Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence


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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