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

Examination of Witnesses (Questions 280-299)



Christine Russell

  280. Can I ask you what your direct experience of Direct Development is and what you feel are its strengths and its weaknesses and also perhaps on what types of project does Direct Development by the RDAs work best?
  (Mr Shelton) There is a plus of Direct Development in that it does allow organisations to take the more strategic approach, as Alison Nimmo was explaining earlier. You can actually set out your priorities and ensure that you are bringing schemes forward in line with your overall strategy, so there is an advantage to that as an approach. Direct Development, though, is incredibly labour- intensive. Within the staffing resources, which are available to the public sector, it is difficult to resource a major programme of that kind.

  281. Do you think they have got the skills to do it?
  (Mr Shelton) I think skills and numbers are major issues as are the set of risks involved in Direct Development. The public sector is not best placed to manage many of them risks. I can see a useful role in the public sector in perhaps site assembly and initial upfront remediation to prepare a development platform, but when it comes to putting up buildings, it is difficult to see that there are the sort of risk that the public sector is normally used to dealing with and managing.

  282. If you were here at the beginning of the session, you would have heard one of the surveyors saying that he believes that most developers have closed down their regeneration teams. Have you got any evidence either that that has happened or that the developers are just now shying away from difficult and challenging sites?
  (Mr Shelton) Yes, the answer is that mainstream developers, housing developers in particular, are moving resources away from their specialist regeneration teams. I think that the impact is actually beginning to show up in the housing completion numbers, for example. Housing completions are now at the lowest level since the early 1920s. We have a situation where government policy, quite rightly, is directing development to brownfield sites, but the absence of an effective replacement Partnership Investment scheme outside the assisted areas means that we have not got, the proactive tool available to address the abnormal costs of dealing with those brownfield sites.

  283. So what you are clearly saying is that without a new EU regeneration framework, then housing on these kind of inner-urban sites is really at risk or indeed the mixed use of these sites, and that we need a new framework? Is that what you are saying?
  (Mr Shelton) Just for illustration purposes, English Partnerships contributes to the creation of the National Land-Use Database which seeks to identify every brownfield site with a development potential throughout England and 65 per cent of those sites are located outside assisted areas. The only tool that is available to the public sector at the present time is Direct Development to bring those sites into productive use if the cost-value equation does not work.

Dr Pugh

  284. Can I just ask you about this Direct Development issue in that is the problem to you that in a sense Direct Development has attendant risks in that a public body has an accountability issue and is losing public money and not losing private money? Is that the reason why Direct Development is saying you are not likely to be enthusiastic about it?
  (Mr Shelton) It is a mixture of resources. Genuine Direct Development is incredibly labour-intensive. Under the Partnership Investment Programme we literally had hundreds of developers out there, working up schemes and bringing schemes to us to appraise and approve as much as the case may be.

  285. So accountability for bad risks is not the issue?
  (Mr Shelton) There is an issue about risks, I believe. I think there is a set of risks that the public sector can effectively manage which are all about site assembly, treating sites for remediation. The set of risks that the public sector does not deal with very well are risks associated with actually building offices, building shops and building housing and it is because you need to be close to the marketplace actually to be able to get the product right and the right quantum, and the private sector is in there when the public sector is not.

Christine Russell

  286. Mr Hall, I believe your previous post was in Scotland?
  (Mr Hall) That is right.

  287. And Scotland has not had the benefit of PIP schemes for a long while. Have you got any lessons or experience that you would like to share with the Committee about what happens in Scotland where they have had to operate there more within the constraints of State Aid?
  (Mr Hall) Yes. Scottish Enterprise developed in 1992/93 a scheme called RAPID, Resources and Action for Private Industrial Development, which was approved by the European Commission, but only for operation within assisted areas. It did cause great problems, I believe, in the Scottish market because the assisted areas tended to be the central belt of Scotland.

  288. And there are a lot more assisted areas in Scotland?
  (Mr Hall) Yes, that is right, but it did mean that peripheral areas like the Borders, Galloway, Dumfries areas, suffered because we could not invest in those areas. There were not high populations, there were small populations, but the property market was not active because it was too risky, but we could not intervene in those areas.

Mrs Ellman

  289. My question is to English Heritage. When did you become aware that heritage funding was in conflict with State Aid rules?
  (Ms Souter) We were advised when we were putting together our Heritage Economic Regeneration Schemes at the end of 1998 that there could be issues that we would need to be careful of in terms of State Aid and we spent some brief months actually in discussion with the Department about how to handle that set of schemes. We also had a question following the ruling on the PIP schemes that led us to look at our overall main schemes. So for the HERS schemes which we planned to launch in December, or we were planning in December 1998, it was agreed in March 1999 that those schemes would be de minimis and so non-notifiable, but we have notified our main historic buildings, monuments, gardens and parks scheme and we are waiting for the Commission to rule.


  290. When you say you are waiting, is that a matter of a couple of weeks?
  (Ms Souter) Unfortunately not. No, it was the middle of last year that we notified of the scheme and we have not yet heard, but it was an ongoing scheme, so the Commission are not required to respond within a specific time-frame.

  291. Do they not have a target for responding to these sort of requests?
  (Ms Souter) I am not aware that they have a specific target. We have not benefited from one anyway.

Mrs Ellman

  292. So you were first aware of a problem at the end of 1998, so what kind of representations did you make or were you invited to make any?
  (Mr West) Could I answer that one? At the end of 1998 we were preparing to launch a scheme called, rather provocatively in the circumstances, the Heritage Economic Regeneration Scheme, and this caught the eyes of the DTI who got in touch with us and said that, as one of the objects of this scheme was actually to use conservationof historic buildings as a catalyst for economic regeneration, then prima facie it constituted State Aid, and we had discussions with them about that. It was decided that as the grants to individual enterprises were so small, it was de minimis, so that scheme has always been administered as State Aid, but as non-notified State Aid. There are cash limits on the amount of non-notified State Aid that any one enterprise can receive in any running three-year period, and we have to operate the scheme within those limits and the local authorities who administer it for us have to operate within those limits. A completely separate issue arose in relation to our principal grant scheme following the decision of the Commission in December 1999 about the PIP scheme. The object of that scheme had always been to assist the repair of outstanding historic buildings and parks and gardens. It has been running in one form or another since 1953, and it still runs under the 1953 Historic Buildings and Ancient Monuments Act. Before English Heritage was set up it was administered by the Historic Buildings Council. So it was an ongoing scheme, very much directed at heritage conservation and we did not think that that would constitute State Aid. After the PIP ruling, which caught I think everyone by surprise, we had long discussions both with the DTI and with our sponsor Department, DCMS, and indeed with UKREP and the European Commission, at the end of which we decided that it would be prudent actually to notify it, which we did in July last year, but as yet we have not heard the result. We are confident, I have to say, that it will be approved—and it will be a great problem for us if it is not, or it is approved only with conditions that make it unworkable—but at the moment we are confident. There is a specific derogation in the European Treaty for heritage conservation, (I think we quoted the subsection in our written evidence and you have that information), and on the back of that we fully expect it to be approved.

  293. Were you at any time asked to make a written submission on the value of your schemes to regeneration?
  (Mr West) Not on regeneration. Obviously we have made written submissions to the DTI in connection with the HERS scheme and we have submitted a formal notification to the European Commission on our principal scheme, but that was really to explain what it was, how it was administered, what we are prepared to grant aid and what not. It did not specifically address the question of their effect on regeneration.

  294. Do you find it surprising that in the middle of a major dispute about the eligibility you were never asked to say why the work you were doing was important to regeneration? Was it never put to you in that way?
  (Ms Souter) I imagine that we were regarded as a very small player in that field frankly. The work that we have done on regeneration is a major part of our activity, but as with any organisation we have to keep reminding some parts of government and other parties of the role that we take, so I suspect that it was more that we were a small body for them to be talking to about regeneration.

  295. So could you clarify what the current position is? You said before that you were waiting to hear, so is it uncertain at the moment or are you telling people that the schemes cannot go ahead?
  (Ms Souter) I think in relation to our Heritage Economic Regeneration Schemes, because we believe confidently that they are de minimis and non-notifiable, those are continuing. There have been some areas where other partners have been concerned about the operation of the State Aid rules, so there are some schemes where people are going back and seeking advice through government offices and through DTI to assure themselves that they can put in their funding to the schemes.

  296. Who are these other partners?
  (Ms Souter) Primarily local authorities who have concerns about the way in which they behave.

Mrs Dunwoody

  297. So you are saying in effect that there is not a problem in principle because none of this is principal because if the amounts are small enough, nobody cares.
  (Ms Souter) I think for the people involved in our schemes, the amounts are relevant to those schemes, so for this particular set of schemes, the Heritage Economic Regeneration Schemes, the de minimis rule is fine because we are applying small grants to a large number of recipients and that is fine for them. In terms of our main scheme, because, as Jeff said, we are confident that the derogation will apply, we are continuing the grants under those schemes and do not believe that we need to suspend that scheme at all.

Mr Betts

  298. In relation to the privately-owned projects that you fund, could you just say from the English Heritage point of view how much of your grants budget goes on privately-owned projects? How do you decide whether or not to fund such projects and how have they so far been affected by the State Aid problems which are around?
  (Mr West) If I could answer the last part of that question first, because I think it actually is the most important. I think our principal concern about the way the State Aid rules are being applied at present has been the increasing difficulty that partners involved in trying to rescue historic buildings and areas at risk, and do regeneration, are having in putting together funding packages. It is not the availability of our grant which is relevant, which is almost always a relatively a small part of the eventual package, but the difficulty they have in raising the other match funding, or more than match funding, that is needed to make a scheme economically viable. We are aware of a number of very important, very successful schemes, a lot of them involving the conversion of historic industrial buildings, for example, for housing, or schemes that have gone ahead in the past outside Assisted Areas, and it is going to be very difficult to do similar schemes in the future either because of the problems we have been hearing about today about funding housing schemes or about getting funding outside Assisted Areas. There is a particular issue that is concerning us which is that if this issue of limiting this sort of funding to Assisted Areas remains unchallenged, the UK, and England in particular, will face increasing difficulties after 2006 when the present regime for structural funding changes following enlargement. If there are far fewer Assisted Areas in England after 2006, unless we can get the principle changed that we can operate these schemes outside Assisted Areas, there is going to be a very serious problem indeed in getting the match funding that we need to make our grants work.

  299. Quite a lot of schemes have stopped now, which otherwise would have been going ahead, because we are currently waiting to see what the rulings are?
  (Mr West) Exactly that.

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