Examination of Witnesses (Questions 460-479)
LORD FALCONER OF THOROTON, MR PAUL HOUSTON AND MR STEPHEN STRINGER
TUESDAY 30 APRIL 2002
460. What measures do you have as a Minister to say, "You are really not keeping your side of the bargain."?
(Lord Falconer) Saying that to whom, to the RDAs?
(Lord Falconer) I am not sure
462. What you are really telling us is that it has taken two years to develop these two new schemes, they are extremely complicated and they have been totally worthless to do because no one has taken them up; is that right?
(Lord Falconer) They did take a long time to do. All the evidence I have is that very few people have taken them up. I cannot confirm that nobody has taken them up and indeed I have reason to believe
463. You cannot give us one example.
(Lord Falconer) I have the following note which says that a development under the speculative gap funding scheme of a range of SME business units, a total floor space of 6,531 square metres, public sector input of £1.4 million with private sector investment of £2.1 million is taking place in the north west region. I have got a redevelopment of a former power station under the Non-speculative Gap Funding Scheme which will reclaim 16 hectares of derelict land and lever in 2.4 million of private sector investment. I have asked my officials for details of schemes under the Speculative or Non-speculative one, and apart from those two un-named examples that plainly exist I have been given no examples of any such schemes, although I will be corrected, again, if there are any examples. That may be because they are quite new schemes, but the obvious conclusion that anybody would reach from this is that they are not schemes that are taking (and this may be the wrong way of putting it) off in the market as an attractive way of funding the sorts of projects we are talking about. John is absolutely right, that is an extremely worrying aspect of all of this. Things may improve as they become more well-known. We should take every step we possibly can to give them publicity and provide simple guidance but, ultimately, it does involve making developers attracted to these schemes to actually make them fly.
464. I was just wondering whether you could give an example of what sort of project would joint venture powers be useful for?
(Lord Falconer of Thoroton) I assume that the range of small and medium sized enterprise business units with a public sector input of 1.4 million and a private sector investment of 2.1 million has some joint venture aspect to it, but I do not know what the detail of it is.
465. Can you advise the Committee, Minister, whether or not joint ventures can be undertaken outside the Assisted Areas providing that there is a degree of public sector involvement into the joint venture?
(Lord Falconer of Thoroton) Obviously, joint ventures with some degree of public sector involvement can take place outside Assisted Areas. I think the question is whether or not the joint venture has an element of gap funding being made up by the public sectorie, is the public sector taking an undue amount of risk in relation to the venture?
466. Once you go outside the Assisted Areas the percentage of gap that can be covered gets smaller and smaller, does it not?
(Lord Falconer of Thoroton) If you look at the schemes, only if you go to an SME, if it is an SME promoting a project, can you go outside the Assisted Area, unless it is Direct Development or a Community or Environmental project.
467. How many Government programmes outside the RDA land and property ones and the EP programmes are now being affected or threatened by State Aid issues?
(Lord Falconer of Thoroton) I do not know. I have tried to find out the extent to which both the PIP decision and State Aid generally, as an issue, have affected schemes, but there is no clear statistical evidence. Work is being done at the moment to try and find out what the effect of both the PIP scheme and the State Aid position generally is. I do not know when you intend to report, but when the work is done could I let the Committee have a copy of that?
468. Give us some idea of when your work might be done.
(Lord Falconer of Thoroton) I was told the end of the month.
469. That is tomorrow, is it not?
(Lord Falconer of Thoroton) I am sorry, I meant the end of May. I apologise.
470. Do you see this as a high priority issue?
(Lord Falconer of Thoroton) The truth is that it is this Committee's investigation that has led to a great focus on this issue. The difficultly I have in relation to this is that if you speak to people about this issue it is incredibly important. If you speak to Chris Brown, Tom Bloxham and people involved in the regeneration field, they say there are lots and lots of schemes that are not going ahead that would otherwise go ahead. So I have been trying to find out what, in fact, is the statistical evidence to show what the impact has been of the PIP decision. So, for example, I do not know the extent to which Direct Development has, in some cases, replaced what would have been done by a PIP scheme. The general view of people involved in the field is that this is a very, very important issue, and that it has had a detrimental effect on a large number of schemes, or prevented a number of schemes going ahead. So until there is statistical evidence to the contrary, we should take the view this is an important issue that needs a very, very high priority.
471. Are you also looking at identifying other Government programmes affected, such as Heritage funding, Lottery funding?
(Lord Falconer of Thoroton) Yes. That is why we want the State Aid issue evidence to look not just at the question of what is the effect of PIP going but, also, what is the effect of State Aid freezing or chilling other developments. One noticeable effect of the PIP decision is that within Government people, perhaps understandably, are much more wary of getting themselves into a State Aid problem than they perhaps had been before.
472. How is this issue being handled? I have had reports in the past of applicants for projects through Structural Funds finding they are subject to inordinate delays because front-line staff dealing with applications are very concerned that there might be infringement of State Aid rules and, therefore, delayed projects to the point of them being withdrawn while they are investigating the matter. What kind of instructions do you give to people on the front line?
(Lord Falconer of Thoroton) The bit of government that is, as it were, the repository of wisdom on whether it infringes the State Aid rules or not is the DTI. So as far as central Government is concerned, advice is sought from the DTI on State Aid issues. In terms of front-line staff
473. Are you satisfied that they give the answers quickly enough?
(Lord Falconer of Thoroton) In terms of the particular issues that I have raised in relation to State Aid, yes. I am not sure if Louise's question is directed to advice for DTI or whether it is directed to how, for example, the RDAs deal with problems about State Aid that arise in relation to particular projects.
474. I am thinking of issues where there are projects being submitted for regeneration purposes which may involve
(Lord Falconer of Thoroton) Submitted to who?
475. It goes to Government, let us say, on an Objective 1 programme and may involve potential RDA funding for Objective 1 funding. Staff dealing with Structural Fundsbecause that is where the application goesare concerned at possible State Aid implication and they then delay making an assessment of that project. Who would be responsible for monitoring something like that?
(Lord Falconer of Thoroton) Paul will interrupt if I am wrong, but if it comes to DTLR we would then seek advice from the DTI in relation to it. The process, I suspect, can take too long from time to time.
476. Who would be giving the advice to those front-line staff on how they should handle applications?
(Mr Houston) Ultimately, the advice comes from DTI but you have put your finger on what is proving to be a real problema kind of logjamin terms of getting advice on State Aid issues. We are very aware of it and so are the DTI, we are talking to them about it and they are talking to government offices. By way of trying to partially make this problem easier, we are also considering (or, actually, the DTI is considering), I believe, putting some generic notifications to the Commission related to Objective 1 and Objective 2 areas which would allow these projects to get State Aid clearance much more quickly.
477. When you say that the DTI, you believe, is doing this, does that indicate that there is not the co-ordination that was suggested earlier between the two departments on these critical issues?
(Mr Houston) No, it only indicates that I feel slightly wary of speaking for the DTI. I do happen to know that they are doing that.
478. Can I ask why housing has been caught up in the State Aid controversy at all? Surely, that has precious little to do with competition.
(Lord Falconer of Thoroton) I find it almost impossible to believethough how wrong I have turned out to bethat there is an inter-state trade in social housing or development, but that was, presumably, what underlines the PIP decision. The reason why housing has got caught up is because some PIP schemes were housing schemes, and that is where the problem comes from. For better or for worse, that is where we are in relation to that.
479. Why was housing not included in the schemes that the department notified to the Commission in 2000?
(Lord Falconer of Thoroton) I assume the reason for the order in which the schemes were putthe Non-speculative and Speculative schemes for Assisted Areas and for SMEswas on the basis that those schemes, on the advice of UKREP, were ones that would be quickly and readily passed by the Commission because they chimed in with specific exceptions referred to in Articles 87 and 88. As far as housing is concerned, what has provoked the housing applications is the capital risk guidelines that is referred to in the supplementary memorandum that I put in and, obviously, the fact that Scotland got their housing scheme approved. So the scheme that we are now putting inencouraged by the capital risk guidelines and the European Union and encouraged by what Scotland have proposedwe anticipate will be successful.