Examination of Witnesses (Questions 1
- 19)
WEDNESDAY 12 JULY 2000
MR JIM
GILL AND
MR RICHARD
BEATTIE
Chairman
1. May I welcome you to the first of two sessions
we are holding on the implications of the European Commission's
ruling on gap funding schemes for urban regeneration in England.
Could I ask you to introduce yourselves for the record please?
(Mr Gill) My name is Jim Gill. I am Commercial
Director of English Partnerships. One of my responsibilities includes
overall management of the Partnership Investment Programme which
English Partnerships manages in conjunction with Regional Development
Agencies. On my left is Richard Beattie who has direct responsibility
for the programme in English Partnerships.
2. Do you want to say anything by way of introduction
or are you happy to go straight to questions?
(Mr Gill) I am happy to go straight to questions,
Chairman.
Mrs Ellman
3. Could you tell us what the benefits of a
gap funding approach would be to urban regeneration?
(Mr Gill) It has allowed us to support a very large
number of projects which have brought private sector investment
into a wide range of areas, assisted areas and other areas, across
England. In that it has allowed us to secure more investment than
we would have been able to otherwise because the gearing ratio
is reasonably good. It has secured the outputs which we have outlined
for you in the memorandum which you have received. It has brought
private investment into areas where private investment would not
otherwise have taken place.
4. Are there any particular types of areas where
this applies?
(Mr Gill) The PIP applies to those areas where market
conditions make it difficult or impossible for private developers
to undertake investment on a profitable basis. The issues which
may give rise to that are partly to do with the condition of sites;
sites may be derelict or even contaminated, so there are higher
than normal costs in bringing those sites forward. There are also
market failures in those areas, so even if sites are in a serviced
position the costs of doing the development outweigh the end value
and private investors will not invest in those circumstances.
5. Has there been any particular benefit to
the development areas rather than areas which are not designated?
(Mr Gill) About two thirds of the projects which we
have supported over the six years of the programme have been in
assisted areas defined as development areas and intermediate areas.
6. Why does the transfer of risk to the private
sector at an early stage matter?
(Mr Gill) It matters for the public sector because,
as I have said, it is cheaper to the public sector, at least initially,
if you can get private sector investors involved. The private
sector brings certain skills to the development process which
the public sector alone does not have or by and large does not
have. The private sector does address market opportunities and
does deliver a product which the market requires when they have
the ability to make that investment.
(Mr Beattie) Can I add a point on scale on to that?
In a direct development programme driven by public sector initiative
you tend to see the public sector going for larger projects which
take longer and are more ambitious because they reflect a variety
of pressures on the agency. But when we are responding to a gap
funding application which is coming up much of our business tends
to be at the level of project which the public sector would never
consider addressing itself because we are putting in a few hundred
thousand to a project worth a couple of million. These are projects
which we have distributed all across the regeneration areas, not
just assisted areas, but all the other sites which need regeneration.
The economies of scale in trying to deliver that by direct development
are against us.
7. Could you give an example of that type of
project?
(Mr Beattie) If a local developer or a local developer
who has access to a site comes forward and says he wants to build
a couple of industrial sheds somewhere behind the gasworks, it
is low profile, it is not exciting, but it is delivering floor
space, it is delivering employment, it is delivering regeneration.
The public sector would tend to be looking for projects which
are bigger and make more splash but these are the bread and butter
projects which very often deliver what we are after. The private
sector work up the concept, the private sector do the marketing,
they do the site surveys, they do all the research, and all those
costs are at their risk. We only get to see the projects which
look viable to the private sector with assistance. If they come
up against insuperable obstacles they just go away and we never
bear those costs.
Miss McIntosh
8. Are you able to quantify in money terms the
loss of programmes that the loss of gap funding is going to make
to your proposals?
(Mr Gill) Over the six years of the programme, which
was until 31 March this year, something like £1.1 billion
of Partnership Investment Programme investment has been approved
and that has, we estimate, generated round about £2.5 billion
worth of private sector investment. It often acts as a—
Chairman
9. Sorry; can I just interrupt you? I know it
is tempting to get into these abbreviations but for everyone's
benefit perhaps you would use the full title.
(Mr Gill) I apologise, Chairman. What the Partnership
Investment Programme also does is that in many cases it acts as
a balancing funding for other public sector funding. For example,
it may be the match funding for European investment in many areas
and loss of a ready matched funding source may impact upon its
ability to deliver European funding.
Miss McIntosh
10. How do other European countries manage without
similar gap funding? Is there anything we can learn from the way
they fund their schemes?
(Mr Gill) Our understanding is that elsewhere in Europe
agencies or the equivalent of our local authorities, very often
carry out direct development site preparation so they will acquire
the site, service the site and make it available to the private
sector. The market works differently in different countries. We
believe, and this is what we argued to the Commission very strongly
over a period of time, that the Partnership Investment Programme
type of approach is more cost effective and much more effective
in getting the private sector involved in regeneration.
11. As a result of that do you think there is
less private sector involvement in similar schemes in other European
countries and could it lead to less involvement by private sector
companies?
(Mr Gill) I have not seen any figures for public/private
investment in regeneration in other European countries, I am afraid.
(Mr Beattie) Our impression, and it is an impression
because our primary task is not wandering around Europe trying
to find out what they are up to. We believe that much more of
the land targeted in European cities is already in public ownership.
We are also under the impression that there is not the distinction
that we have in this country between development, contracting,
occupation and private investment. Much more of the construction,
much more of the development carried out in Europe is carried
out directly by the intending occupier working with the contractor
directly. They have not got our fairly sophisticated separation
of these four functions.
12. Do you think that the commitment of developers
to achieve regeneration in this country might be in doubt because
of the way the rules have now been redefined?
(Mr Gill) Undoubtedly we will lose a significant level
of private sector investment in regeneration unless we can find
a replacement mechanism for the Partnership Investment Programme.
13. Do you think that the change in rules will
make a difference to the relationship between the public sector
agencies such as RDAs and others and the private sector?
(Mr Gill) What the Regional Development Agencies for
example will have to do is to focus very much more on direct development.
Initially that is going to have to involve an assembly of sites
and, as appropriate, remediation of sites and servicing of those
sites and then they will bring those sites to the market place.
It would be preferable if in the process of remediation and servicing
they have an understanding of private sector requirements for
development on that site. They will need to find a way of working
closely with the private sector during that process. But the competition
rules may require also that when they put those sites to market
they put them to competition. They will work with a particular
developer on understanding the requirements of servicing a particular
site. Once they bring it to the market they may well have to put
it out to competition and may lose the benefit of having that
relationship.
14. Is there less or more private sector involvement
in other European Union countries?
(Mr Gill) In regeneration?
15. In regeneration, in getting these projects
off the ground?
(Mr Gill) Our impression is that there is more private
sector investment and involvement in this country than there is
in other European countries but it is an impression only, I am
afraid.
16. It would have been quite helpful to have
had that as evidence. Do you believe that gap funding is a very
clear incentive to private sector involvement?
(Mr Gill) Yes, it is a clear incentive. That is evidenced
by the volume of business that has been done over the six years
of the public programme.
(Mr Beattie) The incentive it provides them is to
focus on the regeneration sites. I do not think we want to give
the impression that we are, as Europe has clearly got the impression,
subsidising development companies and making them greater profits
than they would otherwise make. Our system is aimed at enabling
them to make their profits at a normal level of profit carrying
a normal level of risk but on sites which are much more difficult.
We are enabling them to work. We are not giving them a guaranteed
profit or any kind of special assistance. Anybody could apply
and the rules were clear.
Miss McIntosh: What impact do you think changing
the rules is going to have on the urban regeneration companies
that have recently been set up?
Chairman
17. Curtains for them?
(Mr Gill) No, not curtains for them. The urban regeneration
companies have a wide remit. They are interested in mainstream
programmes as well as particular programmes. It will make it more
difficult for them to bring forward individual projects in early
stages of their life because unless they have projects in their
area which are on the survivors' list, and the survivors' list
is those projects which were applications at 22 December last
year when the programme was closed, they are going to have to
find alternative means of bringing those forward in the short
term. Where they are in assisted areas the schemes which the Department
has notified to the Commission, once approved, will of course
provide a mechanism for doing that, but they will be subject to
state aid limits. They will I think have to work with the Regional
Development Agency partners and local authorities and have to
focus on site assembly and servicing in the way which I have described
as in any other part of the country.
Mr Blunt
18. Can you tell us what proportion of the Partnership
Investment Programme goes (a) to commercial industrial space,
(b) to housing, and (c) to a mixture between the two? Which sorts
of schemes have been the most successful?
(Mr Gill) I am afraid I cannot give you the figures
now for the split of investment in industrial schemes and housing
schemes. I can give you the broad categories of output which would
equate to that. We believe that the projects in which we have
invested would give rise to over three million square metres of
commercial/industrial floor space. That definition would include
offices as well as industrial buildings and would include leisure
as well. We believe that the programme has facilitated over 13,000
new homes on brownfield land. Those numbers would include refurbishment
of existing buildings for flats and lofts as well as new build
houses. The question of which projects are most successful requires
you to analyse what the objective is. The most successful projects
in terms of projects are those where you have a developer who
knows what he is doing and is able to bring forward projects,
hopefully in areas where there are complementary initiatives.
If I go back to the urban regeneration companies, the task of
urban regeneration companies in looking across programmes and
focusing programmes so that you get a fully holistic approach
to regeneration, where projects take place in those circumstances
the projects have a better chance of succeeding commercially because
they have a support network around them and of course they have
a better prospect of making the right sort of contribution to
the community in which they are being undertaken.
19. You do not have a feel for what is the sort
of Partnership Investment Programme most likely to succeed if
people are coming forward with an industrial type of scheme or
a housing type of scheme or where it is mixed?
(Mr Beattie) We have been running this scheme since
1994 and its predecessor scheme, City Grant, was indeed very similar.
We have had over a thousand projects across the desks. The way
we approach them is a two-stage process. In the first stage we
just look at the application and decide whether to go and talk
to these people or not. That is based upon a great deal of previous
experience of both the area they are operating in and indeed often
of the company and a lot of feedback we get from local authorities
and the government offices as to whether this is a scheme that
we ought to be looking at. We then get into the more detailed
process where we are working out how to do the deal. In judging
whether a project is likely to succeed we have to ask ourselves
first of all, can it be delivered? A project which gets abandoned
halfway or never really gets started is no good to us, but a project
which gets done and is occupied, is still not good enough. What
we are really looking for is a project which is going to make
a demonstration in the area, "Look: this can be done. We
now know more about the sites in this area, the ground conditions,
the building has been let", and therefore you are building
market confidence. We are looking for projects which, although
I said earlier that we need to get down to the level of bread
and butter projects which deliver, make an impact on the market
and have a demonstration effect.
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