Examination of Witnesses (Questions 140
- 159)
TUESDAY 25 JULY 2000
RT HON
HILARY ARMSTRONG
MP, MR PAUL
HOUSTON AND
MR DERMOT
PADDON
140. Let us be quite clear here, because we
will come on to the detail of the Commission's ruling and how
transparent or, frankly, opaque the rules are on State aid as
they apply to schemes such us PIP in a moment. The Government
decided not to appeal the European Commission's decision on PIP
in order to protect what was identified as a wider interest in
the general attitude of the United Kingdom towards State aids?
(Hilary Armstrong) That was certainly part of our
concern.
141. So PIP was sacrificed—a programme
that has levered billions of pounds into urban regeneration—to
protect the supposed influence of the United Kingdom on the Commission's
role in preventing State aids elsewhere in the European Union?
(Hilary Armstrong) I reject that entirely. The Government
has not given up on regeneration.
142. It has given up on PIP.
(Hilary Armstrong) The Government has not given up
on serious regeneration of sites throughout the United Kingdom.
We are determined to continue and commit ourselves to that. That
is reflected in the Spending Review. The ability of this country,
not just to influence the Commission but to ensure that it gets
equal treatment for British firms, for the whole of the British
programme over and above regeneration, does mean that we have
to be part of agreeing what the rules around State aid are, and
agreeing that we will comply with those wherever they apply. There
was no sacrifice of PIP. We engaged in negotiations with the Commission,
and we decided to proceed in the way we are proceeding.
143. You sacrificed PIP by not appealing a ruling
that to many people seems perverse?
(Hilary Armstrong) It did not seem perverse. It does
not seem perverse when you read what the Treaty originally defined
all this as.
144. Can you explain to the Committee why, when
the scheme was notified to the Commission in January 1995 and
they examined this, they decided it was not subject to State aid
restrictions, but by July 1998 had changed their minds and it
then ended up in a ruling on 22 December 1999. What was the trigger
for that change of mind by the Commission?
(Hilary Armstrong) The Commission had been examining
those issues over some time—long before this Government
came to power. The questions were there, as I understand it, when
the Government came to power. I was not a member of the Government
in 1995 and, therefore, was not party to, and indeed none of my
colleagues were party to, the negotiations in 1995. There were
questions being raised. Those questions were deliberated on over
a long period. When I took responsibility for this portfolio about
this time last year there had been significant negotiations before
then. I subsequently met the Commission on two occasions to discuss
this with them and there was the understanding that we were doing
things in a different way, and that there were great strengths
in the way we were doing it; but there was also the determination
that that was not wholly within the State aid rules.
145. Do you think what you were doing under
PIP was unfair and discriminatory against other companies and
development companies in the European Union?
(Hilary Armstrong) I think what we were doing under
PIP had great strength. As I said earlier, when the rules were
first written on State aid there was no-one involved in public/private
partnership; and it has been the manner in which those public/private
partnerships have been developed which is now seen as a great
strength in this country, that that was begun and developed following
the writing of the State aid rules. I do think that there is great
strength in public/private partnerships and in the way that we
have done things. On a very strict interpretation of the State
aid rules, I can understand why the Commission decided the way
they did, given the rules as they were originally written.
Mr O'Brien
146. Minister, could I ask you, with regard
to the fact that a debate on the Commission's decision on gap
funding centres around whether development is tradeable activity:
do you agree with the Competition Directive that the gap funding
distorted competition—or do you believe their decision to
be ill-founded?
(Hilary Armstrong) As I have just said, I actually
think that the way we did it did not distort competition in this
country; but I understand, having read the rules on State aid,
that that interpretation can be put upon it; because we in this
country do not bring the land to the state where it can be developed
and then put it on the market, and that is what the rules expect.
147. In your memorandum you do advise us that
you are asking the Commission to consider a new regeneration framework,
and that is part of the discussion you referred to?
(Hilary Armstrong) Yes.
148. Have you pointed out to the Commission
the apparently contradictory objectives of the Competition Directorate
and the Regional Policy Directorate on this issue? Has that been
part of the negotiations?
(Hilary Armstrong) That was certainly part of the
discussion I had with Commissioner Monti.
149. What kind of new arguments are you putting
forward then to introduce a new regeneration framework?
(Hilary Armstrong) In the short-term we have put to
them very clear alternative schemes, some of which will operate
within Assisted Area schemes and, therefore, can use State aid,
but only up to the development ceilings that they allow; and then
other programmes which are outside of Assisted Area schemes. The
value of PIP was that you could use it in both, and that was always
a great advantage. We are now putting forward for the future a
scheme we call partnership support for regeneration bespoke; and
that is where support is given to projects where an end user is
identified within Assisted Areas and within intensity ceilings.
There is also a speculative scheme where the proposed development
does not have an identified end user; but there are three other
schemes that would be able to be used outside of Assisted Areas
and, therefore, not providing State aid: direct development where
the public sector will acquire the land and the scheme would allow
joint ventures with the private sector, provided there is an open
transparent competition to select the private sector partners.
This could either take place at the start of the development before
any physical works had been undertaken, or later if the regional
development agency decides to undertake reclamation/site servicing
works itself. The RDAs will therefore be able to develop land
by themselves acquiring the land first and then having competition
for a developer to work with.
150. How firm are those proposals, and how far
are we advanced on the discussions?
(Hilary Armstrong) There are another two schemes.
Chairman
151. We will come to those in some detail—so
how far are we getting?
(Hilary Armstrong) We have a problem that the Assisted
Area map has not been approved; but we are expecting that approval
very shortly—I am told hopefully next week, but I have been
told that before. I do not want you to stake my reputation on
that!
152. That is a very good definition of "very
shortly".
(Hilary Armstrong) These schemes are with the Commission
now. They will have to approve these following their approval
of the Assisted Area map. It will not come at the same time, but
they are under active consideration. We would expect approval
later this year. What I would say and reiterate, however, is that
there is a generous transitional scheme. I think something like
306 schemes have been approved by the Commission under PIP, which
had not been approved in December but have subsequently been approved
as part of the transitional scheme; as well as those where there
had been an agreement before September, which again are in the
hundreds.
Mrs Ellman
153. What did you discuss with Commissioner
Monti on the original policy?
(Hilary Armstrong) I discussed a very wide range of
issues with Commissioner Monti. As I say, I met him twice and
have explained to him the aims and objectives of Government policy
in relation to regeneration; and did talk about the particular
nature of issues in this country where we are a very small country
when you think of some of the other continental countries that
have got much wider expanse and, therefore, much more ability
to maybe not use contaminated sites. I also discussed with him
the number of contaminated sites and the range of contaminated
sites that we have because of our industrial history, and the
expense that is involved in developing it.
154. Are our Regional Structural Funds at risk
because of your acceptance of the Commission's ruling on PIP?
(Hilary Armstrong) Not at all, far from it. Regional
Structural Funds in fact in some cases are even more important,
given the changes that there are. With PIP, as I have just explained,
we did not need to take account of whether an area was within
Objective 2 or Assisted Areas or whatever; we could simply decided
on the nature of the land.
Mr Cummings
155. Following the Commission ruling, Minister,
why did the Department take the decision to terminate PIP in December
1999 when we understand that some forms of State aid were still
allowed in Assisted Areas?
(Hilary Armstrong) State aid is allowed in Assisted
Areas; and State aid is how we will proceed in Assisted Areas.
It is in non-Assisted Areas that we cannot use State aid. The
areas are designated Assisted Areas precisely so that you can
given State aid in order to gap fund in those areas.
156. Did the Commission demand that the Partnership
Investment Programme was completely closed?
(Hilary Armstrong) No. As I say, what we did was close
the programme but negotiate a very generous transitional programme.
The programme is closed; if someone comes forward with a proposal
today that cannot be progressed under PIP. The proposals that
were beginning and were being discussed in December, they have
now come to some form of agreement. As I say, we have now put
forward 306 schemes under PIP since December 1999.
157. Was there no scope to continue the scheme
in a different form?
(Hilary Armstrong) We are trying to continue the scheme,
and we will continue the work under different programmes. It is
those different programmes that we are now negotiating with the
Commission. There will continue to be a regeneration of these
sites but under different programmes. Those programmes will need
more front loading than PIP did, and that is why we are putting
more money in through the Spending Review 2000.
158. We are now several months after the events
in December 1999, does your Department have any problems in coming
up with some form of imaginative response for other schemes?
(Hilary Armstrong) I do not think we do. As I say,
we have now put five different alternatives to the Commission,
all of which we will use; all of which will enable us to develop
sites, to get sites ready for development and get land ready for
development. We will be able to use these five different schemes
in order to compensate for the change from PIP.
Mr Olner
159. Could I follow on with that, Minister,
because we have been told by witnesses that, in their view, the
Commission was less than fully aware of the likely impact of their
ruling, because they were unfamiliar of the specific nature of
the property in land markets in the UK. Was that true when they
made the decision? How is it going to affect any new scheme you
might want to come about if they do not understand what our markets
are like?
(Hilary Armstrong) I do not believe it was through
lack of understanding. I went through this extremely carefully
and in great detail with the Commissioner. We have had members
of his staff visit and look at schemes in this country, so that
they have had background to it and they were aware; but this is
a Commissioner who has come in determined to really eliminate
abuse of State aids.
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