North West.

  A project on this scale would be beneficial to South Yorkshire, although I would suggest that such a scheme should be incorporated into the Sheffield Urban Centre, something being progressed with the E-Campus proposals.

  To disregard the powers that have been made available to RDA's does, I believe, mean that a significant opportunity to support smaller but equally as important schemes has been lost. For instance, a high quality, well designed say 50,000 square feet office development in the centre of Barnsley would add a great deal to the Urban Centre, create new jobs and training opportunities, bring investment and hopefully provide a "step change" to the local economy and market. Evidence would suggest however that this type of scheme would only progress on a speculative basis were Gap Funding to be made available, the project and returns likely to be generated being insufficient to warrant a joint venture approach.

3.2  Lack of Advertised Information and Guidance

  Property Development is a complex matter, with statutory guidelines such as planning and building regulations constantly undergoing review and amendment, the need for long and complex legal discussion and documentation, all against the background of identifying new business and negotiating and disposing of assets. All of the above renders property development in the UK a lengthy process with a large number of "boxes to be ticked" for even the smallest of projects.

  The need for Gap Funding provides another area requiring attention and more significantly, providing risk. Timescale, risk and return are the key elements to undertaking successful development. With the lack of clarity over whether RDA's have Gap Funding powers, whether they are offering them to the market and the process through which a scheme must pass to secure funds adds significant downside to all of these key areas. What is required is a clear statement from the UK Government that RDA's now have these powers and a subsequent clear directive to the RDA's whether they are to offer these powers to the market or not. If not, at least developers would recognise the situation and move on to undertaking schemes in areas where development is viable—thereby increasing the deprivation in regeneration areas and increasing prices and demand in already bull markets.

  On the assumption that RDA's would therefore offer Gap Funding to the market, there then needs to be standard published guidance, application forms, appraisal processes and identified personnel in each RDA to which an approach can be made. When a site and tenant are identified, time is a critical element and at present, too much time is taken with discussion about the scheme, to whom an application should be made and the unclear advice as to the likelihood of success.

3.3  Other Regeneration Tools

  At present, only Gap Funding is on offer through the new regime. There are a number of situations where gap funding is not the most appropriate solution and other tools such as rental guarantees or interest free loans would be beneficial.

  One power that would hold significant benefits to regeneration would be to grant RDA's streamlined and enhanced Compulsory Purchase powers. Site assembly is often a key element in promoting substantial and viable development and this would be a key area where the public and private sectors could work together. Such a scheme is being undertaken by the Barnsley Miller Partnership where the council through CPO's are assembling a site which the Partnership will then acquire at market value and undertaken development to regenerate a satellite town in the Borough.

3.4  Flexibility

  Whilst recognising that any schemes involving public sector investment will be subject to close controls and strict criteria, a benefit of the former PIP scheme was that it did allow a certain amount of subjective opinion from the funding body. RDA's employ a significant number of highly skilled and competent members of staff, former developers or other private sector employees. This skilled labour should have greater flexibility to make "commercial" decisions where appropriate to add to the success of a scheme—and as a consequence potentially increasing the outputs realised and reduce the public sector investment to a minimum.

3.5  Assisted Area Status

  The new Gap Funding regime is only eligible in Tier One or Tier Two areas. This completely neglects the reality of pockets of deprivation in otherwise generally thriving economic areas. In Yorkshire, Leeds is immensely successful as a commercial and financial city centre. This success generally lifts the GDP of West Yorkshire to such a level where it cannot attract Assisted Area status and therefore does not qualify for Gap Funding. The reality is that West Yorkshire does hold some extremely deprived areas in which development is not viable and will not come forward.

3.6  Intervention Rates

  Intervention Rates under the new framework are (assuming non SME status) 35 per cent in Tier One and 10-20 per cent in Tier 2. If a scheme requires Gap Funding, a 10per cent intervention rate is insufficient and would in all likelihood have been rejected under the PIP scheme as not offering good value for money. This therefore implies a push towards Direct Development.

3.7  Direct Development

  Whilst Direct Development can work, it would be my opinion that the bureaucracy required in investing public finance into a scheme means that with the timescale to occupancy being such a critical element for most occupiers, offering Design and Build packages to the market is not feasible. This therefore cuts out a significant proportion of the market and will mean that large scale inward investors requiring a highly bespoke large complex facility building will not be attracted. Also, previous indications have been that Direct Development can typically cost public bodies four to five times more for the same outputs in addition to placing all the development risk onto the public sector.

  The most obvious failing however is the failure to embrace and involve the private sector and utilise the investment and critically the market knowledge and understanding that a partner can bring.

3.8  Defined appraisal costs

  The new guidelines provide for a number of costs that are clearly defined and have ceilings set upon them. One such example would be site value equating to no more that 10 per cent of total project cost.

  I reiterate that appraisers of schemes need to be given the flexibility of making commercial decisions that are right for the scheme and for the public purse. There may be a substantive reason why a cost is more than the ceiling and to set these on a mandatory basis could damage the viability of a gap funded scheme as well as not reflecting reality.

  Under Objective One, finance costs are not allowed as an eligible cost. I am not clear as to whether this would be the case under the EU regime but the costs of borrowing finance should always be eligible.

3.9  SME v Non-SME

  On the surface, making a distinction between SME's and non-SME's appears to be counter productive and prohibitive.

  With regard the speculative scheme, it is the status of the developer that is measured when judging whether an applicant is an SME. If that developer is an SME, up to an additional 15 per cent of funding is made available. All developers are faced with similar costs however, the land and construction prices having the most impact on overall costs and therefore viability. These are generally constant regardless of the status of the developer and are dictated by the market. I would have considered it more advantageous to attract large, substantial development companies into regeneration areas, who by definition have greater cash reserves, generally greater experience and are therefore able to consider schemes with a greater risk profile. The involvement of "big name" developers can also increase the marketability of an area and convince other developers to seek opportunities in the locality.

  With regard the non-speculative scheme, ie an identified end-user, the tenant is measured with regard the SME definition requiring a developer to understand and provide information on the proposed tenant. By definition, a tenant cannot be legally signed to a deal until the level of funding is known as it is not clear as to whether the scheme will proceed. The regime does require a substantial level of information to be appraised regarding the tenant and given the timescales generally involved in securing an offer, this therefore provides the opportunity for the end-user's business or market to shift and remove any requirement. The process would therefore start again.

  This requirement for information regarding the tenant would also in all likelihood be made through the developer, therefore providing an additional obligation on the developer to provide information they have no knowledge is correct or justified but still being a vital factor on the whole viability of the scheme on which the developer is risking cash.

  The restriction on the level of grant available needs to be defined by the site or the development, not by the developer or the occupier. The current framework appears counter—productive, serves no positive purpose and ignores that fact that a regeneration area securing a major plc or private company as a key occupier can result in a significantly beneficial regeneration result. The current guidelines do not reflect the benefit of say Sunderland on attracting Nissan, which will invariably lead to more opportunities for SME's and market enhancement than an additional 15 per cent of Gap Funding.

3.10  Appraisal Timescale

  Typically, the timescale for a decision can be a minimum of six months. The modern occupier is typically considering sites both throughout the UK and Europe and is relatively "footloose". Assisted Areas are therefore put at a disadvantage as it is not possible to submit accurate initial proposals given the lack of clarity of how much funding is envisaged and, as indicated above, occupiers now place less emphasis on a short-term financial deal and more on long-term costs to the business. Timescale to occupancy is therefore a critical element and one in which the private and public sectors need to work to reduce.

3.11  No support for Residential Development

  I have been involved in a number of residential schemes whilst at Citex which have had a substantial and positive regeneration effect. These have included the Cornish Place and Attercliffe Urban Village developments, both in Sheffield, and the redevelopment of a brownfield site in Manchester.

  The larger regeneration arguments aside such as the 60 per cent of residential development to be undertaken on brownfield sites, we are increasingly being made aware that the demographics of a local area are of greater importance to potential occupiers than the availability of financial incentives. This means a keen and motivated workforce with sufficient skills to be attracted to the new jobs. Such a workforce will only exist or be attracted to an area if there is attractive and high quality residential developments in the vicinity. By definition, it is unlikely that homes of great quality and value will be situated in deprived areas, thereby increasing the risk that the occupier will not secure the workforce they require.

  There is of course the chance that good transport links between the location of employment and residence will solve this problem, however with the poor state of public transport and the stated aims of Government to reduce the number of journeys made by private car, this would seemingly undermine both options.

3.12  Other Development Types

  It is correct that the main emphasis should be on job creation. However, it is important to recognise the benefit to specifically an Urban Centre that other type of development can hold. The Barnsley Miller Partnership is currently attempting to undertake a major leisure development in Barnsley, the scale of which is unparalleled in the town and it is envisaged will persuade the local population to spend leisure time and disposal income in the town without travelling to the Don Valley, Sheffield. It is proving a difficult task given that the occupier market is thin in the town and of those interested, the covenant strength is of varying quality.

  A scheme needs to recognise the benefits such a scheme will have to the town and offer assistance, whether it is in the form of gap funding or more innovative solutions such a rental guarantees, to overcome covenant and low value issues.


  All of the above are my opinion as to the main reasons that there is a need for a new European Regeneration Framework. They key elements of this framework should be:

    —  clear Central Government guidance to Regional Development Agencies, which is then disseminated to the market stating precisely whether gap funding is on offer and what are the guidelines, application requirements and points of contact for developers and other applicants;

    —  clarity that all RDA's are able and will offer the new framework as a regeneration tool;

    —  a removal of the defined areas where gap funding is available from Assisted Areas to a solution which reflects the specific need of an area. The former PIP scheme did result in the "pepper-potting" of assisted development at times and so a medium needs to be reached whereby each region can identify and have approved their specific target areas;

    —  the provision of an increased number of regeneration tools such as rental guarantees and Compulsory Purchase powers under a significantly streamlined system;

    —  the removal of the distinction between SME and non-SME differing intervention rates;

    —  a framework which allows "softer" regeneration to occur alongside "harder" outputs with both elements complimenting each other, but does not require developers to get heavily involved in the provision of community training or social inclusion or visa versa. There needs to be joined up thinking to ensure holistic regeneration but developers need to be able to maximise their skills and not be given additional areas of risk or distraction;

    —  more flexibility granted in the appraisal decision making process, the ability of public sector officers to consider commercial arguments and requirements when considering a scheme and not have absolute ceilings on costs or levels of intervention;

    —  a reduction in the timescale for a decision and the implementation for a target time to reach and inform of a decision, similar to that of eight weeks in respect of planning decisions. A clear monitoring of this target should also occur;

    —  a scheme which allows support for residential development and reflects its importance in regeneration and attracting occupiers; and

    —  a scheme which allows and reflects the importance of other development types such as leisure.

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