Memorandum by the Royal Institution of
Chartered Surveyors (GF 06)
THE IMPLICATIONS OF THE EUROPEAN COMMISSION
RULING ON GAP FUNDING SCHEMES FOR URBAN REGENERATION IN ENGLAND
These comments from The Royal Institution of Chartered
Surveyors (RICS) have been prepared in response to the request
for evidence to the House of Commons Environment, Transport and
Regional Affairs Select Committee investigation into the implications
of the EC ruling on GAP funding schemes.
The RICS's 100,000 members are involved in all
aspects of land and property supply, planning, project evaluation,
construction and urban management. The Institution is therefore
in an almost unique position to suggest a way forward on this
issue, based on the experience of practitioners in the public
and private sectors.
The RICS has taken a lead in working to develop
alternatives to the Partnership Investment Programme, following
the Commission's ruling in December 1999. We have produced a detailed
paper on what we consider to be the way forward on this, which
we have disseminated widely. We are also holding talks with the
DETR and English Partnerships, but have yet to secure a meeting
with the European Commission. The RICS has also been active in
ensuring that a range of organisations, as diverse as the Confederation
of British Industry, the Civic Trust and the Local Government
Association, were aware of the implications of the ruling. We
were pleased that they all supported the moves to retain GAP funding
and made their concerns known directly to the European Commission.
WHAT IS
THE CONTRIBUTION
THAT GAP FUNDING
HAS MADE
IN REGENERATING
DERELICT AND
OTHER DIFFICULT
SITES IN
AREAS OF
"MARKET FAILURE"
PIP has been successful in attracting private
finance into regeneration. In 1998-99 English Partnerships PIP
programme stood at £200 million, which attracted about £564
million worth of private finance (DETR Annual Report 2000). It
has resulted in the regeneration of 1,300 ha of land, created/safeguarded
29,000 jobs, built 7,500 housing units and created 860,000 square
metres of industrial/commercial floor space (DETR press release,
22 December 1999).
Gap funding has been significant in bringing
forward a range of highly successful regeneration projects such
as:
— Hulme High Street in Manchester,
putting the heart back into a deprived and fragmented inner city
community;
— Bede Island in Leicester, which turned
a contaminated rail yard into an attractive new area of the city;
— Exchange Buildings, Newcastle upon
Tyne, recycling the derelict quayside into a new commercial and
leisure centre for the city.
Further projects where GAP funding is planned
to be used include Fort Dunlop, in Birmingham, the redevelopment
of a large factory which has stood derelict for over a decade.
In addition GAP funding will continue to be used to find new uses
for historically important, but empty or underused buildings in
Newcastle upon Tyne city centre, where it has already been used
on a mixed-use conversion of the Central Post Office.
Gap funding has also been highly successful
in using small amounts of funding to bringing forward strategically
important growth centres. For example the Exeter University Innovation
Centre, 1,626 sq m of speculative units by the university campus,
is a £1.13 million project which used only £400K gap
funding. However it has been very useful in bringing employment
in new technologies to an area which is otherwise disadvantaged
due to its geographical location.
In addition to the clear economic benefit to
the public purse of levering in private finance there are a range
of other advantages of public/private sector partnerships. The
private sector often has a better understanding of market trends,
with an awareness of future demand. Also the private sector often
has better skills in project delivery and marketing.
WHAT ARE
THE CONSEQUENCES
OF THE
EUROPEAN COMMISSION
RULING FOR
URBAN REGENERATION
Although described as a "partially positive
decision", the European Commission's ruling on PIP greatly
restricts the use of this form of funding, confirming it to areas
with Assisted Area Status. However, as the European Commission
has yet to finalise the areas within the UK eligible for such
status, it is unclear which areas will continue to receive PIP
funding. We are however expecting an agreement shortly.
In addition, the level of payments will be capped
within the state aid financial limits. Grant levels are presently
capped at 20 per cent for the total level of all public funding
going to a project outside objective one areas, of which PIP could
form a part.
We therefore estimate that 80 to 90 per cent
of the types of projects which proceed as PIP in England will
no longer be permitted. This is because:
— most PIP schemes receive aid above
Regional Aid limits;
— about 50 per cent of all PIP schemes
lie outside Assisted Areas.
Despite the fact that the Commission did provide
a partially positive response, allowing the continuation of PIP
within strict guidelines, the DETR decided to terminate PIP on
22 December 1999, allowing no new projects. We understand that
this was due to a range of technical reasons, but we would welcome
further calcification on how the DETR came to this decision.
The two key concerns are:
— often strategic opportunities and
problems lie outside Assisted Areas and this ruling prevents the
use of GAP funding to recycle these sites;
— the state aid levels are set very
low (public grants can cover only 20 per cent of the total costs).
The private sector therefore, is being asked to carry 80 per cent
of the risk, which it may be unwilling to do in areas of market
failure.
Transitional arrangements
The EC ruling allowed PIP projects which had
been agreed by 22 December 1999, to continue to completion until
March 2001. This we consider to have been the very least the Commission
could offer as otherwise it would have opened up English Partnerships
(and possibly the Commission) to a range of legal challenges,
primarily from private sector organisations who had invested in
developing PIP proposals only to have the rules changed.
We now however have concerns that, after changing
their views on PIP in general, the Commission may also start to
call in individual PIP projects in the pipeline.
Wales
The impact on Wales has been less significant
in that a lot more of the country is likely to remain covered
by Assisted Area Status. However, we understand that the transitional
arrangements are very strict involving an immediate end to the
use of GAP funding unless the work has been legally signed off.
WHAT ALTERNATIVE
SCHEMES SHOULD
BE CONSIDERED
TO REPLACE
GAP FUNDING
The first objective must be to give certainty
to those wishing to enter into public/private partnerships to
achieve regeneration. We would ask that the UK government applies
the "elastoplast" needed to get agreement over what
is currently allowed before entering into the "major surgery"
of developing new frameworks within which to operate.
Short term
In the short term the following actions are
needed:
— agreement on areas qualifying for
Assisted Area Status. This will give certainty to the RDA and
others as to where they can use PIP;
— agreement on the notifications submitted
by the DETR to the EC. A number of proposals, have been submitted
to the EC by the DETR to gain agreement on what form of GAP funding
can still be used. While we hoped that this would help in the
short term it is taking significantly longer for agreement to
come form the Commission. These agreements should clearly outline
what RDAs may do in terms of public/private partnerships;
— resources allocation. The Comprehensive
Spending Review (CSR) must recognise the impact of the EC decision
on regeneration and economic development in the UK. Although there
have been increases in the RDA's budgets, the CSR must provide
the resources and freedom over spending to allow RDAs and EP to
continue with projects, probably by direct development in the
short to medium term, which otherwise would have been supported
by PIP;
— clear guidance from the DETR to the
RDAs on what they are permitted to do. This must be backed up
by encouragement to act on this.
Medium term
— agreement at European level on the
principle of a Regeneration Framework. We understand the UK government,
as part of the discussions over PIP is proposing a new framework
which would allow state aid for specific regeneration objectives.
Although we do not know the details of this proposal we do believe
it may be a useful way forward;
— the formation of the Regeneration
Framework, via discussion with public and private sector partners.
Long term
We believe that the government should pursue
an amendment to the Treaty of Rome to encourage public/private
partnerships to assist in the process of urban and rural regeneration.
We believe this would support DG XVI policy as well as the policy
of national governments and would secure support from a number
of member states. The demands of European Union expansion may
also make this attractive as such partnerships would be a useful
means of stimulating private sector interest for the long term
renewal of the eastern European nations.
Direct Development
Some increased direct development by public
sector regeneration agencies will be needed but this must not
be seen as the whole, long-term "solution" to the restrictions
on PIP. Direct development has a number of problems:
— it is costly to the public sector;
— too much development by the public
sector, particularly speculative development, may undermine private
sector providers within a region;
— the private sector often has a better
understanding of market demands and can be more successful at
delivering value for money;
— certain forms of direct development,
specifically bespoke development for known end users, may fall
foul of EU competition regulations.
Fiscal Incentives
Fiscal incentives could provide a very powerful
means of attractive private finance into regeneration. Although
the experience of Enterprise Zones was mixed they did clearly
demonstrate that area based tax-breaks were successful in drawing
private money into areas which were otherwise suffering market
failure. The Urban Task Force proposed the idea of Urban Priority
Areas. These would have a package of measures, including lower
national and local tax rates and streamlined planning which may
be an imaginative way forward to the question of levering private
finance into specific areas.
However recent press reports indicate that the
Treasury is planning to reject the Task Force's recommendations
on fiscal incentives (Financial Times, 28 June 2000). We would
find this disappointing, as stated above, such measures may be
an imaginative solution to many of the problems resulting from
the PIP ruling.
WHAT IS
THE SCALE
OF PUBLIC
FUNDING REQUIRED
TO ENABLE
ALTERNATIVE SCHEMES
TO PRODUCE
EQUIVALENT RESULTS
Table 1 outlines the past, current and projected
budget for PIP, and also the levels of private finance drawn in.
These figures give an indication of the amounts involved.
The restrictions on PIP will mean that Regional
Development Agencies will have to undertake much more direct development,
finding extra money to fund entire projects. It is difficult to
estimate the total extra funds required as some private finance
will still be coming in via permitted PIP schemes. We would expect
over £500 million is required by the RDAs to keep development
at the current rate.
Table 1
EXPECTED USE OF GRANT-IN-AID TO ENGLISH PARTNERSHIPS
(£ MILLION)
Source: DETR Annual Report 2000
|
| 1998-99 outturn
| 1999-2000 estimated outturn
| 2000-01
plans
|
|
| Partnership Investment Programme | 200.729
| 112.775 | 86.1
|
| Partnership Investment Programme—ringfenced
| | 142.9 |
177.0 |
| Private finance attracted | 564
| 700* | 245**
|
|
Notes:
* Target.
** Provisional target.
WHAT PROVISIONS
SHOULD BE
CONTAINED IN
A NEW
REGENERATION FRAMEWORK
Any approach to finding alternatives to PIP funding must
have the following key features:
— a strategic policy framework that is supported
at national and regional level and is fully understood by a full
range of public and private sector partners;
— application to a range of themes and spatial priority
areas, including non-Assisted Areas;
— an outcome-driven approach linked specifically
to RDA strategic objectives and outcomes;
— co-ordinated funding bringing together, as a minimum,
the Single Regeneration Budget and English Partnerships programmes
into a single scheme; and
— maximising the skills and resources of the private
sector.
The Commission appears to accept a transparent and non-discriminatory
tender procedure. The Institution believes that the priority for
government action should be to develop a new approved procurement
policy based on open competition from the private sector. This
would provide a model that could be used across England whatever
an area's status. It would also provide a model that is easily
understood by the various bodies, both public and private, involved
in regeneration.
Although it will be important to promote a new "flagship"
replacement for PIP it will also be vital to ensure that a range
of other models are in place to allow a flexible approach to funding.
Increased use of direct development by English Partnerships
and Regional Development Agencies, in partnership with the private
sector, could offer a way to replace PIP in a limited number of
circumstances. However, it will prove more expensive, at least
in terms of initial outlays.
REFERENCES
RICS Policy Unit, Alternatives to the Partnership Investment
Programme, February 2000.
RICS Policy Unit, Urban Priority Areas, March 2000.
June 2000.
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