Memorandum by English Partnerships (ERF
19)
At the time of writing English Partnerships
is the subject of a Quinquennial Review by the DTLR. Consequently,
its remit, objectives and operational functions are subject to
change. Decisions on the outcome of the Review are, of course,
matters for Government rather than English Partnerships' Board
or Executive team. This document is intended to be read against
that background.
English Partnerships welcomes the Committee's
decision to review the progress made on developing a European
regeneration framework, proposed following the Environment, Transport
and Regional Affairs Committee's enquiry into the cessation of
the PIP gap-funding mechanism in July 2000.
Much of the history of PIP and the consequences
of its cessation are well documented, not least in the above Committee's
July 2000 Report. English Partnerships acknowledges the efforts
made by Government (DTLR and DTI) in working in the interim to
fill the "hole" left by PIP. The provision of extra
resources to RDAs and the introduction of what has become known
as the Brownfield Investment Grant (BIG) as part-replacement for
PIP have been a start in addressing that hole. It should be recognised,
however, that many of English Partnerships' partners, and others
in the regeneration industry generally, continue to lobby for
action in a number of other areas to redress the perceived lack
of investment in physical regeneration across England.
The Committee's July 2000 Report supported the
acquisition of the necessary skills within RDAs for direct development
projects and supported greater use of CPOs. While the latter has
been recognised in a range of instances, even before the recommendations
of the recent Planning Green Paper, it is not entirely clear that
the public sector on its own has the commercial skills to do this
effectively on a significant scale. The private sector brings
knowledge as well as finance to regeneration projects which might
be lost were the process to be led exclusively as a public programme.
The maintenance of entrepreneurship in the land and property market
needs support through a range of measures including through grants,
joint ventures and by public sector competitive procurement processes.
The post-PIP regime does not adequately respond to this need.
Addressing each of the Committee's specified
areas of concern in turn:
THE FIVE
NEW, EU APPROVED,
LAND AND
PROPERTY REGENERATION
SCHEMES
These new instruments are available for use
within the RDAs' Single Pot (from April 2002), the London Development
Agency and by English Partnerships, as they wish to implement
them. These are not new schemes as such and carry no new money.
The Speculative and Non-Speculative Gap Funding Schemes are the
most significant in terms of their potential for assisting large
scale urban regeneration by the private sector, both covering
commercial development but with only a minor housing element.
They are, however, only available within Assisted Areas defined
for regional policy ends and have a limited ceiling irrespective
of the size of the cost/value gap. This is because the European
Commission views regeneration as part of its Regional Aid Framework.
This framework deals with relative economic performance of regions
and the type of permissible aid is governed by economic factors
which are not sensitive enough to the objectives of regeneration.
We believe many very worthwhile major brownfield sites in areas
of urban deprivation will not therefore be eligible and funding
ceilings are too low to be fully effective or worthwhile.
As far as English Partnerships' own role in
implementing these mechanisms is concerned, we are awaiting the
results of the Review of English Partnerships before examining
their potential against English Partnerships' future direction.
The future of the National Coalfields Programme, without PIP is,
however, a particular concern of ours.
We are currently considering the future of Priority
Sites Ltd, English Partnerships' joint venture with The Royal
Bank of Scotland in which the Bank has a controlling interest.
Priority Sites develops speculative industrial units in areas
where demand exists but where the private sector is unwilling
to develop. Here, it is clear that the ability of Priority Sites
Ltd to act as a developer in areas of need is again being severely
constrained by the new "son of PIP" regulations. The
areas of greatest need, where there is historically no private
sector activity funding speculative industrial development on
the back of maximum grants of 35 per cent is unlikely to be successful.
This will force development to take place in less marginal areas
with again the knock on effect that deprived areas will suffer
even more. Set against this, Priority Sites Ltd is about to mark
the milestone of creating one million square feet of commercial
floor space, a clear mark of success.
BARRIERS TO
REGENERATION CAUSED
BY THE
CURRENT FRAMEWORK
Clearly limiting the new "BIG" schemes
to Assisted Areas excludes many deserving priority areas from
the benefits that physical regeneration funding partnerships might
deliver, together with the lack of a meaningful mechanism for
the promotion of housing schemes even as part of a mixed use development.
The latter is a key area which needs to be addressed.
PIP was, of course, more than a mechanism for
direct public sector grant. Its demise has reinforced the need
for more flexible funding instruments such as the ability to invest
in companies by the public sector; less formal joint venture structures;
the use of endowments; the use of loans and guarantees; and flexible
special purpose vehicles, alongside a less restrictive procurement
process more sensitive to the commercial sensitivities of the
private sector.
The EC does not appear to have a consistent
method for or open policy on the pricing of aid, notably whether
it is the total support provided to a project, or simply the difference
between the rate of return to the public sector and a market return.
The EC is also inconsistent in its view on the beneficiaries of
aid—not knowing whether the land owners, developers or end-users
are their main cause of concern. Regeneration projects involve
the first two directly and the latter only indirectly so it is
hard, if not impossible, to appraise projects to examine aid to
all three. Because they lack an understanding of land and property
markets, the EC appears to fall back on theoretical and hypothetical
approaches to the pricing of aid.
CONSEQUENCES FOR
THE URBAN
RENAISSANCE IN
TERMS OF
OUTPUTS, OUTCOMES
AND VALUE
FOR MONEY
Briefly, given the loss of PIP and greater dependence
upon direct development, lower outputs are likely to be achievable
in the short term. Longer term, with the recycling of receipts
from completed projects the number of projects, and therefore
outputs, are expected to increase. All this will, however be at
a higher cost to the public sector where previously the private
sector had, over recent years, made an investment of over £1
billion, with the all too obvious impact on the value for money
ratios for each £1 of public money.
Against that background English Partnerships
has been working on a number of initiatives which aim to tackle
the increasing level of private sector investment in regeneration.
In future we hope that such innovative measures could be covered
by a new framework rather than through lengthy individual state
aid notifications to the EC.
The Government approved of the English Cities
Fund in mid-December, following an earlier EC approval as a legitimate
State Aid. The Fund, developed with English Partnerships' two
private sector partners AMEC and Legal & General, is designed
to assist private sector investment in those areas located on
the fringes of town and city centres which have found it difficult
to compete with the appeal of a thriving nearby centre. In the
first stage, £100 million would be raised by the investment
of £50 million equity from English Partnerships, Legal &
General and AMEC, together with a bank debt of £50 million.
After about three years, it is intended that this, or a similar
vehicle, will raise an additional £150 million of private
sector investment as a second stage. This is a key and high-profile
plank in delivering the Government's urban renaissance agenda.
We have been working with local authority and RDA partners towards
identifying up to six projects in urban areas within Assisted
Areas. We are hoping to identify an appropriate site and date
to launch the first project shortly.
The availability of gap funding mechanisms is
a key issue in Urban Regeneration Company (URC) areas. The three
pilot areas, (Liverpool, East Manchester and Sheffield) being
within high profile (objective 1 and 2b) Assisted Areas, there
is real potential for RDAs—in the North West, in particular
in Liverpool and East Manchester—to use the new gap funding
mechanisms. English Partnerships is examining, with our partners,
the potential for making its own contribution through the new
schemes, although we cannot be sure exactly what role we will
be able to play until we know the outcome of the Review. That
said, however, not all URC areas will be in Assisted Areas, but
will be in priority areas in terms of their deprivation levels,
physical fabric or market failure conditions, eg Corby and Leicester.
They will present a clear need for targeted funding to support
the strategic regeneration of such areas through the URC mechanism.
English Partnerships is also in discussion with
a range of institutional investors to build upon these and other
PFI/PPP models.
THE CASE
FOR A
NEW EUROPEAN
REGENERATION FRAMEWORK
If a framework were to be introduced, English
Partnerships believe it should include state aid complaint arrangements
to tackle the physical regeneration of brownfield sites in priority
areas. Rather than being bound by the regional aid map as at present,
(re Assisted Areas) areas benefiting should be defined by more
local indicators of market failure and economic and social deprivation.
The Regional Venture Capital Funds, now being developed by the
RDAs, are clearly linked to such regional aid and rightly so,
targeting as they do the equity gap and support for SMEs. This
model, we believe, can be developed and expanded further to lever
in greater interest and investment from institutions and the private
sector as a whole.
| 
