Memorandum by Chris Brown Esq (GF 15)
PARTNERSHIP INVESTMENT PROGRAMME REPLACEMENT
1. INTRODUCTION
Public private partnerships in urban regeneration
date back to urban Development Grant in the 1980s. The process
has been refined through Urban Regeneration Grant, City Grant
and the English Partnerships Investment Fund into a world leading
system (albeit still capable of improvement). This evidence is
that of Chris Brown and not necessarily of the organisations he
represents.
2. CONTRIBUTION
OF GAP FUNDING
Its main advantages are using private sector
capital and human resources to achieve public goals. It is hard
to imagine a public sector organisation successfully developing
shopping centres in Barrow in West Cumbria, offices in the Don
Valley Sheffield, housing in Hulme in Manchester, cinemas in Dudley
in the Black Country and small business units in Thames Gateway.
All these are examples of schemes developed through PIP and its
predecessors.
3. CONSEQUENCES
OF EC RULING
The best that can be expected as a result of
the EC ruling is:
1. Reduced efficiency in delivering urban
regeneration through the lost availability of private sector human
resources.
2. Increased long term capital cost to the
public sector through inability to transfer risk.
3. Increased short term capital cost to the
public sector as the public sector meets the costs of preparing
land for sale through reclamation and servicing.
4. Temporary loss of skills available to
regeneration during the period of uncertainty pending announcement
of a replacement programme.
5. Loss of private sector investment confidence
in the urban regeneration sector.
6. Delay of numerous projects particularly
in new RDA priority areas such as through Urban Regeneration Companies
and a resultant delay in delivering jobs and other benefits to
our most deprived communities.
At worst, if a similar replacement programme
is not introduced:
1. Many regeneration projects will not be
achieved.
2. The cost to the public sector of those
that are achieved will be significantly greater.
3. Our most deprived communities will be
unable to recover.
4. ALTERNATIVE
SCHEMES
The key principles in any alternative scheme
are:
1. That they deliver priority public sector
objectives.
2. With maximum efficiency.
This suggests that they should transfer risk
to the private sector, use private sector management resources
and capital and operate in partnership with the RDAs and local
authorities.
A strict interpretation of the state aid rules
as favoured by the EC and DTI would appear to rule out any payment
by the public sector to the private sector outside assisted areas
and no sale of land other than at market value. This would appear
to limit any replacement scheme to:
(i) schemes outside assisted areas where
reclaimed and serviced land has a value greater than £1 and
less than the cost of reclamation and servicing); or
(ii) schemes which are viable with GAP Funding
within the intensity limits in assisted areas.
This suggests two main routes:
1. GAP Funding in assisted areas within intensity
limits; and
2. "Direct Development" ie public
sector acquisition, reclamation and servicing outside assisted
areas where land values are positive.
These two routes seem likely to exclude the
most needy projects (and research by KPMG for EP suggests this
is most of the projects) as well as being considerably more capital
intensive for the public sector in the short term and significantly
more risky and slower given the lack of human resources in the
sector. A further difficulty is that assisted area maps have not
been drawn primarily with urban regeneration in mind.
These alternatives, although better than nothing,
would not in anyway adequately replace PIP.
5. SCALE OF
FUNDING GAP
It seems impossible that public funding could
produce equivalent results within the rules. If it could the minimum
extra cost would be likely to be the value of private sector investment
over the period from December 1999 to the date of the replacement
programme plus two to three years being a typical gestation period
for these schemes. This might be £1.5 to £2 billion
in the short term although this now would be recouped on sale
after a further three years or so (typical project development
period).
These numbers relate to PIP in England alone.
It seems likely that the RAPID programme in Scotland, many Single
Regeneration Budget and ERDF funded schemes through the UK and
many Lottery schemes should logically be caught by this new interpretation
of the rules. The financial impacts could therefore be considerably
greater.
6. A NEW REGENERATION
FRAMEWORK
A new regeneration framework should seek not
just to replace the partnership investment programme but to innovate
and refine to take the new programme to a higher level of effectiveness.
The basic components of such a programme should
be:
1. Public sector identification of a target
regeneration area/projects in consultation with local stakeholders.
2. Selection of a private sector partner
(advertised through OJEC and maximising value for money).
3. Site acquisition by the public sector
in partnership with the private sector.
4. Management and primary financing of the
development process by the private sector.
5. Delivery and financing of the associated
social and economic programmes primarily by the public sector.
6. Part funding of the regeneration deficit
by the public sector using a variety of flexible structures but
focusing on performance related, long term (market sensitive but
say 15 years at present), revenue guarantees (and accounting for
these on a portfolio basis as called).
7. These programmes could be controlled by the
EC based on population numbers in relative urban deprivation (within
the state) with allowable expenditure delegated to regional level
and should be designed to work with ERDF and future increased
"URBAN" European funding.
7. EC LOGIC?
It is worth, in the context of considering a
new framework, to understand the objections of the Commission
to PIP.
As I understand it their objections (aside from
the technical objection that any public money given to an "undertaking"
is by definition state aid) are:
(a) it provides a windfall to the landowner;
(b) it provides a subsidy to the developer;
(c) it provides subsidy to the occupier,
thus giving these organisations an unfair advantage
over other companies in the same sector.
PIP, if misused, could indeed do these things.
However if used in accordance with the rules to the scheme (which
require land value to be assessed at open market value for it
existing use and profit margins and rents to be at open market
levels) there is no possibility of these outcomes.
Indeed the scheme was not hugely attractive,
due to its beaurocracy, and the vast bulk of the industry avoided
it.
The only impact it could have, is the economic
one of increasing supply, and thus reducing rents, in the areas
in which it was used. This would have the effect of transferring
economic activity to these areas, which are, by definition, areas
of deprivation and need. This impact is identical to that produced
by the continental system of direct public sector intervention,
the only difference being that their system of direct public sector
intervention is less efficient and results in an overall higher
tax burden in those countries.
Thus the impact of removing PIP is to make England,
and therefore the EC, less competitive internationally and to
disadvantage the deprived communities of England and the EC. Both
of these impacts (key EC policy goals) are considerably greater
than any improvement in common market equality and therefore the
EC decision looks perverse as well as illogical.
Chris Brown
Director of AMEC Developments
Chair of RICS Regeneration Panel
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