Select Committee on Transport, Local Government and the Regions Minutes of Evidence

Examination of Witnesses (Questions 140-159)



  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.


  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.


  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!


  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?


  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."

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 25 March 2002