Select Committee on Transport, Local Government and the Regions Memoranda

Memorandum by The Regeneration Practice (ERF 03)

  For clarity, I have dealt with these issues under three headings; economic regeneration, social regeneration environmental regeneration and "other areas for Government Action":


  In response to the riots in Brixton and Toxteth in 1981, Michael Heseltine created the Enterprise Zone's (EZs), a new regeneration framework based upon stimulation of large scale urban development by relaxing the fiscal and planning environment. This initiative was predicated in the belief that regeneration was achieved simply by redevelopment of derelict urban land, relieving development pressure on the Green Belt, to reverse out-migration from cities. The EZs were successful in facilitating expansion of the office sector, apartments to house staff and associated leisure facilities, but failed to prevent significant progress in reversing out-migration from cities. Their impact on the social, environmental and economic causes underlying the 1981 riots, upon deprived neighbourhoods immediately surrounding the growth areas, or upon the ability of local councils to improve public services burdened by growth was insignificant.

  English Partnerships (EP) took over the City Grant Programme from the Department of the Environment (DOE) in the early 1990s, and renamed it Gap Funding. EP was successful taking forward economic regeneration on a strategic and local level:

    —  strategic economic regeneration in areas of failed former coal and steel industries to attract international companies such as vehicle and electronics manufacturers to the UK using Gap Funding. This was either by speculative construction of factory floorspace, or site preparation and infrastructure to attract strategic inward investors.

    —  local economic regeneration on contaminated land and/or former industrial sites to allow development to proceed in inner city areas by bridging the gap between value and cost in cases where the market would not otherwise enter, due to lack of confidence. This took forward the successful DOE grant programme.

  The record of Gap Funding (and City Grant) in creating jobs and physical regeneration is impressive and well documented. The decision of the EU Competition Commissioner to ban Gap Funding in December 1999 on grounds it distorts the common market, and is therefore contrary to Article 87 of the Treaty of Rome, was based primarily upon evidence in connection with strategic inward investment projects involving companies with significant inter-state trade, rather than local projects.

  The removal of Gap Funding and its replacement by the hybrids; "Speculative and Non- Speculative Gap Funding" with pitiful limits on funding for the whole of England of E32 million (20 million) each, is a major blow to failing local economies in England, particularly where large scale development and micro-development, cannot proceed, due to a combination of expensive abnormal development costs, and depressed end values. At these funding levels, not only will the new programmes have little measurable impact, but they will simply not become well known enough for significant take up to occur.

  In the absence of a properly resourced mechanism to bring about physical regeneration, England is left relying substantially on the European Grant Programme ERDF, which is only effective in defined assisted areas, or private investment, which is only effective in areas of economic success. There is a major concern that in applying the State Aid veto, the European Commission has not understood the diverse nature of property ownership in this country, which simply does not lend itself to a map-based economic regeneration programme. The economic fortunes of the regions and urban areas, vary dramatically from place to place, and street to street, and these differences are becoming ever more sharply defined in England. It is also a concern that the Commission has confused a perceived distortion in a handful of strategic inward investment projects, with a diverse and effective economic regeneration programme. A programme which has delivered thousands of jobs and physical regeneration on a large scale across the country.

  In 1998, the Government commissioned the Urban Task Force (UTF) under Lord Rogers to identify the causes of urban decline in England. In its Report the UTF made over 100 recommendations. However the Government has clearly not whole-heartedly supported the approach of the Task Force, based as it was, primarily on the market-led principal that urban regeneration could be achieved by economic regeneration. The UTF saw this being achieved by redevelopment to construct attractive inner cities, and to reverse out-migration, along the lines of the EZs.

  The Government has offered tacit support to a major UTF recommendation—the fifteen approved Urban Regeneration Companies (URCs) in English cities—an Area Based Initiative (ABI) with many similarities to the EZ programme. Many have judged these developer-led partnerships a failure, because they have no remit for social regeneration. However, such expectations of public patronage from private developers are misplaced. The ability of public organisations such as RSLs, Local Councils, Regeneration Companies, or Community Organisations working "in partnership" with developers, to have any real influence upon development activity, beyond adding `public style' to the process of large scale urban redevelopment, is a myth. Others have criticised the blueprint used by the URC, the spatial masterplan, as being simply a tool to present large scale market solutions, and circumvent the public planning system. However, creating an effective means to channel some of the fruits of growth into public goods and services, and the means to deliver these, is clearly more of a failure of Government to reform the planning and public delivery systems, than of the URCs, which are solely concerned with market activity. The URCs hold the potential to provide a vital economic stimulus in many inner cities blighted by economic failure, providing our social expectations of them are realistic.

  The need to retain an effective economic regeneration strategy is clear. We await the fruits of the Governments policy, which sees economic regeneration as an issue best led by the Regional Development Agencies (RDAs). They have been set targets to oversee training and skills creation and increasing enterprise to reduce deprivation in the worst 20% of wards by 10%. The RDAs are also charged with delivery of the Governments 60% target for new homes on brownfield land. In the 2000 Budget, the Chancellor announced a welcome measure of greater control for RDAs, in how they spend their £1.2 billion budgets.

  What is clear, are the very differing regeneration requirements, in regions of varying economic strength:

Areas of rapid economic growth

  Unless development is free to proceed in areas of growth, due to shortage of space, prices will rise to a level which threatens a raft of social outcomes: affordable employment for business start-ups, affordable housing for key workers; excessive migration of the workforce causing a strain on people, public transport and the road systems; the destruction of the civic environment, and an unsustainable strain on our public health and education systems, contributing to soaring crime and teenage pregnancy rates—a pattern now sadly well established in London.

  The principle issue in areas of rapid growth is not economic regeneration, but an efficient development control system, planning skills in civic design and property valuation, effective delivery frameworks and effective agencies for construction of public infrastructure and other public goods—particularly affordable housing. There is a strong argument for zoning affordable housing in these areas, as part of an overall regeneration framework, due to the acute difficulties RSLs find in acquiring land in an overheated property market.

  The market value of land in these areas is so high, that there is no argument for intervention by Compulsory Purchase Order (CPO), except where land is needed for infrastructure. The argument put forward for CPO of land for direct development—that the public can "share in the uplifted value" is erroneous as, under (former) Gap Funding rules, a tried and tested mechanism already exists for public clawback of the increased value of adjoining owners land, generated by installation of infrastructure.

  There will always be some projects, even in areas of rapid market growth, where public investment is needed to deliver a combination of economic and social regeneration. For example, Listed Buildings with high repair costs, or buildings to be developed into uses with low market value, such as affordable workspace or housing. This "keyhole surgery" is vital to the civic well being in areas of strong growth, but many projects are blocked by a public grant programme which only recognises Assisted Area status. An adapted and properly resourced Gap Funding Programme offers an ideal model to meet this need.

Areas of sluggish economic growth

  CPO and direct development could be applied in these areas where land is in diverse private ownership, and the market is weak. But again, it is difficult to see justification for intervention by extended powers for the RDAs for direct development, beyond the basics needed for installation of access roads for two reasons: firstly, Direct Development by CPO involves relatively high costs and is therefore poor value for money. The major costs being compensation to existing owners, often equal to the value of the land; the high cost of legal and agents professional fees and delays of up to three years. Secondly, development led by the market will always act more efficiently to create sustainable employment, than development led by the public sector.

  The principle issue in areas of sluggish growth is economic regeneration. Attracting development into such areas by tax credits and an effective Gap Funding mechanism could meet the market gap in such areas. A new European Regeneration Framework should allow Gap Funding at a properly funded level, within State borders, to stimulate economic and social regeneration in areas of market failure. Planning reforms are important, but skewing development into such areas is the priority. Fiscal measures could also help to attract inward investment, for example, an increased level of tax credits to companies undertaking decontamination, or the offer of Community Development loans—see CDFI below.


  Building upon the eleven City Challenge pilots, the Single Regeneration Budget (SRB) Area Based Initiatives introduced in 1994, were the first attempt by Government at drawing together partnerships between public and private sectors, competitively bidding for funding, to deliver a mixture of social and physical regeneration. Public funding came mainly from central Government, ERDF and Gap Funding for the six annual SRB rounds, and was balanced with private investment.

  The capacity of these non-governmental partnerships to deliver was never fully realised due to direct control over funding by central Government and Europe through a series of complicated checkbox procedures to audit regeneration outcomes and timetables, as a pre-condition of funding. This led to their performance in acquiring land, property and skills in the marketplace being severely hampered. More recently, these agencies were criticised for skewing local service priorities on an area basis, and for targeting regeneration funding, not on the basis of need, but of ability to prepare successful funding bids. It is difficult to see the rationale behind this argument, given that every regeneration programme undertaken in this Country has been area based, and that the essence of Best Value, is itself competition.

  Despite a lack of autonomy, with central Government controls over funding, and involvement of Local Authorities in their administration, these non-governmental local regeneration companies have established a strong reputation for delivery. They have also spawned a network of "social entrepreneurs", with skills and experience to tackle a range of social and infrastructure problems in deprived areas. It is a major concern that the SRB Programme is now terminated, casting doubt upon the future of the skills and experience developed over many years within these organisations.

  With the November 2000 Budget, and the launch of the National Strategy for Neighbourhood Renewal in April 2001, the Governments' regeneration agenda became clear. New Deal for Communities is the first major regeneration initiative of the Social Exclusion Unit, targeted at the 88 most deprived neighbourhoods. It is now in its second round with seventeen schemes over three years. This programme is intended to achieve broad social goals, on our most deprived "sink estates", and to allay fears that previous regeneration programmes are too much based on physical regeneration without addressing underlying social problems. These concerns were set out in a Report by the Joseph Rowntree Foundation (JRF): "Social Cohesion and Urban Inclusion for Disadvantaged Neighbourhoods" published in April 1999: "in many cases, it was felt that broader social and economic problems had not been addressed, throwing into doubt the long-term sustainability of regeneration". The Report recommended that new ways are found to involve residents, including handing over all or part of the regeneration budget to ensure their priorities are met. However, management of the NDC Programme has not lived up to the Government's hopes.

  The ability of community groups to show an interest in NDC has been a failure, with most programmes involving local authorities in their bidding and administration. In a further report by the Audit Commission published in September 1999, the efficiency of Local Authority run regeneration partnerships, such as NDC and SRB, was heavily criticised. Citing, amongst other ills, duplication of work, lack of clear targets and monitoring. Efficient management remains a major concern which continues to challenge the NDC Programme.

  The Government's new regeneration initiative to administer regeneration funding locally, Local Strategic Partnerships (LSPs), is intended to reduce "partnership fatigue" caused from the proliferation of ABIs, particularly in the areas of Education, Employment, Crime, Health and Housing. LSPs will also take on co-ordination of public service delivery, and (non EU) regeneration in deprived areas. The LSPs will comprise representatives from business, community, public and voluntary sectors. A total of £900 million over three years will be spent from a "single regeneration pot" administered by the LSPs from a new Neighbourhood Renewal Fund (NRF). A further £35 million Community Empowerment Fund is intended to support community and voluntary sector involvement in the LSPs, £50 million Community Chest for "grass roots" renewal projects, and £45 million to fund Neighbourhood Wardens on deprived estates.

  It is a precondition of Government accreditation, that the LSPs have a good basis of community and voluntary sector participation, and "a realistic action plan to sustain this". However, a study by the Centre for Local Economic Strategies (CLES) on behalf of the Government Office for the North West, published in April 2000, reveals that the Local Authorities again dominate the management of LSPs. Both in their operational style, and in their community plans which are often prepared by local authorities and rubber stamped by the LSP. A situation encouraged in the implied duplication of the requirement to write the same Community Plan, both under section four of the Local Government Act 2000, and in the LSP Guidance Notes. A requirement now potentially triplicated in the Local Development Frameworks suggested in the Green Paper on Planning Reform.

  It is clearly a concern that a key plank of the Governments' strategy to improve public service delivery to achieve regeneration, is again being administered by local authorities, themselves heavily criticised in this role by the Audit Commission for duplication of work, lack of clear targets and monitoring. But an even more serious concern is, there appears little interest from residents to getting involved in the management of regeneration initiatives affecting their lives. Especially as lack of community connection between Government inspired regeneration programmes was blamed on exacerbating existing tensions and divisions in the JRF Report of April 1999, concerns now confirmed in reports following the recent Oldham riots.

  The issue of effective management of regeneration has emerged as the key challenge to the Government's regeneration programme. The problem is that existing regeneration programmes are controlled centrally, from above. Using funding to fashion delivery partnerships, and a series of complicated check box procedures and timetables to oversee success, has resulted in duplication of responsibilities, confusion and widespread disengagement of those tasked with delivery. The problem is studied in a report by Demos: "Working Together: Creating a better environment for cross-sector partnerships", dated May 2000. This research addressed, amongst other matters, the effectiveness of non-sectorial partnerships brought together for the purposes of funding. I quote from the Report, "Only half of the local councils of voluntary service thought that the sector was included for its expertise. Over nine out of 10 said that voluntary organisations were included because they were a funding requirement". Until the skills, and the right expertise exists on the estates, any social regeneration programme will fail to connect.

  This situation can only be remedied by genuine devolution of planning, responsibilities and budgets to local organisations with skills and expertise to deliver, drawn from within local communities. Government needs to figure out how to harness local hopes and dreams for positive change and self-betterment, to encourage practical people, with the ability to deliver. This suggests a culture of self ownership, both of individual destiny and place, rather than a plethora of management groups, working to complete applications, timetables, monitoring reports and audits, simply to report a pre-determined social return on public investment back to Government.


  The programme is not significant enough for wide knowledge, or take up. There is a strong case that this matter is better dealt with by general reforms to the Building Regulations, and the Tax Credit system, and is not a suitable candidate for grants.


Business Improvement Districts (BID's)

  These are a US concept, now widely accepted there, and proposed in a hybrid form as Town Improvement Zones by the UTF. They are simple fiscal zones, akin to the EZs but set up primarily to fund public goods, and not to simply stimulate development, as in the EZs. Funding comes either from a Supplementary Business Rate, or by hypothecation of the Business Rate directly into the BID to pay for additional street cleaning, security, marketing or special events. Five pilots have received £4.5 million from the London Development Agency (LDA). However, these are effectively set up to fail due to lack of Government support, as they rely on voluntary contributions from landlords to supplement their funding. The BID is clearly a workable vehicle and has achieved spectacular results in cleaning up Times Square and downtown Pittsburgh. As a fiscal measure, like the EZs, BIDs can be a very "unsticky" vehicle for civic regeneration, with minimal administration other than that already in place. It is important they are taken seriously, and therefore are not voluntary measures, and that business rates are hypothecated to avoid small businesses carrying an increased business rate burden.

Community Development Finance Initiatives (CDFI)

  There is a reluctance in the UK to legislate for publication of league tables of bank investments into deprived areas. Under the US 1977 Community Reinvestment Act (CRA), banks are required to disclose lending patterns and are rated by performance in reaching deprived areas. Since the 1970s, US CDFI's have offered soft loans for investment in deprived areas in small businesses, venture capital investment, personal loans, private enterprises, not-for-profit businesses, community groups, childcare facilities, schemes to fight loan sharks, credit for schools and affordable housing. Bank Enterprise Awards are given to reward US banks for improving their performance in deprived areas. The UK Government supported CDFIs after a study by the Social Investment Task Force in February 2000. In the 2000 Budget, the Chancellor announced a plan to offer 5% tax credits per annum to private, corporate and charitable investors in CDFIs, however we still await implementation. The Government must go much further in promoting these excellent vehicles.

Targeted fiscal measures

  The Chancellor has made an excellent start with the changes in VAT (although these should obviously extend to all Listed buildings), the changes in Stamp Duty, Tax Credits for CDFIs and for Land Reclamation. However, there is still more scope to skew market led growth using tax credits to create more civic space or affordable housing within private development, and other public goods which contribute to making our cities more attractive. Fiscal measures have the obvious attraction they are non-negotiable, requiring no more audit than already exists, and thus are highly efficient measures to skew market growth into more sustainable patterns. But there should be increased hypothecation direct to delivery agencies like RSLs and Regeneration Companies.


  English cities are characterised by many attributes which we consider generate wasteful use of human and economic resources; abandonment by better off families to sprawling suburbs; concentrations of the poor in high rise public housing ghettos; a gridlocked transport system; a decaying civic realm clogged with traffic; noise, litter, pavement fouling and air pollution; an over-stretched public health, housing, education and police services and spiralling housing costs—especially for key workers in essential public services. Within the English regions, there is increasing economic disparity between north and south, and increasingly, across each region. A process which feeds itself as labour is forced more and more to migrate to employment, depressing prices which frighten off the market in some areas, and causing price inflation and excessive development activity in others.

  These unwelcome by-products of economic success continue to challenge Governments' to search for more effective frameworks for regeneration. In the Laeken Declaration on 15 December 2001, European leaders committed to forming a European Constitution by 2004 to cope with expansion of the Community from 15 to 25 member states. Many of these will require economic and social investment, and a workable European Regeneration Framework which applies across Europe, is therefore essential, as a part of any European Convention. Given the vital importance, and diversity of mechanisms needed to deliver economic and social regeneration in England, and the damage which has been already inflicted by ill-fitting European State Aid Rules, it is essential that the Government leads Europe in this debate, if only to secure workable solutions for the UK.

Paul Latham


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Prepared 25 February 2002