Select Committee on Transport, Local Government and the Regions Memoranda

Memorandum by The Royal Institution of Chartered Surveyors (RICS) (ERF 15)


  The Royal Institution of Chartered Surveyors (RICS) represents the views and interests of 110,000 chartered surveyors worldwide covering all aspects of land, property and construction. Under the terms of its charter, RICS is required at all times to act in the public interest and we recognise regeneration as a key area of focus in this context.

  We welcome this opportunity to submit evidence to the Urban Affairs sub-committee. The terms of the inquiry recognise the importance of physical regeneration and the vital contribution it can make to more sustainable land use, promoting a high quality of life in towns and cities by way of places to live, work and play, the physical renewal of run down urban areas and in providing quality homes for all.

  The closure of the former Partnership Investment Programme (PIP) regime and the inadequacies of the replacement schemes have been the subject of special attention by RICS given the wider reaching impact on the property industry and the achievement of an Urban Renaissance. Through our Regeneration Policy Panel and Regeneration Forum, RICS has worked actively with the Department for Transport, Local Government and the Regions (DTLR) in preparing guidance materials for RDAs and developers and in raising awareness of the regime through a programme of conferences. In framing this submission, RICS has also commissioned research from Hewdon Consulting on the views of the RDAs towards the new regime and steps taken by them to implement it.

  Given the complexities of the issues posed by the PIP replacement schemes, we can only hope to summarise our views within this paper. In particular we have focused on the replacement schemes related to bespoke, speculative and direct development and have not at this stage commented on those related to community uses or land reclamation. We would welcome the opportunity to provide more detailed comments in response to any of the Select Committee's queries. Contact details are set out at the end of this paper.


  There have been problems in drafting and negotiating the new grant regime for land and property regeneration schemes, which have rendered it an inadequate solution to the problem created by the original EU decision on gap funding.

  The new eligibility criteria imposed make it far more difficult for private-led projects to secure gap funding. RDAs are therefore faced with letting these projects fall by the wayside or undertaking an increased programme of direct development. In either event, the lack of private sector financial leverage and expertise will have an impact upon the regenerative outputs that can be achieved through RDA budgets and consequently on the achievement of their Regional Economic Strategies. At the same time, the new regime presents clear problems for the Government in achieving an urban renaissance, particularly key objectives such as securing mixed-use development and design quality.

  To address these shortcomings, we see a strong need for a Europe-wide Regeneration Framework. In our view, an effective regime must have the following elements:

    —  Gap funding should not be confined to assisted areas. An effective regime should be available anywhere in the country, subject to assessment of need.

    —  Funding should also be made available for residential or mixed-use schemes that are predominantly residential schemes; and

    —  There should be no arbitrary restriction on the level of grant available.

  However, it will take considerable time for agreement to be reached on the nature and scope of a new European Regeneration Framework. It is therefore essential that, whatever the shortcomings of the existing system, prompt efforts be made to implement them so that regeneration outputs can be achieved in the intervening period. However, the delays involved in negotiations with the EU are now being amplified by a generally reluctant approach by the RDAs to publicising the new regime. Key actions to effect the regime's practical implementation must include:

    —  Preparation by the RDA/EP Best Practice Group of detailed guidance notes to assist in appraisal of funding applications.

    —  Communication by each RDA to the market of its intentions regarding use of the replacement schemes.; and

    —  Identification by DTRL and the RDAs of a new "brand" for the replacement schemes, giving them a clear identity.

  Further delays are no longer acceptable and DTLR should work with the RDAs to set out a clear timetable with targets and milestones to effect the implementation of the new regime. This issue should be high on the Urban Summit agenda in October 2002.


  In framing our response to the Select Committee we believe it is important to address four key considerations:

    —  the effectiveness of DTLR's approach to securing a new regime with the EU;

    —  the implications of the new regime;

    —  the case for a new European Regeneration Framework; and

    —  the level of take-up of the replacement regime in the intervening period.

  These issues are addressed in turn.


  Whilst a new regime is now in place, a number of key points of principle were never resolved to our satisfaction in DTLR's approach to negotiations with EU. As a matter of what seems to be political expediency, the UK Government chose not to argue with the Competition Directorate's initial decision that the old gap funding scheme amounted to unfair state aid. In our view, the Directorate does not have a monopoly of wisdom on this subject and a wider discussion of the economic rationale for the Directorate's views, which are based on a very narrow view of economic intervention, might lead to a much more effective regime. As it is, the new schemes have been hamstrung from the start.

  The period from closure of the former PIP programme in December 1999 to the issuing by DTLR of a final Guidance Note to RDAs on the operation of the new regime in December 2001 took two years. Importantly, even now, the scheme is still not capable of being implemented by the RDAs due to a lack of detailed guidance materials, a point to which we will return below. In our view the decision to accept without question the EUs ruling and the delays experienced in reaching an agreed replacement scheme are unacceptable and reflect a lack of focus and sense of urgency from DTLR. Furthermore, in spite of the time available to DTLR for reflection, the new regime is littered with compromises, such that the existing system shows a lack of understanding of the practicalities of achieving regeneration.

  Throughout this period, RICS has worked actively with DTLR, with members of our Regeneration Policy Panel providing advice on a pro bono basis and through joint funding of guidance materials. However, despite considerable input on our part, or ability to influence the EU has been constrained by DTLRs overall stance on these issues. Until very recently there has been no dedicated resource with specialist regeneration experience within DTLR, making them generally unreceptive to simple and essential recommended changes to draft guidance materials. A further frustration has been the DTLR decision not to press the EU for a scheme to support residential funding in spite of its wider policy objectives in this field and, it is our understanding, as indication from Brussels that they would be willing actively to consider such a proposal.


  Whilst the new PIP regime is in many ways similar to its predecessor, a number of new grant eligibility criteria have been introduced which act as a major constraint to its practical applicability. The key new features are as follows:

    —  the scheme must be primarily for a business use. Whilst mixed-use schemes are acceptable, DTLR has indicated that they may only contain up to 50 per cent of housing. RICS believes this threshold is vague since it could be judged by value, size or other measures. We have requested clarification on this point from DTLR on several occasions;

    —  only small and medium sized enterprises (SMEs) developing accommodation for their own occupation are eligible for funding outside Assisted Areas; and

    —  a cumulative aid intervention ceiling limits the amount of any public sector funding (including gap funding) for which a scheme is eligible as a proportion of total project costs. These levels depend on location and the status of the project promoter in a complicated and, from the perspective of regeneration, irrational way.

  Research undertaken by Hewdon Consulting for RICS highlights that only one RDA has undertaken any quantitative research regarding the impact of the new regime. This in itself highlights a general lack of focus on regeneration by the RDAs, which is considered further below. This RDA study highlighted a reduced likelihood of projects being eligible for funding under the new regime, leaving the RDA with a difficult choice—between losing important outputs against their Regional Economic Strategy on the one hand or allocating greater public sector funding through which to secure the same outputs on the other. In practice the likely approach will be some direct development, for example the reclamation and advance infrastructure for a mixed use development, together with greater focus on strategic area-based priorities. However, such projects are limited to public sector owned land, which quite often owners are unwilling to sell and/or RDAs are unwilling to embark on a convoluted compulsory purchase route to acquire land. At the same time there is a loss of private sector financial leverage and expertise, which does not appear to fit with the Governments general desire to see increased private sector finial investment in regeneration.

  The RDA funded study highlighted above is based upon historic projects framed against the former PIP programme. Obviously under the new regime project promoters would be forced to consider the associated eligibility criteria and they may therefore bring forward proposals of a different nature and scale to fit these. Hence, whilst crudely the project may proceed, the associated "value engineering" may be to the detriment of the project. This highlights a more wide-spread failing in regeneration work whereby all too often projects are developed to chase funding rather than tailored to local needs and may also involve compromise on design quality, another area of policy focus for the Government.

  The full impact of the change to the new regime has not been felt because of the considerable number of PIP "survivor" projects still held in the funding system. These projects continue to be appraised under the former programme in line with an agreement reached with EU in 1999. very soon these projects will finish passing through the RDAs and the real implications of the change-over to the new regime will be felt in earnest.


  The implications of the new regime are highlighted above. Given the delays involved in reaching this point and the considerable number of weaknesses represented by the new regime, we do not believe that tinkering with it will be sufficient to address its shortcomings. In our view a more fundamental overhaul is required. We therefore see a clear opportunity for a Europe-wide Regeneration Framework.

  In any event, the replacement schemes only run to December 2006 therefore making another replacement scheme necessary at some future point. It is essential that a prompt start is made, given both the clear need for an improved funding framework for England and the likely difficulties and hence time delays involved in securing a framework which would accord with the needs of all EU member governments.

  RICS would like to see a Europe-wide Regeneration Framework that allows flexible public-private regeneration partnerships. Under the principal of subsidiarity we would like to see an overarching framework giving maximum discretion to individual member states to operate funding regimes that reflect their specific circumstances. Any framework could also be used to focus and narrow the targets set by the EC for measuring and monitoring programmes. These targets add significantly to the bureaucracy involved in Objectives 1 & 2 programmes and deter private sector investors. We see it as essential that DTLR champions better integration of funding-related decisions by Brussels.

  As a minimum, a European Regeneration Framework must address a number of key issues that are set out below.

3.1  Residential Development

  There is not currently a housing gap funding replacement scheme. No more than 50 per cent of a scheme can be residential. In most areas, housing forms an essential element of mixed-use development schemes, but is not eligible for grant. The RDAs may not see a need for a housing scheme because the outputs from housing are not predominantly economic. However, housing is a crucial aspect of any comprehensive approach to regeneration, urban renaissance and neighbourhood renewal and its inclusion is, in our view, essential. On this basis, the success of any European Regeneration Framework should be predicted on its ability to fund true mixed-use projects.

  There is also a further point of principle here in terms of the roles and responsibilities of the RDAs as regards residential development. The Hewdon Consulting research highlighted a general interest by the RDAs in residential development as they recognised the essential links between securing both employment and housing within mixed-use, area based regeneration. However, the transfer of RDA reporting to DTI, coupled with the PIP replacement regime's inadequate residential provisions, has restricted their ability to intervene in this market. It is essential that the Government takes a policy decision on how private-sector residential development is to be coordinated. In our view, this should be a key consideration in the ongoing review of English Partnerships.

3.2  Assisted areas and physical and economic regeneration

  One objective of regeneration is to address spatial concentrations of poverty. The original gap funding scheme was unambiguously directed at securing physical regeneration in any deprived area. Assisted areas, at which the replacement schemes are targeted, are defined as areas where DTI can give support to businesses, not necessarily where the public sector needs to improve the physical environment. The two do not necessarily go hand in hand. There are significant concentrations of poverty in areas that are not assisted and where the new regime is not available (other than to SMEs), such as Leicester. That is recognised in the distribution of other EC grants so it is anomalous that it is not recognised in the gap funding regime for capital projects. Equally, areas like Luton and parts of London, with flourishing property markets, have assisted area status but have minimal need for gap funding. A better approach to defining need is required.

3.3  No restrictions on grant level

  There should be no arbitrary restriction on the level of grant available. The grant levels (or, strictly, the cumulative aid levels) available to the private sector under the new schemes are too restrictive, even with Tier 1 Assisted Areas, for tougher schemes. Instead, the new regime places emphasis on direct development, which, as noted above, has a number of weaknesses as the main RDA tool to deliver regeneration.

3.4  Grant aid directed at site and development, not occupier or developer

  Under the provisions of the new schemes, where a proposed development project is bespoke, SME occupiers get more grant than large firms. Where the proposed development is speculative, there is extra grant for SME property developers—not a group one normally associates with economic deprivation. These measures appear to have been put in to make the schemes acceptable to the EC. In our view, physical regeneration schemes should not discriminate in favour of SMEs—it jut muddles their objectives. Support for SMEs is an economic objective that should be pursued by purpose-specific policies, not tacked onto a wholly different objective.


  In spite of the weaknesses of the new regime as highlighted above and the case for a new European Regeneration Framework, a key short-term concern remains the relatively poor take-up by the RDAs of the approved replacement regime. Clearly until a European Regeneration Framework is approved this remains the best available opportunity to engage in private sector-led regeneration projects within key deprived areas and will remain so for some time to come.

  A short-term barrier is that despite DTLR having finalised its Guidance Note to the RDAs, a more detailed set of guidance materials, similar to the old English Partnership Best Practice Manual, is required to facilitate its implementation. Whilst we understand that DTLR has agreed with the RDA/EP Best Practice Group that the latter will take responsibility for drafting these, we are concerned again at the potential for delay. We do not understand why an earlier start could not have been made on these, dovetailed into the finalising of the overarching guidance notes. We are also not clear at this stage whether these will be drafted by already busy RDA/EP officers or whether sufficient dedicated resource will be made available. In our view the latter is essential.

  The research undertaken for RICS by Hewdon Consulting highlights that RDAs do see a role for the PIP replacement schemes within their overall portfolio of activity, although this will increasingly form one of a number of tools applied to strategic, area-based initiatives. We support a more strategic focus by the RDAs, although we remain concerned in several areas:

    —  small projects with clear regeneration merit may be missed because they do not feature on the RDAs' strategic radar;

    —  a greater emphasis on area-based regeneration by its nature means that projects take longer to plan and deliver, with outputs therefore only achieved much further down the pipeline; and

    —  this necessitates a much broader range of skills within the RDAs, particularly around development management, which our experience suggests may not be available in sufficient quantities at the present time.

  RDAs should therefore think through their practical capability to deliver against their strategic objectives prior to relegating the PIP replacement schemes to a relatively low funding priority.

  Our experience suggests that the approach each RDA intends to take, and they appear to be very similar in the main, is not known to the market. The success of private sector involvement in regeneration is predicted on confidence and certainty. Ultimately, the process of grant award relies upon RDAs inviting applications from developers or occupiers. In these terms, it is therefore incumbent on the RDAs to communicate to their respective markets how they propose to take forward the new regime. While RDAs have engaged in some conferences and briefing sessions, in our experience this has left the market with more questions than answers. A more focused and detailed approach is required.

  A relatively simple additional step that could be taken to improve the visibility and awareness of the new regime is to give it a proper name. Terming the programme the "PIP replacement schemes" does not highlight the fact that it is now operational or the breadth of activities it can cover. To date, RICS has used the term Brownfield Investment Grant or "BIG". Whilst we acknowledge that the regime offers more than solely grant opportunities, we feel that this or another name should be selected and adopted with immediate effect.

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