Examination of Witnesses (Questions 180
- 199)
TUESDAY 25 JULY 2000
RT HON
HILARY ARMSTRONG
MP, MR PAUL
HOUSTON AND
MR DERMOT
PADDON
Mr Benn
180. Can you tell us when you or your officials
last met the Commission to discuss the latest situation.
(Hilary Armstrong) My officials met them I think last
week.
(Mr Houston) 4 July.
181. Could we be told how those discussions
took this whole issue forward?
(Mr Houston) We had had two previous meetings with
the Commission around the possibility of a framework under which
funding for the private sector for regeneration purposes could
be accommodated, and had made available two papers to the Commission.
This meeting on 4 July was the third occasion. We encountered,
I think it is fair to say, a willingness to go on talking—I
would not put it any stronger than that. We heard what they said.
We have gone away, and what we are now proposing to do is seek
the views of other Member States and generally fact-find to see
how they approach physical regeneration and involvement of the
private sector, to see if there are common issues we could go
back to the Commission with, with a view to eventually moving
towards some kind of framework.
(Hilary Armstrong) That is the long term.
182. You told us a little earlier that you put
some very specific proposals to the Commission. Could you tell
us when you think those are going to be given the go-ahead, so
we can get on with operating. You will appreciate there is great
concern out there. You talk about transitional proceedings and
the closure proceedings on the old scheme—and developers
who did not get under the wire are wondering what is going to
come. Time is really of the essence. When do you think the Commission
is going to agree that?
(Hilary Armstrong) We do think that will be later
this year, but I cannot be any more precise than that. The first
hurdle is getting the Assisted Area map agreed. We hope they will
do that next week, and then they will turn their attention to
the alternative schemes. We are fairly confident certainly on
most of them that we have done this very carefully to make sure
they come within the rules.
183. Are you satisfied that the Commission understand
the urgency of giving approval to these new schemes, given the
concern there is amongst those trying to get development schemes
up and running, that delay is very damaging?
(Hilary Armstrong) I think the Commission understand
that at one level; but at another level they are used to working
in a particular way, and how far we are able to influence them
in hurrying things up is another matter. We have been urging them
to make decisions on the map for some considerable time. We very
much are in their hands on this.
184. Do I take it from what you said earlier
about State aid rules being written before these current schemes
came into existence that it is now the Government's view that
the State aid rules should be re-visited in order to bring them
up-to-date to reflect the reality of today?
(Hilary Armstrong) It is our view that we need a new
framework for regeneration, and that is what officials are now
pursuing with the Commission. If the State aid rules on their
own are used to determine the regeneration framework, as they
are being at the moment, then that means the sort of work we have
been doing successfully is just not possible. As I have said before,
I believe that the public/private partnership approach has worked
in this country not just on a financial basis but in terms of
the expertise, the sharing of expertise and the knowledge that
has really been of benefit between the public and private sector.
I think it is that element that the Commission are beginning to
acknowledge has been a great strength in the way that we have
done it; but that the rules as they are currently written do not
allow for that development. That is why we think the best way
is to talk about a framework for regeneration for the longer term.
The reason I have not been pressing that this morning is, I know
what the longer term means to the Commission. It does not necessarily
mean you are going to get a decision in the next couple of years.
185. If those discussions ended up with the
Commission not being prepared to agree a framework for regeneration
because they continue to "hide behind" the State aid
rules, would we then be forced to have a go at the State aid rules
in order to change the circumstances under which the Commission
operates?
(Hilary Armstrong) It is too far ahead to speculate.
I think that the great strength is the way we have particularly
considered regeneration. We as a country, we as a government,
do not want to unpick the State aid rules because those State
aid rules are ones that we want to see upheld rather than fudged.
The real issue is how do we get a framework that best allows the
public/private relationship in regeneration that has developed
so effectively in this country and has delivered so well.
Mrs Ellman
186. Could you give us a clearer timescale of
when the gap regeneration framework is likely to come into play?
(Hilary Armstrong) In my short experience on this,
these things take many years because it is negotiating. We are
beginning this and there are a lot of countries involved. It will,
at the end of the day, have to be a ministerial decision, but
the Commission will have to do a lot of work. I have no illusion
other than this is very long term.
187. What does this mean for regeneration in
this country? Specifically, what does it mean for the proposed
new powers for local government to have powers for the economic
development/economic wellbeing of their own areas? Does this mean
those powers have gone?
(Hilary Armstrong) No, it does not because we will
have other schemes which mean we can proceed. It will mean that
we can proceed through direct development, with the RDA in particular
taking responsibility for assembly of land, and ownership of land,
and that simply means they have got to put that money upfront,
rather than going into partnership immediately with another developer—although
one of our direct development proposals does allow a partnership
at an early stage in non-assisted areas. There will be a programme.
I really do want the Committee to understand: it is not that nothing
will happen; it is that things will happen in a different way.
Chairman
188. We want to know when it will happen though?
(Hilary Armstrong) That is the short term. I am very
confident that we will have those decisions within the next few
months. As RDAs are preparing their budgets and their programmes
for next year they will know precisely what they can develop where,
and what scheme they can use in which area. That will be clear,
and that will be available. What I am also saying is that I do
believe in the longer term we need to have a new framework. That
does not mean we are waiting for them before we move. We have
already moved and are waiting for approval. Those proposals are
with the Commission and we want to get on with those as quickly
as possible.
Mrs Ellman
189. Will you be committing Regional Development
Agencies and English Partnerships to borrow against their assets
to facilitate building?
(Hilary Armstrong) We have given additional money
to RDAs this year. We have given an additional £60 million
for this year. We have given for next year I think about £130
million.
190. I asked you a different question. Would
they be permitted to borrow against their assets?
(Hilary Armstrong) Not at this stage.
191. Why not?
(Hilary Armstrong) Because they are public sector
bodies, and there are regulations around public sector borrowing
which mean that that is not within the current framework.
192. It is within the current law, is it not?
(Hilary Armstrong) They can borrow but it does count
as public expenditure.
193. But legally they are able to borrow?
(Hilary Armstrong) Yes.
194. Are you saying your Department will not
allow them to use those legal powers?
(Hilary Armstrong) No, what I am saying is whatever
they borrow counts against public sector borrowing.
195. But they have the legal power to borrow,
but your answer indicated you would not allow them to use those
powers?
(Hilary Armstrong) I think I need to write to you
about this, because it is not my Department—this is how
public sector borrowing works. It is also true that in the Local
Government Green Paper we will be consulting on a new capital
regime, which will allow more borrowing, but that will still have
to be within overall rules and limits. What I do not have this
morning in my head is how much that will be available, partly
because the Chancellor has made it clear that we will be making
announcements about capital. We are doubling capital but we need
to make announcements about the allocation of that in October.
Mrs Ellman: I would like an answer to the question,
written if necessary.
Mr O'Brien
196. Minister, you referred to the Comprehensive
Spending Review and the fact there has been a generous allocation
to RDAs. This is now a single pot distribution. The Chairman of
the Yorkshire Regional Development Agency welcomes that. How much
of that will be used for direct development, and how will it be
distributed to RDAs?
(Hilary Armstrong) The Government is for this current
year injecting another £60 million, and that is for land
and properties to start the transition from PIP to direct development.
Next year there is an additional £250 million, of which £150
million is for land and property to continue the transitional
work. The full single pot will probably come in from 2002. The
meeting I understand the RDAs had yesterday with the officials
was about the timing they believe the work will be done in, in
order to enable the full single pot to come in. Next year there
will be greater flexibility. In 2002/3 there is £350 million;
in 2003/4 there is an additional £500 million. We have put
money in, in order to build up greater investment. I hope that
RDAs will be able to make sure that they get the appropriate development.
In terms of how allocations will be made to RDAs, we are currently
consulting with them. Their allocations so far have been made
on an historic basis. In other words, they have been given money
in order to meet commitments that had been entered into before
RDAs were set up. Clearly we cannot go on doing that forever.
There will have to be money in order to meet historic commitment,
but we are now going far beyond that. So we are consulting and
will be consulting on the method of distribution.
197. That is very significant because we have
been told in no uncertain terms that for the RDAs to be able to
carry out any regional development it will take considerable time,
money, powers and expertise to assist RDAs. In your discussions
with the Chairman, what advancements have been made to meet this
expertise, the need to identify a land, the need to assemble land?
This is going to take time. In my particular area, the Yorkshire
region, there is a hell of a lot to be done. What has happened
in negotiations you have had?
(Hilary Armstrong) In the discussions which the Deputy
Prime Minister and the Chancellor had with them on Friday, they
did discuss the new powers, the new flexibilities really, and
the enhanced role that RDAs will have, and it is up to them to
ensure they get the very best advice, that they do employ people
who have expertise. Clearly many of the people who were transferred
from English Partnerships were people who had expertise in this
area. It is not true we have not been involved in direct development;
of course we have been involved in direct development over the
years. The Greenwich site, for example, which has been the biggest
site that has been developed or brought to the development stage
for some years was a direct development site; it was not a PIP
site. So there is that knowledge and understanding within the
system, as it were, and it is important that the RDAs continue
to work with English Partnerships; but, as I say, some members
of English Partnerships were transferred to RDAs.
198. Do you agree that the influence and the
help from PIP has been a substantial aid to regional development
and without that there is going to be a void? That is the area
we are concerned about.
(Hilary Armstrong) Yes, and that is why, as I say,
we have brought in short-term measures in order to make sure there
is not a vacuum, that there is not a void, that development can
continue and that we give confidence to both the public and the
private sector that development is a priority.
Chairman
199. Could you explain to me "bridging
this gap", how it is going to be done? As I understand it,
in assisted areas there is a limit to the amount of gap you can
provide funding for. Does that actually mean that even in somewhere
which has an Area 1 status there is going to be a problem if the
gap is too big?
(Hilary Armstrong) If the gap is too big then we have
to use other means in order to do that. What we have done in the
past, as I say with the Greenwich site, is we acquired direct
development because the ceiling was too low under the previous
regime. Direct development was used there. The intensity ceiling
at the moment is 40 per cent in what we would call Objective 1
or Tier 1 areas, and up to 20 per cent in Tier 2 areas. We have
historically done a substantial development above intensity levels
but it costs more.
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