Examination of Witness (Questions 41 -
59)
WEDNESDAY 12 JULY 2000
MR JONATHON
BLACKIE
Chairman
41. Can I welcome you to the Committee's second
session this morning. Can I ask you to identify yourself for the
record please?
(Mr Blackie) My name is Jonathon Blackie. I am currently
Director of Regeneration for One North East, which is the Regional
Development Agency for the North East of England. Currently I
am the Chair of the RDA Regeneration Directors' Forum and I am
appearing today on behalf of not just the RDA Directors but the
Chairs and Chief Executives. I also was the former Regional Director
of English Partnerships in the North East so I did have a history
before this current position.
42. Thank you very much. Do you want to say
anything by way of introduction or are you happy for us to go
straight into questions?
(Mr Blackie) I would just like to say very briefly
that we have had over 50 years' experience in the North East at
tackling problems of the gap between cost and value and that we
currently are engaged in a variety of schemes including direct
development, one of the largest groundfill site reclamation projects
in the country, as well as numerous gap funding schemes as we
call them. We are engaged in the full panoply of measures to try
and achieve urban and rural regeneration.
Mr Blunt
43. But the uncomfortable truth of the RDAs
is that the fact that Partnership Investment Programme funding
was transferred from English Partnerships to the RDAs gave the
opportunity for the European Commission to stick their nose into
this business because it then was a new scheme which required
approval from them and has now been turned down. That is correct,
is it not?
(Mr Blackie) I think the chronology is that there
were discussions over many years between the Commission and English
Partnerships and Government and when the previous Commission fell
you will recall they resigned en masse, and the day they
resigned they issued a letter to the United Kingdom Government—this
was just before the RDAs came into being—notifying the United
Kingdom Government that it was the Commission's opinion that the
Partnership Investment Programme was state aid. Subsequently the
RDAs inherited this direction which was later confirmed by the
new Commission on 22 December last year. I think the RDAs got
the benefit of the Commission's—
44. But this would have been an existing scheme
with English Partnerships and it became a new scheme with the
RDAs which therefore gave the opportunity for the European Commission
to make this wholly unwelcome ruling.
(Mr Blackie) I think it was in the post. I think letter
was in the post before the RDAs came into being.
45. But it would have been an existing scheme.
(Mr Blackie) I think the Commission took the view
that the existing scheme was within state aid rules. They in a
sense retrospectively were applying the ruling. They could not
re-visit the schemes that had been approved but all new schemes
obviously were caught by state aid rules.
Dr Ladyman
46. How has the ruling affected your objectives
and how you are trying to achieve your objectives?
(Mr Blackie) If the press were not here I would say
it was disastrous. I would say officially that it is extremely
unhelpful. RDAs came into being on 1 April last year with a great
fanfare of expectations about what we were going to do. During
the course of the first six months we were engaged in the preparation
of our regional economic strategy and one of our major instruments
for converting the rhetoric into action was made not ineligible,
because it would be misleading to say that we could no longer
gap fund, but within the 20 per cent rule that we would have something
like 80 per cent of the projects that we funded in the past through
the Partnership Investment Programme would be ineligible. You
can see the sense of disappointment that we had a new momentum,
a new expectation, and one of our key instruments was in a sense
having one hand tied behind our back.
47. Have you quantified the impact on your spending?
(Mr Blackie) We currently estimate out of our annual
land and property budget for last year and this year that about
half of it goes on gap funded projects, so currently we have a
programme of £38 million so it is roughly £18-20 million
that has been on gap funding.
48. How many specific projects in your region
had you identified that you were going to be looking at over,
say, the next 24 months which you have put on hold because of
this?
(Mr Blackie) It is difficult to be precise because,
as Richard Beattie explained, you are to an extent reacting to
the market coming forward. We had very much moved down the line
of having key priority areas such as Grainger Town, East Gateshead,
Middlesbrough town centre. We were quite literally planning the
transformation of those areas particularly using gap funding as
the vehicle to literally welcome the private sector to bring forward
applications. It has really brought things to a halt.
49. Would these have been primarily residential
developments, retail developments or industrial or a mix?
(Mr Blackie) They were really a mixture. If you select
the different areas, Middlesbrough town centre we were looking
to bring new office related development into the town because
the office market has virtually moved out to out of town sites.
In Grainger Town, which is the historic core of Newcastle, mixed
use perhaps with an emphasis on residential development. You can
say there is a range of activity but primarily I would say it
was office and residential type schemes that it has impacted on
in particular, but that is not to forget that behind the gasworks
type projects that Richard talked about, small scale industrial
developments in places like Consett, East Durham, that we often
funded using perhaps half a million pounds worth of gap funding
in those fairly isolated communities were very important. They
were not headline projects but they were very important in those
communities.
50. What sort of scheme do you think could take
the place and satisfy the Commission's concerns?
(Mr Blackie) We are currently involved in direct development
to quite a substantial extent and we feel very comfortable with
that approach. However, as again has been explained by Jim Gill,
it is useful in those situations where it is possible to acquire
large chunks of derelict land. When you are in city centre regeneration,
and I would imagine this would apply in Liverpool, Manchester,
Newcastle, some of the big industrial cities where we are looking
to transform an area that is now out of use, it is going to be
a very time consuming process to serve compulsory purchase orders,
to go through this land acquisition exercise that can take, if
you think back to the urban development corporations, up to 10
years and even then the projects were not finished.
51. How would that come about because if the
private sector are doing identical schemes they still require
compulsory purchase orders to be issued?
(Mr Blackie) What we tended to have in those city
centre locations is that the private sector spent a long time—we
did not see this—in negotiation with the owner and would
often either acquire the property or undertake a joint scheme
with the owner or the owner would bring forward the scheme. I
think it is slightly different. The private sector are out there
every day trying to get hold of buildings, Urban Splash, for example,
have been very successful at acquiring all the warehouses and
bringing them forward. I do not think it is something that there
is necessarily the expertise or the emphasis in the public sector
to be going out making at the time speculative purchases because
they might form a possible direct development scheme in the future.
52. Help me to understand the difference in
philosophies between the two approaches using a hypothetical example.
You have a greenfield site, if one were allowed to develop a greenfield
site. You want to build a business park. Under the old arrangements
the private sector would acquire the site or work out what it
would cost to acquire the site, work out what it would cost to
put gas, electricity and roads into it, and then would sell pieces
of the site or factories on the site to someone who would come
in later. They would work out the cost of doing that and they
would work out what they would get back from selling it and the
difference between the two would be the gap funding that they
would apply to you for which we now know is illegal. Under direct
development, as I understand it, the public sector comes along,
puts the road in, puts the gas in, puts the electricity in, and
then starts selling off the site. Presumably you have to sell
it either at a discounted rate or at a subsidised rate or nobody
would buy it; otherwise the gap funding would not have been required
in the first place. How is that philosophically different that
it convinces the Commission that it is not anti-competitive?
(Mr Blackie) That is a very good description of the
two processes. Not many people quite grasp the subtleties. However,
in the direct development approach you would sell the land at
market value. It is just that the cost of acquisition, servicing,
reclamation, would exceed the end value. You would not sell it
off at a subsidised rate. You would sell it at the market rate.
For example, Newburn Riverside Industrial Park in Newcastle upon
Tyne, which is a former power station site that we bought and
we were reclaiming and servicing and doing all those things, is
going to cost us in the region of £30 million. We will get
back at current market rates about £12 million in the receipts
from disposal of the plots at the end of the development. You
can see there quite graphically what the gap is between public
sector input and what the private sector would pay. Philosophically,
the private sector by their very nature seven days a week are
thinking about the job, whether it is new opportunities or whether
it is how they can get best value out of their current schemes.
This logic has been applied I think to debates on PFI, that there
are benefits—it is not just a cash thing—in the way
that projects are managed and procured using the private sector
as distinct to the public sector.
53. But in the direct development schemes as
you are suggesting the council would have come along and they
would do exactly the same development and it would still sell
the land at the end of it at market rate. It just would have paid
more to develop it than it was selling it for, so it would be
discounting the cost of the development. Philosophically that
seems to me absolutely no different from the other scheme, given
that presumably what the Commissioners should have been looking
at is, taking again a hypothetical example, someone wants to build
a car factory and he has to decide whether he builds his car factory
in England or in France. What should matter to the European Commissioners
surely is that he pays the market rate for the land when he builds
his car factory? Under both of those schemes he would be paying
the market rate, so how has the Commission interfering in this
improved competitiveness?
(Mr Blackie) To add to what has been said before,
my suspicion is that what the Commission saw were a number of
headline inward investment projects being funded through gap funding,
so, for example, in the North East we had Samsung and Siemens
and our understanding is that the Commission were very suspicious
that we had somehow offered a subsidy to attract those companies
into the region. As it happens I can assure you that the investment
made by English Partnerships was for site reclamation, for providing
the services to the boundary of the site, and the site was then
sold on at the market rate. But the Commission essentially did
not believe us and because of that concern for those very high
profile headline projects, they have imposed this state aid restriction
to capture all the 99 per cent of other projects that have nothing
to do with inward investment.
54. This is partly criticism of the RDAs and
partly criticism of the English Partnerships based on the evidence
we previously had. Previous witnesses were asked, "Have you
looked at what other European nations do?" and the answer
came back, "No, it is not really our business". I am
paraphrasing. It would seem to me that it was exactly the business
of the RDAs and English Partnerships to go and find out what else
was happening in order to defend the Partnership Investment Programme.
I have a constituency which is in an assisted area and I am always
being told by people who want to build factories in my constituency,
"We will build our factory here. What are you going to give
us in the way of assistance, and by the way, I could build it
in France and this is what they are going to give me and they
will give me A, B, C and D, which is a package put together for
the development which is effectively their subsidy." They
have ways of getting round this embargo. Why have we not gone
out and investigated what they are doing to get round the embargo
in order to explain philosophically that there is no difference
between direct investment and the Partnership Investment Agreement?
(Mr Blackie) The first thing to say is that we do
take a fairly straight view that we do not bend the rules. We
do play by the criteria that are given to us whether they are
state aid or United Kingdom Government—
Mrs Dunwoody
55. That is your first mistake.
(Mr Blackie) We do play a straight bat in that sense,
that we are transparent and our investment is in what we say we
are making the investment in. Secondly, we did ask the question
about how other countries do it. As a region we commissioned some
work looking at what other countries were actually preparing to
do because this is a long term business. Your factory development
can take two or three years to materialise so you would have to
be thinking five or 10 years on in the future in terms of making
these sites available and being competitive. The work we did through
the Department established the same conclusion that Jim Gill referred
to, that the United Kingdom property market was actually different
from many other European countries in that freehold and leasehold
were quite a distinct feature of difference, that developers were
a significant part of the United Kingdom property industry and
perhaps they were less pronounced in other European countries.
Finally, the main conclusion was that the state in both regional
and local government was very actively involved in making major
sites available for development when you think of what the German
Government has done in the centre of Berlin, what the Spanish
Government has done.
Chairman: I am going to have to cut you short
because time is getting a little tight.
Mrs Ellman
56. What changes would the RDAs need to see
to enable them to be direct developers as a replacement to the
Partnership Investment Programme?
(Mr Blackie) The simple answer is a four-fold increase
in our budget for land and property resources.
Mrs Dunwoody
57. I think you can stop there.
(Mr Blackie) That is the simple answer. We are quite
happy go down the route of direct development. However, we do
need three to four times the level of resources because of the
way the cash flow is presented to us. That in essence is our approach
to the spending review. That is the level of resources we would
need both to maintain the momentum that is already there and also
to accelerate that process which we aspire to do in the regions.
Mrs Ellman: What else?
Chairman
58. What is it in cash terms? Are you talking
about four times as much for your region or for each of the regions,
and what is the timescale? Presumably you would need it to be
in the next financial year but it would be in the financial year
after that. Is that right?
(Mr Blackie) We have done some cash flow forecasts
over a five year period as part of our spending review bid. The
simple headline is that we would need three to four times as much
as we had under the Partnership Investment Programme programme.
In reality it would be phased over a number of years. The position
was that we had various Partnership Investment Programme projects
that were captured at the end of December last year that were
in the pipeline, but we have also got many other moral commitments,
for example in Grainger Town where we had said that we have identified
about a dozen locations where we were expecting applications from
developers. There was a pipeline of other projects that were coming
through that we have not quantified.
Mrs Ellman
59. What else would you need? You referred to
CPOs before.
(Mr Blackie) There has been some work done in updating
the CPO procedure which is quite helpful because many of the skills
that were acquired in the 1960s have been lost as people have
left, particularly local government. We are confident however
that with the local authorities we would have the collective powers
to serve CPOs which are a very important instrument. Perhaps the
most important element though is to master-plan the area. Through
the urban renaissance, the work of the Urban Task Force, there
has been a lot of encouragement given to that and clearly the
instruments that are being proposed and that will be unveiled
in the Urban White Paper will be important to help that happen.
That has not been made public yet. The Department have indicated
that that is likely to be made known in the autumn. We are expecting
both the frameworks in the Urban White Paper and the Rural White
Paper to be important in helping us achieve these urban renaissance
type initiatives.
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