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

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:


  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.


  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.


  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.


  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.

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 31 July 2002