Memorandum by Hyndburn First (GF 05)
A NEW APPROACH TO GAP FUNDING FOR URBAN REGENERATION
PROJECTS
Hyndburn Borough Council has recently adopted innovative
techniques to promote urban regeneration and social inclusion
in Accrington and surrounding east Lancashire towns.
In the last 25 years the local economy has been
seriously blighted by the decline in textiles and other traditional
manufacturing industries. New approaches have been essential to
transform redundant mill buildings and derelict brown field sites
into new opportunities for the service sector. Gap funding, whether
through ERDF, SRB or DTi grant direct to local businesses, has
been essential to stimulate the diversification of the economy
in Hyndburn and East Lancashire.
Nevertheless, GAP funding by way of capital
grant is not the one and only stimulus to facilitate urban regeneration.
In the last five years Hyndburn Borough Council has also promoted
new business development through the creation of joint venture
companies in which the Council takes a minority stake in partnership
with private sector entrepreneurs. The Council and its partners
have invested loan capital into a venture, with objectives and
performance targets defined in a joint venture agreement. The
joint venture company thus formed is then in a position to attract
private loan finance to contribute towards development costs.
The Council's powers to engage in such ventures
are provided by section 33 of the Local Government and Housing
Act 1989 and further defined in the 1995 Companies Order. We have
worked closely with our external auditors, Robson Rhodes to ensure
that these arrangements do not prejudice the Council's corporate
financial position.
GLOBE ENTERPRISES
LTD
The Council, a local entrepreneur and an east
Lancashire construction and development company formed Globe Enterprises
Ltd in November 1995. Each partner has an equal stake in the company
and has invested loan capital totalling £600,000 in two phases.
The company was formed to transform the redundant Globe Works,
a former textile engineering works of almost one million square
feet close to Accrington town centre.
Almost five years later the Globe Enterprise
Centre comprises almost 150,000 square feet of business space
let to more than 30 businesses ranging in size from Airtours Plc
to newly created local firms. The Globe Centre is serviced by
two restaurants and an hotel plus sandwich bar and hair and beauty
salon all providing training opportunities for local young people
through Accrington and Rossendale College.
The development costs associated with the Globe
Centre project marginally exceed £9 million, incurred over
a four year period. Gap funding support has been received as follows:
— Single Regeneration Budget Challenge
Funding—£800,000 in two phases;
— European Regional Development Fund—£2.28
million in two phases.
The letting of business space at the Globe Centre
has been particularly successful. Current rental income amounts
to £862,000 per annum. As a result of this commercial success
and because the GAP funding has been received as grant, GEL is
now realising a significant net profit, £216,158 before taxation
in the year to 31 December 1999. This health financial position
has enabled GEL with its bankers to initiate a new urban regeneration
development project in Accrington for a town centre cinema, bowl
and restaurants without the need for any gap funding.
If GAP funding had not been available for the
Globe Centre project at the outset it is most unlikely that the
scheme could have got off the ground. Without alternative financial
intervention from the government and/or the EU, a project of this
scale would not have started. Private sector partners would not
have had the financial confidence to invest £600,000 each
of loan capital and our bankers would not have regarded the project
as credit worthy.
ALTERNATIVE APPROACHES
In the current circumstances following the European
Commission ruling on GAP funding schemes, I would recommend the
Environment, Transport and Regional Affairs Committee to consider
whether future government, RDA and EU resources could be invested
selectively in regeneration projects by adopting a joint venture
approach. In other words, a brown field site development which
requires say £5 million of GAP funding following appraisal
by the RDA, could obtain such funding from the RDA by way of loan
capital in return for a proportionate stakeholding in a joint
venture development company.
A proposal of this kind anticipates that each
RDA would control a regeneration investment fund and that each
RDA would be conferred with appropriate statutory powers to invest
in local regeneration companies.
Our experience in Hyndburn demonstrates that
such local regeneration companies are more effective if the local
authority also holds a stakeholding in such a company with a seat
on the Board to ensure accountability to local people and local
regeneration priorities.
Compared to the present position, there is a
greater public benefit arising from GAP funding investments by
way of loan capital, because the RDA can agree with its joint
venture partners at the outset an exit strategy whereby its loan
capital is withdrawn within a defined period. When withdrawn,
the capital should be suitably inflated to reflect the success
of the venture. Such resources are then available for reinvestment
in future projects elsewhere in the region.
Clearly a GAP funding investment by way of a
term loan will affect the longer-term viability of public/private
regeneration projects. On withdrawal, substitute loan finance
may be required. If so, sufficient growth in asset value must
be achieved to enable that additional loan to be secured and repaid.
A NEW REGENERATION
FRAMEWORK
It is essential that any new regeneration framework
appropriately clarifies the powers available to local, regional
and central government to participate fully in joint ventures.
Clear statutory provision should be made for regional investment
funds to be established for selective investment in public/private
partnership projects which require medium term GAP funding to
be commercially viable in the longer term.
Notwithstanding the publication of the Companies
Order in 1995, more thought should be given to the integration
of joint venture activity at the local level and arrangements
for local government modernisation and Best Value.
Nigel Rix
Director
29 June 2000
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