Examination of Witnesses (Questions 160
- 179)
TUESDAY 25 JULY 2000
RT HON
HILARY ARMSTRONG
MP, MR PAUL
HOUSTON AND
MR DERMOT
PADDON
160. I have no problem with that.
(Hilary Armstrong) He therefore admitted that what
he was doing was interpreting his rules to the letter, because
he does believe that he needs to do that in every area in order
to eliminate abuse of the State aid.
161. Mr Brown of AMEC told us, "When the
Commission took the decision, they thought that the public sector
was subsidising the property development industry. [He said] I
think they now realise that that probably is not the case".
(Hilary Armstrong) The Commission felt that our system
was not sufficiently transparent, and that it could lead to private
sector developers getting an advantage by being in right from
the beginning, and not having to bid on the market at the stage
when they know what the value of the land will be once the improvement
to the land has taken place.
162. Minister, you and I know that some of the
developers are not exactly queuing up to develop some of the nasty
parts of the land our industrial heritage gives us?
(Hilary Armstrong) As I said, I do not believe the
decision was taken because of lack of understanding or realisation
of the impact that that would have.
163. In retrospect, do you think we could have
done more to convince the European Commission of the benefits
of gap funding?
(Hilary Armstrong) I do not know what else we could
have done.
Mrs Dunwoody
164. You are saying, in effect, they knew the
alternative to gap funding—which was producing very specific
results outside the Assisted Areas, was very heavy front loading
which would mean the State had to pay considerably greater amounts
of money—yet they were quite prepared to ignore the effects
of that; they were prepared really not in any way to accept the
arguments for regenerating sites that we desperately needed. As
far as they were concerned, it was of no importance because they
were going on for a very strict interpretation of something on
State aids.
(Hilary Armstrong) No, I put very clearly to them
that it would look very peculiar to people in this country that,
in order to avoid abusing State aids, we were going to have to
pay more public money up-front. However, it is also true that
in the long term the receipts received from the development will
mean that there is not a loss of public money overall. It is when
the public money is invested that will change. I made those arguments,
but what that does not mean is the second part of your question:
that they were not concerned about regeneration. That was not
the case. They were concerned about regeneration, but they were
mainly concerned that in regenerating we did not give the appearance
of a cosy deal, which in some sense is partly what they were concerned
about.
165. You demonstrated to them, Minister, the
facts and figures that that was not the case?
(Hilary Armstrong) I did.
166. Therefore, that their political decision
was that the previous programme—which had been seen to be
effective and which was producing very real results in difficult
areas in a country where we have a great deal of appalling sites
that need to be regenerated—was of no importance compared
with the strict interpretation of a very narrowly based law?
(Hilary Armstrong) I do not believe that the Commission
felt they were making a political decision.
167. Why not?
(Hilary Armstrong) They were making a decision in
relation to their rules on State aid.
Mr Gray
168. How much do you know about regeneration
methodology in other EU countries?
(Hilary Armstrong) We have conducted some research
in three European countries—Germany, Holland and Ireland.
That demonstrated that virtually all of their projects are undertaken
with the public sector in the lead. In other EU countries the
public sector generally owns or acquires sites; undertakes remedial
work; puts in place the necessary infrastructure and then sells
to the private sector for development.
169. Was that research done after the ruling
or before the ruling?
(Hilary Armstrong) That was done ongoing. I discussed
the whole issue with colleagues.
Mr Gray: It must have been before or after?
Chairman: It can be before and after.
Mr Gray
170. It could have been during, I suppose. Presumably
this research was carried out at a particular time, is what I
am getting at. Was it possible to use the result of that research
in the negotiations and discussions you have had with the EC as
a result of this ruling? If the research was carried out since
the ruling, quite clearly you would not have been able to do so;
if the research was carried out before the ruling then you would
have been able to do so. When was the research carried out?
(Hilary Armstrong) It was done before the ruling,
but we have continued to discuss with other Member States. I have
met with other ministers from other Member States to discuss their
views; and colleagues have also met with other ministers at European
ministers' conferences.
171. Was that research deployed properly to
demonstrate to the European Commission that their understanding
possibly of the European property market was different? As you
describe it, mainly what happens is the public sector buys the
land, does it up and then they sell it. That is quite different
from what we have always done in this country. Do you think the
EC correctly understood that fundamental difference between the
European property market and this market?
(Hilary Armstrong) I think they did but, as I am saying,
the problem is when the rules were originally written they did
not take account of that. That is the main problem we have been
facing throughout this.
172. We are talking about the realities of regenerating
areas—the rules were in place for two, three or four years
and operating happily, and the rules were in place when the European
Commission told us it was fine. We are not lawyers here, what
we are talking about is how we set about regenerating run-down
areas of the UK. The question is: how much argument did we use
to the European Commission to say, "We here are different
from Europe; we here have particular traditions and, therefore,
you must stick by the original ruling when PIP was set up in the
first place"?
(Hilary Armstrong) I think you will know, as a former
adviser in the Department, that this was under question before
the Election, and it was something which was being considered
then. The new Commissioner has taken this on with additional zeal
in some senses. The examples of other countries were used, and
other countries have been very interested in the way Britain has
been doing public/private partnerships, and working public/private
partnerships, not just around money but around the other benefits
that they bring. We are continuing to discuss with them how we
might look at changing the rules in the long term. That is not
in order to undermine the Commission, but it is in order to make
sure that we get a regime in the future that is clear about what
is possible, but which also enables the very best methods of doing
that involving both public and private sector.
173. That is all well and good, but we think
you rolled over. We think they ram-rodded you through the thing;
you did not even bother challenging it; and we are not sure whether
the research to compare Europe was before, after, during or ongoing.
We think you rolled over and just accepted this very, very damaging
result and regeneration of the UK is going to be hammered as a
result?
(Hilary Armstrong) You do surprise me. I would really
welcome the day when you thought we had done anything right.
174. That will be the day!
(Hilary Armstrong) That is the benefit of Opposition.
All I can say is, your government did not succeed in convincing
the Commission before the Election. We continued for two years
subsequently and did not get any more joy.
Mrs Ellman
175. Are you concerned that your apparently
ready acceptance of the Commissioner's ruling on this matter has
jeopardised other State aid projects? For example, Single Regeneration
Budgets, Lottery funding and Heritage funding.
(Hilary Armstrong) We did not roll over on this. We
did not acquiesce easily on this.
176. You have accepted this ruling, you told
us earlier. Are you concerned, in doing that and the failure to
challenge, that has jeopardised other forms of State aid, for
example Single Regeneration Budgets?
(Hilary Armstrong) No, I do not believe that. I believe,
in fact, the way we have behaved on PIP actually aids us and helps
us in our negotiations on other things. Because the Commission
know absolutely that we are not trying to transgress the State
aid rules. We are trying to work very clearly within those, because
we believe it is in Britain's interests so to do; and with other
programmes we are working very hard to make sure they do not transgress
State aid rules, but they, nonetheless, enable effective regeneration
in this country across the board.
177. Are you satisfied there will not be any
challenge to, for example, Single Regeneration Budgets, Lottery
funding and Heritage funding?
(Hilary Armstrong) I am not an expert on Lottery funding
and Heritage funding. I have not talked to anybody about that.
On SRB there certainly has not been a challenge at this stage,
and I am not looking for a challenge.
Mrs Dunwoody
178. Did Commissioner Monti give you any indication,
because you have told us what you said to him but I do not seem
to have heard what he said to you?
(Hilary Armstrong) We did not discuss SRB. Clearly,
gap funding within SRB will now have to come within the new rules
on gap funding. So where an SRB programme is using gap funding,
that will have to come within the new scheme. Commissioner Monti
said that he was very impressed with some of the work we had been
doing on regeneration and that he understood the strength of the
approach.
179. Before he stopped it!
(Hilary Armstrong) I would say he has not stopped
it. What he had done is changed the way we do it. I am confident
that the changes we are introducing we will be able to proceed
with. As I say, there will need to be more front-loading of money,
but we will still be able to do programmes. I am confident that
the work within the Regional Development Agencies, with the new
funding regime that is coming to RDA, will also help effective
regeneration throughout the country.
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