Examination of Witnesses (Questions 140-159)
MR HUGH
SAVILL AND
MR GRAHAM
BRANTON
TUESDAY 26 FEBRUARY 2002
140. If the government gave tax credits rather
than grants to developers, would that be compatible with the state
aids rules?
(Mr Savill) I am afraid it makes no difference. There
is long-standing ECJ jurisprudence that a tax measure that provides
a benefit to an individual firm or an identifiable set of firms
is just as much a state aid as a grant or guarantee.
141. Finally, how do our projects for regeneration
differ from European projects? Are they very similar to Europe
or the European approach?
(Mr Savill) I really do not know, I am not a regeneration
expert. What you have heard earlier, and I know this is true,
is far more land is in public ownership in Europe than here. There
is far more privately owned land here so therefore something like
gap funding involving the private sector is of far greater interest
in the United Kingdom than on the Continent.
142. I am surprised that you do not know because
in order to win an argument with Europe a good way of doing it
is if what you are suggesting is something that is being done
elsewhere. Do you not think you ought to have that expertise in
the Department?
(Mr Branton) I think the people responsible for housing
policy have regular sessions with their European counterparts
to understand the nature of the problem elsewhere and I think
that is one of the purposes of the conference on 21 March.
Chairman
143. But they have not shared it with you so
far?
(Mr Branton) Only anecdotally. We are saying we are
not experts in that.
Christine Russell
144. Can I ask about the assisted area map.
Do you both accept that it does not reflect at the moment areas
where there has been land market failure, or certainly housing
market failure?
(Mr Savill) You are getting into an area which is
not ours. Looking after the regional map is not our responsibility.
I think it is, again, fairly commonly accepted that the areas
that are affected by regeneration problems are really very small
by comparison with the areas that appear in the regional aid map
so, yes, it is rather a large grid to try and fit this issue into.
145. Alright, we accept that you are not the
experts but would you like to speculate as to what will happen
to that assisted area map when the EU is enlarged? Do you think
the problems we have at the moment are going to be compounded
in the future as even less areas will have even that level of
assistance?
(Mr Savill) I really have no idea. It is a big political
question.
Chairman
146. But it is a problem, is it not, because
of the six schemes put in place to replace PIP almost all of them
do depend on that map, do they not, so if the map were narrowed
and the places on the map were narrowed or removed, then a lot
of those schemes would stop?
(Mr Savill) I can see a difficulty, yes.
Ms King
147. We were earlier discussing the European
Regeneration Framework and you had said that you were hoping there
would be a State Aids Framework directly aimed at regeneration.
The Government is negotiating a new European Regeneration Framework
with the Commission—or presumably you are as that is what
you are talking about. How would such a framework work.
(Mr Savill) We need to persuade the Commission to
step outside—
Dr Pugh: That is rather confrontational!
Chairman
148. If only it were that simple.
(Mr Savill) Normally we try a co-operative approach
with the Commission, I will withdraw that! We need to try and
persuade the Commission to move outside their normal concern of
prevention of distortion of competition and to look directly at
issues affecting regeneration. They may well argue that if one
takes the Environmental Aid Guidelines, the regional aid map,
some of the jurisprudence on services of general economic interest
and mix those together, then it should be possible to do whatever
you wish. Our argument is that it is far too complicated, there
is no reason why people involved in regeneration schemes should
have to reverse engineer their schemes from so many others which
were not set up for that purpose.
Chris Grayling
149. This is madness. Do you not get a sense
that ultimately what you have got is a situation where regulation
has gone mad?
(Mr Savill) Yes.
Chairman: The only trouble is that your grimace
before you said yes does not actually get on the record!
Ms King
150. I just wonder how widely we have managed
to get the United Kingdom's argument that market failure should
in the future be the basis of state aid accepted by our other
EU partners?
(Mr Savill) Not just for regeneration but across the
whole of the state aids field we have been taking a look at what
the Commssion has been doing over the last decades and we have
concluded that they have done quite a good job in reducing the
level of state aids. If you look back to the mid 1980s there was
a serious economic problem of over-payment of aid and distortion
of competition. It then seemed to the Government two years ago
that if you looked at the economic reform agenda put forward at
the Lisbon summit, properly targeted state aid did have a role
to play in bringing the EU up to the status of the most dynamic
economies in the world and that therefore the attitude which sometimes
appears from the Commission (which is that the only objective
is to reduce state aid) was not actually satisfactory, and what
we have been trying to persuade the Commission is that you need
two objectives here, firstly to continue bearing down on the distortive
state aids, the ones that really distort competition across the
Single Market and, secondly, to make it a bit easier for governments
to make the kind of interventions which support structural reform
or regeneration or environment or any of these public goods. We
have had some success on this. The Chancellor has met Commissioner
Monti with our Secretary of State and persuaded him that this
is a helpful approach. We made common cause with the Belgian Presidency
in the second half of last year. There was a conference at ministerial
level held in Belgium to discuss a reform of the state aids framework,
there were very helpful conclusions agreed at the Industry Council
in December, and we are waiting for Commissioner Monti to bring
forward some proposals this spring. Yes, there is a sea change
to our approach. We are trying to say that the way the Commission
approaches state aids is too legal and that there needs to be
more economic input, and we are getting a satisfactory response.
151. What is the timeframe?
(Mr Savill) We are expecting a paper from Commissioner
Monti in the spring within the next couple of months.
Mr Betts
152. We referred earlier to Lottery funding
and possible differences to other types of funding. Could you
tell us whether the Heritage Lottery Fund has been notified to
the Commission?
(Mr Branton) Yes, it has.
153. When do you expect approval, if you expect
approval?
(Mr Branton) We certainly do expect approval. I would
imagine it will be in about four or five months' time.
154. Is that not optimistic because I understand
that English Heritage put forward a funding scheme for the Commission
in July last year and that has not been approved yet?
(Mr Branton) That is correct. We have spoken to the
Commission about that as a matter of fact to try and get them
to speed that up. I hope that they will deal with the Heritage
Lottery Fund notification immediately, in which case one would
expect four to six months for approval. However, it is possible
that they will sit on it for a while as they did with English
Heritage claiming it is an existing scheme. If it is a newly notified
scheme they are supposed to address it within a fixed timeframe
but if it is a scheme that has not been notified and is already
in force the timetables do not exist in the same way. They deemed
for English Heritage that this was the case which is why they
have sat on it. I hope that we have got agreement from them to
advance with this more quickly now.
155. No breaks in the meantime?
(Mr Branton) I am sorry?
156. No restriction or breaks on any of the
funding arrangements for any of these schemes while the Commission
is sat on it?
(Mr Branton) They have to exercise care until they
have got state aids clearance, yes.
Mr Betts: What does that mean?
Chairman
157. It means they cannot do it. Is that it?
(Mr Branton) No, most of the grants of Heritage Lottery
Funds and English Heritage funding raise no state aid problems
whatsoever because the grants are given to non-profit making bodies
for purely social and for public sector good type projects and
those can go ahead, there is no problem. We have advised the Heritage
Lottery Fund repeatedly on all sorts of schemes where we have
said yes, go ahead, no problem. There is the odd one where it
is a business that owns the heritage asset in question and therefore
giving the grant raises a state aid question. In those cases if
the state aid problem is real we are advising them to hold off
on those grants pending the approval.
Mr Betts
158. How many of those schemes fall into that
category at present which are being held up?
(Mr Branton) Very few actually. One famous case involves
the reconstruction of the pier in Brighton where we are expecting
an approval for it to go ahead any day now. That one has been
notified specifically to the Commission for clearance. Apart from
that, I do not think there is a single major grant that has been
blocked solely on state aid grounds. In all the cases where we
had a state aids doubt there were other reasons why they did not
want the project to go ahead at that stage anyway. Apart from
that there is the Townscape Heritage Initiative which you heard
about from the gentleman from Stoke, where we have come across
a few wrinkles and problems, and where that happens we try to
advise people to use non-profit making bodies to receive Lottery
funds and thereby avoid the state aid rules kicking in. I hope
that solution will be possible for at least a part of the Stoke
project that we heard about earlier. If that is not possible and
we are in the state aids territory where we cannot apply the Ferring
precedent for example, then we have to advise the project not
to go ahead until the scheme has been notified and approved.
159. The two other Lottery programmes, the Arts
and Sports Lottery programmes, do they need to be notified to
the Commission as well?
(Mr Branton) We have been talking to DCMS about which
of the Lottery schemes need to be notified and which ones do not.
The decision was taken that the Heritage Lottery Fund was the
one that had the highest state aid risk and that we should notify
that one first. Other Lottery funds may be notified in due course.
I do not know enough about the exact content of each individual
fund to be able to comment here on exactly which ones will and
which ones will not. There are projects arising in a number of
areas which involve Lottery spending where we are being asked
to advise whether there could be a state aid problem with this.
Wherever possible, we try to find a way for there not to be a
state aid problem but occasionally we have to say, "Listen,
this is a state aid problem and you will have to notify the project
or think about notifying the entire funding scheme."
| 
