Memorandum by the Local Government Association
(GF 12)
THE IMPLICATIONS OF THE EUROPEAN COMMISSION
RULING ON GAP FUNDING SCHEMES FOR URBAN REGENERATION IN ENGLAND
INTRODUCTION
1. The Local Government Association (LGA)
is the representative body for all local authorities in England
and Wales. The LGA is committed to working closely with its member
authorities to support reform and improvement in local government.
The Association welcomes the announcement by the Environment,
Transport and Regional Affairs Committee, that it is to carry
out an inquiry into GAP funding schemes for urban regeneration
in England. In the short time available, the LGA has invited a
group of local authorities with particular expertise in this area,
to comment and this response combines the key issues made within
all responses received. Individual local authority responses are
available on request.
2. This short memorandum follows the format
of the topics for investigation as outlined in the Committee's
press notice 39/1999-2000, dated 15 June 2000.
THE CONTRIBUTION
THAT GAP FUNDING
HAS MADE
IN REGENERATING
DERELICT AND
OTHER DIFFICULT
SITES IN
AREAS OF
"MARKET FAILURE"
3. There would also seem to be important
points to be raised in terms of the interpretation of the term
"gap funding". The term GAP funding is here taken to
mean public sector funding which covers the difference between
developer's costs and returns to make a project viable. The UK
has a history of utilising GAP funding mechanisms in order to
enable the redevelopment and regeneration of "marginal"
land and buildings. These are buildings and tracts of land where
the private sector would not get a return on their investment.
4. If we assume "GAP funding"
to include those programmes which are designed to stimulate investment
in site reclamation and the improvement of employment premises
in areas where adverse site conditions and market factors have
impeded/inhibited investment, this would include a substantial
proportion of local authority physical regeneration activity.
5. Local authorities responded very positively
to the principle of GAP funding when it was first introduced as
in England as Urban Development Grant (UDG) and subsequently replaced
by City Grant (CG). The Partnership Investment Programme (PIP)
which continued the principle of GAP funding for regeneration
is a vital component of local authorities regeneration strategies,
enabling derelict brownfield sites that would otherwise remain
undeveloped in disadvantaged areas to be brought forward for successful
regeneration. Within a densely populated country such as the UK,
there is an exceptional need to ensure that derelict and contaminated
urban sites can be brought back into productive use.
THE CONSEQUENCES
OF THE
EUROPEAN COMMISSION
RULING FOR
URBAN REGENERATION
6. The effect of the EC decision is
to allow a far more limited range of instruments available for
carrying out physical regeneration. More particularly, outside
areas eligible for State Aid within the UK "Assisted Areas"
map, to eliminate GAP funding as a mechanism. Even within these
"Assisted Areas", use of public funds as GAP funding
is limited to the Commission's aid limits applying within these
areas. The position is further complicated in that the UK Government
and the Commission have yet to reach agreement on the precise
boundaries of the areas designated as "Assisted Areas".
The LGA would urge that this issue be resolved as quickly as possible.
7. There are many areas such as historic
town centres, which may be in need of considerable physical regeneration,
but which are extremely unlikely to enjoy Assisted Area or ERDF
Objective One or Two status. In such areas the prospects for employing
GAP funding measures as a result of the Commission's decision
are likely to be bleak.
8. Some specific schemes in which GAP funding
played a key role and which would potentially have been affected
by the Commission's decision, are listed in appendix 1. The LGA
would be happy to provide the Committee with further information
of these if required.
9. The scale of the problem can be illustrated
by the larger scale example of the city of Birmingham.
CASE STUDY—BIRMINGHAM
Monitoring of Birmingham's industrial land supply
currently indicates a shortfall of at least 25 ha in terms of
readily available best urban land when measured against Unitary
Development Plan targets.
The need for intervention is further demonstrated
by the fact that there is currently some 74 ha of industrial land
(of which the local authority is aware) which cannot be developed
due to the need for remediation, infrastructure provision and
site preparation works. Without positive action to bring this
land forward for employment purposes it will come under pressure
from higher value uses such as retail and residential development.
To put the situation into perspective, if a developer were to
approach the authority tomorrow looking for a readily developable
15 acre site, it would be unlikely to be able to provide it.
In January 1999 an independent study into Birmingham's
Industrial Building Stock was completed by GVA Grimley, International
Property Advisors. This found Birmingham's industrial building
stock to have "a number of weaknesses, including poor accessibility
and local congestion, unattractive image and a legacy of older
properties increasingly unsuited to modern needs".
This finding is borne out by the fact that over
75 per cent of the UK's industrial building stock was constructed
before 1970, with this "age problem" likely to be worst
in traditional industrial areas such as Birmingham (RICS). There
is growing evidence that problems in terms of the provision of
sites and premises have resulted in both the loss of existing
Birmingham companies to the area and in our failure to attract
new investment projects. Whilst some of these may have gone elsewhere
in the region (Solihull/Sandwell), it is inevitable that many
have been lost.
ALTERNATIVE SCHEMES
THAT COULD
BE CONSIDERED
TO REPLACE
GAP FUNDING
10. In terms of alternatives, equity, loans
and rental guarantee schemes have been used to a very limited
degree by local authorities but could be seen as not readily accepted
by the private sector. The other option is, of course, direct
development, which in terms of the need for acquisitions etc would
prove far more expensive. This option would also give rise to
issues around private sector leverage public sector ownership,
and market realities in situations in which only one agency was
involved—ie would those sites with seriously negative values
ever get picked up.
THE SCALE
OF PUBLIC
FUNDING REQUIRED
TO ENABLE
ALTERNATIVE SCHEMES
TO PRODUCE
EQUIVALENT RESULTS
11. The direct development option as suggested
above would be likely to prove anywhere in the region of four
to 10 times more expensive that the current GAP funding measures.
12. There are serious concerns about the
implications of the decision for the cash flows of RDAs. According
to the Government's own figures PIP last year alone levered in
£567 million of private investment. Although schemes currently
underway will not be affected by the decision, the main implication
will be that RDAs and local authorities will now be faced with
the need to carry out much more direct development requiring them
to acquire the land for development first.
WHAT PROVISIONS
SHOULD BE
CONTAINED IN
A NEW
REGENERATION FRAMEWORK
13. The LGA agrees with the following list
of characteristics of a new regeneration framework as outlined
by the RICS.[2]
Any alternatives to PIP funding for urban regeneration should
contain:
— 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 Partnership
programmes into a single scheme; and
— competitive procurement processes
to enable the public sector to intervene at the level necessary
to achieve the required outputs via private sector partners at
"best value" and thus be compatible with State Aid restrictions.
June 2000
2 Alternatives to the Partnership Investment Programme,
RICS, February 2000. Back
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