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.
We were pleased to hear proposals to allocate more staff-four
in allto this issue.
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,
"One which recognises the cost-value gap and the reasons
for it and allows us to operate flexibly in support of projects
... and will therefore result in partnership working between the
public and private sectors on a less restricted basis."
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."
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."
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.
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
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.
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).
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."
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.
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."
42. Lord Falconer was not able to give us a timetable for the
agreement of a new regeneration Framework.
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.
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.
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.
We have also heard how the lack of gap funding means that even
the most innovative developers are now less inclined to develop
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.