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

Examination of Witnesses (Questions 220-237)



  220. Do you think that can be delivered within the current EU rules?
  (Mr Smith) I think it can. I do not think it is going to affect inter-European competition.

  221. When did it first emerge that houses could not be supported under the old scheme?
  (Mr Smith) The whole scheme was devised within the umbrella of competition rules, and an economic framework, so what we are using is the wrong tool for the job. As I see it, we just gave up on housing; we ought to have stood our ground on housing. But at the moment what we have is born of the economic and competition regime that is there. It is a bit like using a hammer to drive in a screw: it works sometimes but it does not work on most occasions.

  222. Have you been in dialogue with the Department during this period?
  (Mr Smith) Since we saw the early guidance in about May/June, we have been in dialogue with the Department.

  223. What has their response been?
  (Mr Smith) To move ahead slowly.
  (Mr Hood) Can I add that I have also been in touch with the Department, because I have a number of residential schemes that are ready to go but cannot because of the existing rules. I have spoken to the Department to get their interpretation of matters, and they have said that they do not foresee any difficulty in getting a change to the rules to allow residential development to be covered by gap funding. They felt it would only take a couple of months to push through, and they were going through the process of canvassing the RDAs to find out their attitude to change. That was about four or five months ago.

  224. Has anything happened?
  (Mr Hood) No. As far as I am aware, nothing has happened.

Mrs Dunwoody

  225. So, to sum up, they do not believe in it, they are not doing a great deal, they did not understand it in the first place, and they are not actually actively trying to change it. Apart from that, all is well.
  (Mr Smith) That is very succinct. It is not quite as harsh as that, but there or thereabouts.

Ms King

  226. You probably saw in the Financial Times yesterday the article saying that we were 65,000 houses per annum adrift of what was required. How is this going to impact?
  (Mr Smith) Is this a new grant regime or the lack of a grant regime?

  227. Actually both.
  (Mr Smith) The lack of grant regime will make a considerable difference, and I think there is also another issue that will impact, which is compulsory purchase, as I mentioned earlier, particularly in places where housing values are not that high. Development should be coming forward in places like Leicester, but it just is not. There is not the incentive there, the site assembly has not been put together, so places like that will be hard hit. If you have a site somewhere in London or the South East, someone will come along and build on it.


  228. Is not the urban regeneration company in Leicester just a waste of time because it is not an Assisted Area?
  (Mr Smith) No, it is not, because hopefully it can persuade its partners to focus its resources and powers on the problems of the area. So we may get Direct Development, we may get compulsory acquisition by the East Midlands Development Agency. I am saying "we" because I was acting chief executive until a short while ago. One of the problems we have encountered there, for example, is that we have had a developer with a large site that needs access. We wanted to compulsory purchase that access for the developer, and indeed, the developer's own land, and sell it back to him under a development agreement. He would have reimbursed the Regional Development Agency's costs there of acquisition, which would have been the full market rate. EMDA have found problems there and they have gone to DTI and said, "Does this contravene state aid rules?" This is just going everywhere. We have taken an opinion from a top legal firm, a professor in Brussels, saying "No problem." But the DTI think it might, be so EMDA are running scared of that sort of situation. There are several situations like that in Leicester.

  229. Does that have a detrimental effect on people around the area?
  (Mr Smith) If you sit next to a site that is covered in old mattresses and is rat-infested, I should think it would have a highly detrimental effect!

Christine Russell

  230. If you wanted a definitive ruling on state aid rules, who would you go to?
  (Mr Brown) I did meet the individual in the Commission who is dealing with it, an incredibly intelligent person, who I think probably regrets to an extent his first decision, but these are very difficult people to get to. They are not open and listening in the way that we might want.

  231. Can I invite you all to be positive rather than negative. Within these vague state aid rules that we have, what more could be done both by the Government and by the RDAs to improve the situation?
  (Mr Smith) First of all, the Government could take things seriously at a higher level than it has done hitherto.


  232. What level is that? Are you talking about the Prime Minister making a fuss in Europe, or are you talking about the Secretary of State?
  (Mr Smith) I would say at least the Secretary of State, and if the Prime Minister can help too, so much the better. I think the RDAs have to use their Direct Development powers more proactively, particularly with regard to land acquisition; they have to be prepared to use compulsory purchase. I think they should promote the sub-optimal regime such as we have more proactively.

Christine Russell

  233. Mr Hood, do you agree with that?
  (Mr Hood) Yes. I think there also has to be a change to allow the housing development to be gap funded, but there is a need to look at the whole system, and to change it so that it is not just limited to Tier 1 and Tier 2 areas and have this ridiculous situation where there is a differentiation between large, small and medium sized developers, and not to have the ceilings on the amount of assistance that can be paid, because in many areas the amount of assistance that is needed is way above that which the current ceilings allow. Schemes like that never happen, or else, as Nigel was saying, they result in a sub-optimal scheme by a use being introduced into the scheme for higher values in order to increase the value.

  Christine Russell: What about your organisation? What in the longer term do you think we can do to ensure that the rules are changed to bring about this urban renaissance that everyone is talking about, both from the Commission and nationally?

Mrs Dunwoody

  234. What response did you get from this esteemed bureaucrat? Not just that he understood it vaguely now and did not before, but any suggestion that there was any movement within the Commission?
  (Mr Brown) This was some time ago, but yes. In fact, at the time we did talk about residential, and he expressed the view—very much off the record, but he was encouraging—to say "We don't really think there will be a problem with residential."

  235. But there has not been any movement since then?
  (Mr Brown) There has not been any movement, but I think, to be fair to the bureaucrat in Brussels, he has not been pushed very hard from this end.

  236. No, but there has not been any movement.
  (Mr Brown) No.


  237. So what you are really saying is Brussels made a mess of the old regime, but you are very firmly saying that the Department has made a mess of sorting out the problem.
  (Mr Smith) I think the Department also could have challenged the original decision much more toughly. What we have now in its place is a real mess, and the Department must accept some responsibility for that.

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