Select Committee on Transport, Local Government and the Regions Memoranda

Memorandum by Barnsley Metropolitan Council (ERF 11)

  1.  Barnsley MBC welcomes the opportunity to present evidence on the subject of this inquiry. Written and verbal evidence was presented for the similar inquiry on the demise of the Partnership Investment Programme (PIP) in 2000 and used to secure a partial reinstatement of funding under the PIP replacement schemes which currently operate in respect of land and property development for economic end uses.

  2.  Whilst the five current schemes, operating within EU State Aid rules, are welcome, it is becoming increasingly evident that these schemes only go part way to restoring the position that existed prior to the demise of the original PIP scheme. This, inevitably, has resulted in negative consequences for the regeneration of economically disadvantaged areas such as Barnsley.

  3.  As part of the South Yorkshire Objective 1 area, Barnsley and the adjacent coalfield districts suffers from the economic and social consequences of restructuring in the coal and manufacturing industries over the past 20 years. South Yorkshire as a whole has a GDP level below the 75 per cent EU average GDP threshold for Objective 1 status. The estimated figure for Barnsley is 62 per cent of EU average GDP. This is reflected in a weak property market in virtually all parts of the Borough, including the urban centre and the former coalfield to the east, despite good access to the M1 motorway. So called "gap funding" schemes, such as PIP and its replacements, have provided a vital tool in addressing this market failure in a variety of situations.

  4.  However, the PIP replacement schemes, currently operating in South Yorkshire (and elsewhere) provide only a partial reinstatement of previous provision. Although the schemes were only approved relatively recently it is becoming clear that they do not provide the means to overcome all the barriers to investment. This is most apparent in respect of the Speculative and Non-speculative ("bespoke") Gap Funding Schemes, which relate to land and property.

  5.  As an Objective 1 area South Yorkshire automatically enjoys a higher (Tier 1) state aid ceiling of 35 per cent total costs (50 per cent for SMEs), under EU Regulations (Article 93a), compared with non Tier 1 areas. Even with this more generous allowance it is apparent that the funding gap on some schemes is larger than this and, therefore, such schemes will not proceed. The list of projects attached at Appendix 1 incorporates those employment sites (including urban centre sites), which are potentially "at risk" because of the scale of funding gap. More work is being carried out on these to identify the scale of funding gap which applies in each case, but some schemes involving "large companies" are already known to be in excess of 35 per cent and therefore highly vulnerable. Schemes involving SMEs (less than 250 employees) are generally safer on account of the additional 15 per cent "top up" allowed in addition to the 35 per cent ceiling for large companies.

  6.  There are some additional problems with the existing schemes. One such problem is the exclusion of Rental Guarantees, which in the past have proved to be a useful incentive to attract investment in property development. Another issue is the uncertainty about what sources of public funding have been notified to the European Commission. A recent example to attract press attention has been funding through the Heritage Lottery Fund. There is a worry that there may be others which have not been notified and approved, but which may be used as part of gap funding packages. The main source in south Yorkshire is the Objective 1 funding for Speculative and Bespoke schemes which has been notified jointly with Merseyside.

  7.  One major issue arising from the demise of the original PIP scheme is the lack of approved schemes to support the development of brownfield land for housing development. The abnormalities of site development in such cases, due to contamination etc, impose additional development costs, which make schemes unprofitable for the developer. Whereas the PIP replacement schemes provide gap funding for economic and environmental end uses, they do not allow for housing as such. This is likely to prove a major barrier to regeneration in coalfield and inner urban areas where such brownfield sites are prevalent and form an explicit plank in Government regeneration policy. A recent study by the University of Birmingham ranked Barnsley (alongside Rotherham and Doncaster in South Yorkshire) as on the second tier of market risk, below the inner city areas of Sheffield and Hull. Major examples of this problem existing in Barnsley are to be found at Grimethorpe (former coalfield) and Kendray (urban centre). Without an approved gap funding scheme work in regenerating old and dilapidated housing stock has come to an abrupt end threatening to limit the impact of more direct economic regeneration activity and, in the case of Grimethorpe, leading to depopulation.

  8.  Turning to the need for a new European Regeneration framework, Barnsley Council and its partners, through the Local Strategic Partnership, would welcome a change of thinking within the European Commission, in particular DG Competition. Over many years we have worked positively using the European Regional Development Fund alongside domestic funding sources to meet the objectives of EU regional policy. The demise of the PIP scheme, even with replacements now available, has hampered our efforts and ability to contribute to EU economic and social cohesion. DG Competition need to be persuaded by all Member States collectively through the Council of Ministers that regeneration is a "special case" and should not be subjected to the normal rules of competition policy. A comprehensive EU Framework needs to be worked out with the relevant Directorates General which meets the objectives of regional policy whilst not distorting competition in the private sector. This needs to incorporate all aspects of regeneration: economic, social and environmental.

  9.  In conclusion, Barnsley Council would be pleased to assist the efforts of the UK Government in making a convincing case for such a framework, including provision of further evidence, based upon examples of problems and opportunities within the Borough.

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