Examination of Witnesses (Questions 20
- 40)
WEDNESDAY 12 JULY 2000
MR JIM
GILL AND
MR RICHARD
BEATTIE
Mr Benn
20. As we understand it, it is about 460 projects
which have got under the wire. No? What is the number currently
waiting to be assessed by you?
(Mr Beattie) Three hundred and five.
21. Based on what you have just said about the
process which you undertake in assessing them, roughly what proportion
would you expect to go on to get funding?
(Mr Beattie) That is difficult given their status
on 22 December. Some cases had just hit the desks, and the desks
they hit were in the RDAs, because the RDAs are acting as our
front line in receiving applications and advising us on the appraisal
of them. A significant number of these are going to fall away
either because the developer gets cold feet or because we decide,
or that the RDA has advised, that they are not for us. I would
have thought that something like 20 or 30 would fall away just
on those terms, not very many. We then get into a major appraisal
process and I would have thought that more than half of those
will survive. That is because most of our applicants are aware
of how we work. They do not get this far if they are complete
non-runners. We do not expect large numbers of those to be rejected
but many of them will be negotiated down substantially and in
the course of that the developers for one reason or another may
move away.
22. What direct discussions have you had with
the Commission on this subject?
(Mr Beattie) The Department has led the negotiations
with the Commission. English Partnerships has been represented
occasionally, most recently a couple of weeks back.
23. Did you get the impression that the Commission
understand the impact which the decision they have taken is going
to have on regeneration in the United Kingdom, given that we have
heard already that the way we do things here is really rather
different from the rest of the European Union?
(Mr Beattie) I do not think they did but I think they
do now. They are becoming increasingly aware of it. If I can describe
the tone of this sort of thing, we have been discussing these
issues with the European Commission for many years in a very low
key desultory manner usually with different staff each time. We
have continually been educating them, or trying to, about subtleties
like the distinction between a developer and a contractor and
why you cannot just take somebody's idea and give it to somebody
else. We feel that they took this decision rather out of the blue
and they have now heard in some depth what the scale of the impact
is, not just on the partnership investment programme but, as Jim
said, on the programmes which in turn partly depend on it. They
are now well aware.
24. But do you have any cause for optimism that
they are going to get on with reaching agreement on a new framework
given the length of time it often takes the European Union to
reach decisions?
(Mr Gill) None of us, and the Department would be
better able to answer this question than we, expects discussions
about a new framework for regeneration to be quick. Nobody expects
that we will have a regeneration framework by the end of this
year and perhaps even not by the end of the following year. It
is going to be a lengthy process.
Mrs Dunwoody
25. But do they accept what you are saying to
them? Do they actually understand the affair?
(Mr Gill) I think there are two issues. One is that
they find it difficult to accept the logic which we have been
applying, which is the logic of the way in which the Partnership
Investment Programme works, that we were seeking to correct market
failure, whether it was by nature of abnormal costs or—
26. Do they put up alternative arguments to
that? Do they say, for example, in the Netherlands this happens
and that happens, or do they simply say, "No, you are wrong
and we are not interested"?
(Mr Gill) No. They approach it purely from the point
of view of the Competition Directorate because it is the Competition
Directorate which has made the decision. They say that there is
an aid to the developer and there is an aid to the end user.
27. Invincible ignorance?
(Mr Beattie) They do understand the scale of the impact
of what they have done now but they do not see that as their problem.
They see that as evidence—
Mrs Dunwoody: I can see that. After all, it
is only those Britons.
Mr Brake
28. In the review process for the 305 bids that
you are considering at the moment are you going to be using exactly
the same criteria or are you going to be more lenient given that
this is the last chance that these bidders have?
(Mr Gill) No, we will apply the same criteria consistently.
We must do that anyway by the nature of the programme to ensure
for our own benefit and for the best use of public money that
it is being used appropriately, but it would be dangerous to relax
the criteria because the Commission will be taking an interest
in them.
29. Given that the Partnership Investment Programme
is being wound down can you tell us a bit about the alternatives
that are being considered and which you would favour and whether
you think any of them are likely to be successful?
(Mr Gill) The Department have notified two replacement
schemes to the Commission, both of which work very much along
the same lines as the Partnership Investment Programme and which
would be state aid compliant in that they would only operate in
assisted areas and would operate within the state aid limits.
That will be available once the Commission has approved it but
it will cover a much smaller part of the country and the imposition
of the state aid limits will rule out the levels of investment
previously made in some projects. As I said, something like two-thirds
of the programme to date has been in those areas. What I cannot
tell you is what percentage of that two-thirds would have been
state aid compliant because it is a difficult calculation. We
suspect it is less than 50 per cent and might well be less than
40 per cent. There is a partial replacement there.
30. What are these called, these two alternatives?
(Mr Gill) At the moment one is called speculative
and one is called bespoke. They do not have a name in the same
way as the Partnership Investment Programme does at this stage.
The immediate alternative is direct development. It is the only
alternative. If I can just add to that, direct development requires
that the public sector builds the project itself, and in the past
the public sector has built fairly successfully industrial projects.
English Estates developed industrial estates across the country.
The public sector can build that sort of project. They find it
much more difficult to build a mixed use development on their
own. Where the public sector controls a site, the public sector
owns the site, there is an option for them to do that in partnership
with the private sector providing that that is an open competition
so the opportunity is presented to the private sector to get involved.
31. So that is the public procurement exercise?
(Mr Gill) That is right.
32. You have not mentioned regional aid. Is
that an alternative to the Partnership Investment Programme?
(Mr Beattie) Regional selective assistance?
33. Yes.
(Mr Gill) No, it is not an alternative. Regional Selective
Assistance is directed at supporting companies that are engaged
in producing final product for the consumer when the consumer
is you or I or another company and it goes towards capital investment
and job creation in that company. What the Partnership Investment
Programme was about was grant directed towards remediation of
land, servicing of land or an actual construction of buildings
by and large by developers for letting or for sale. It is not
directed at the business of the occupier. It is directed at the
business of producing the building in which the occupier goes.
The benefit of the Partnership Investment Programme not until
now being regarded as state aid was that in assisted areas you
did not have to add Partnership Investment Programme grant to
regional selective assistance, for example, so you could have
a situation in which the Partnership Investment Programme assisted
the developer to produce a building and the regional selective
assistance provided assistance to the occupier of that building.
Under the new regime, which is a state aid compliant regime, you
would have to, in the jargon, cumulate the aid. If there was a
project in which regional selective assistance and the equivalent
of the Partnership Investment Programme were taking place, both
aids would have to be taken into account in whether or not they
were within the state aid limits. If you put them together that
would take most things outside the limits.
(Mr Beattie) And we would be back within the map which
bars us from operating on many of the sites we need to tackle.
34. You said initially that direct development
was the only alternative. Is that as a short term solution pending
the implementation of any new framework?
(Mr Gill) The Department's objective is to agree a
framework with the Commission which will allow a variant of the
Partnership Investment Programme to be run. As I have said, we
think that will take some time. In the short to medium term direct
development, apart from a limited amount of projects which will
be able to take place within the state aid schemes, is the only
option. The issue with that is that in the long run direct development
need not cost any more because you can build and dispose and in
theory the net cost should be the same as doing it with the private
sector, but of course it requires more investment at an earlier
stage. You have to bring the investment forward, so any one project
will cost you more at the time at which you invest in it.
(Mr Beattie) You also then have to bear the aborted
costs of all the projects which you start thinking about but then
cannot pursue, whereas in the Partnership Investment Programme
all those costs remain in the private sector.
35. Can you tell us anything more about the
new regeneration framework? At the moment all we know is that
it will not be in place by the end of 2001 probably but I have
no idea what else it comprises.
(Mr Gill) There is not a framework, I am afraid, so
we cannot tell you any more about it. The Department's discussions
with the Commission have been broadly speaking along the lines
that there is a major impact from the loss of the Partnership
Investment Programme. Regeneration is a major policy issue for
the United Kingdom Government and we need to find a way of engaging
the private sector actively in regeneration because it is more
cost effective and actually because it is more effective in the
long term in real regeneration. We need to talk about how we achieve
that.
36. So the Department did not go in with a model
that it was trying to sell?
(Mr Gill) No, there is no model at present.
Mrs Ellman
37. What changes would need to be made to enable
direct investment to replace the Partnership Investment Programme
and to do that either through the RDAs or through English Partnerships
or other appropriate bodies?
(Mr Gill) In the short term you would need a larger
budget and you would need to change the skill set of the agencies
that are delivering that programme because doing the development
yourself requires obviously very different skills than assessing
a project against a range of criteria. The major requirement would
be more money immediately and different skills, and in many areas
to acquire the sites. Other than the coalfield programme, the
coalfield sites, and that land which English Partnership has inherited
from English Estates and has now passed through to the Regional
Development Agencies and a limited number of projects where, as
part of the Partnership Investment Programme English Partnerships
or the Regional Development Agency have acquired land in partnership
with the private sector, the land bank to deliver that direct
development does not exist at the moment. The cash would be required
up front to assemble sites and carry out the development itself.
(Mr Beattie) There would inevitably be a hiatus because
under the Partnership Investment Programme applications rolled
in continuously. We did not operate a batch process for that.
They just got in touch with us when they were ready. That process
has now stopped apart from the survivors' list and to switch to
direct development is clearly going to take time-first of all
to gear up to deliver direct development which may require a much
larger budget. Secondly to decide which bits of land we are going
for and get them. A lot of that early spend will be just on land
assembly.
38. But do you think it is a feasible alternative?
(Mr Gill) Clearly the public sector can deliver projects
and given time it is a feasible alternative. There was an increasing
trend through the Partnership Investment Programme moving towards
what we did not know then was the end of its life, to increasingly
focus investment on the context of broader area regeneration strategies,
the sort of culmination of that in urban regeneration companies
if you like. Clearly within that urban regeneration company's
framework a direct development programme can have, it seems to
me, very great benefits. One would argue anyway, even if the Partnership
Investment Programme was in existence, that in delivering the
physical aspect of the programme the urban regeneration company
is going to be addressing you would want to use a mixture of direct
development and private sector gap funding type of approach anyway
because in some circumstances it would be better for the public
sector to do it. It is always better to control the land than
have someone else control it because then you get a much stronger
grip on performance of projects.
Chairman
39. Do you think that really is important as
far as design is concerned? It has been put to us that one or
two of the more successful schemes, the Grainger Town and the
regeneration of Newcastle and some of the Urban Splash stuff has
actually come up with some very high quality designs which have
stimulated other people to think rather more imaginatively.
(Mr Gill) Yes, hopefully it would stimulate the public
sector to be imaginative in its own designs. One of the criteria
(not the major criterion) in our own appraisal of projects is
the quality of design and appropriateness to place and all that
sort of thing. Doing projects with people like Urban Splash does
allow you to not just bring buildings back into use but bring
them back into use in an imaginative way and to give rein to that
design. There have been some real demonstration benefits of that.
In principle there is no reason why the public sector should not
learn to procure development which embodies the best design just
as the private sector does. It is just that the public sector
does tend to lag in terms of its innovation.
40. But if you are trying to stimulate the private
sector doing it on its own without having to meet the gap because
they can see it can be done, is it not easier for them to try
and follow private examples rather than to say, "Yes, this
is what the local authority or the RDA or someone did. Now we
can try and do it commercially?"?
(Mr Gill) Yes. Following demonstration effects, not
just in terms of quality building but also in terms of commercial
success of the project, is clearly one of the benefits that comes
out of having the private sector involved. Can I just make a point
which I think is relevant to that but it goes back to the mix
of direct development and a gap funding mechanism of whatever
kind. One of the benefits of assembling sites, treating a site
and servicing it, is that in doing that you take away the abnormal
cost, so when you do bring the private sector developer in, if
there is a requirement for further assistance that should only
relate then to the market position. It should not relate to issues
about the ground itself. The direct development actually reduces
the need for the gap funding where it is related to site assembly,
remediation and servicing. It takes that abnormal cost away.
Chairman: On that note may I thank you very
much for your evidence.
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