Memorandum by The Royal Institution of
Chartered Surveyors (RICS) (ERF 15)
INTRODUCTION
The Royal Institution of Chartered Surveyors
(RICS) represents the views and interests of 110,000 chartered
surveyors worldwide covering all aspects of land, property and
construction. Under the terms of its charter, RICS is required
at all times to act in the public interest and we recognise regeneration
as a key area of focus in this context.
We welcome this opportunity to submit evidence
to the Urban Affairs sub-committee. The terms of the inquiry recognise
the importance of physical regeneration and the vital contribution
it can make to more sustainable land use, promoting a high quality
of life in towns and cities by way of places to live, work and
play, the physical renewal of run down urban areas and in providing
quality homes for all.
The closure of the former Partnership Investment
Programme (PIP) regime and the inadequacies of the replacement
schemes have been the subject of special attention by RICS given
the wider reaching impact on the property industry and the achievement
of an Urban Renaissance. Through our Regeneration Policy Panel
and Regeneration Forum, RICS has worked actively with the Department
for Transport, Local Government and the Regions (DTLR) in preparing
guidance materials for RDAs and developers and in raising awareness
of the regime through a programme of conferences. In framing this
submission, RICS has also commissioned research from Hewdon Consulting
on the views of the RDAs towards the new regime and steps taken
by them to implement it.
Given the complexities of the issues posed by
the PIP replacement schemes, we can only hope to summarise our
views within this paper. In particular we have focused on the
replacement schemes related to bespoke, speculative and direct
development and have not at this stage commented on those related
to community uses or land reclamation. We would welcome the opportunity
to provide more detailed comments in response to any of the Select
Committee's queries. Contact details are set out at the end of
this paper.
SUMMARY OF
FINDINGS AND
KEY RECOMMENDATIONS
There have been problems in drafting and negotiating
the new grant regime for land and property regeneration schemes,
which have rendered it an inadequate solution to the problem created
by the original EU decision on gap funding.
The new eligibility criteria imposed make it
far more difficult for private-led projects to secure gap funding.
RDAs are therefore faced with letting these projects fall by the
wayside or undertaking an increased programme of direct development.
In either event, the lack of private sector financial leverage
and expertise will have an impact upon the regenerative outputs
that can be achieved through RDA budgets and consequently on the
achievement of their Regional Economic Strategies. At the same
time, the new regime presents clear problems for the Government
in achieving an urban renaissance, particularly key objectives
such as securing mixed-use development and design quality.
To address these shortcomings, we see a strong
need for a Europe-wide Regeneration Framework. In our view, an
effective regime must have the following elements:
— Gap funding should not be confined
to assisted areas. An effective regime should be available anywhere
in the country, subject to assessment of need.
— Funding should also be made available
for residential or mixed-use schemes that are predominantly residential
schemes; and
— There should be no arbitrary restriction
on the level of grant available.
However, it will take considerable time for
agreement to be reached on the nature and scope of a new European
Regeneration Framework. It is therefore essential that, whatever
the shortcomings of the existing system, prompt efforts be made
to implement them so that regeneration outputs can be achieved
in the intervening period. However, the delays involved in negotiations
with the EU are now being amplified by a generally reluctant approach
by the RDAs to publicising the new regime. Key actions to effect
the regime's practical implementation must include:
— Preparation by the RDA/EP Best Practice
Group of detailed guidance notes to assist in appraisal of funding
applications.
— Communication by each RDA to the
market of its intentions regarding use of the replacement schemes.;
and
— Identification by DTRL and the RDAs
of a new "brand" for the replacement schemes, giving
them a clear identity.
Further delays are no longer acceptable and
DTLR should work with the RDAs to set out a clear timetable with
targets and milestones to effect the implementation of the new
regime. This issue should be high on the Urban Summit agenda in
October 2002.
DETAILED FINDINGS
In framing our response to the Select Committee
we believe it is important to address four key considerations:
— the effectiveness of DTLR's approach
to securing a new regime with the EU;
— the implications of the new regime;
— the case for a new European Regeneration
Framework; and
— the level of take-up of the replacement
regime in the intervening period.
These issues are addressed in turn.
1. APPROACH
TO SECURING
THE NEW
REGIME
Whilst a new regime is now in place, a number
of key points of principle were never resolved to our satisfaction
in DTLR's approach to negotiations with EU. As a matter of what
seems to be political expediency, the UK Government chose not
to argue with the Competition Directorate's initial decision that
the old gap funding scheme amounted to unfair state aid. In our
view, the Directorate does not have a monopoly of wisdom on this
subject and a wider discussion of the economic rationale for the
Directorate's views, which are based on a very narrow view of
economic intervention, might lead to a much more effective regime.
As it is, the new schemes have been hamstrung from the start.
The period from closure of the former PIP programme
in December 1999 to the issuing by DTLR of a final Guidance Note
to RDAs on the operation of the new regime in December 2001 took
two years. Importantly, even now, the scheme is still not capable
of being implemented by the RDAs due to a lack of detailed guidance
materials, a point to which we will return below. In our view
the decision to accept without question the EUs ruling and the
delays experienced in reaching an agreed replacement scheme are
unacceptable and reflect a lack of focus and sense of urgency
from DTLR. Furthermore, in spite of the time available to DTLR
for reflection, the new regime is littered with compromises, such
that the existing system shows a lack of understanding of the
practicalities of achieving regeneration.
Throughout this period, RICS has worked actively
with DTLR, with members of our Regeneration Policy Panel providing
advice on a pro bono basis and through joint funding of guidance
materials. However, despite considerable input on our part, or
ability to influence the EU has been constrained by DTLRs overall
stance on these issues. Until very recently there has been no
dedicated resource with specialist regeneration experience within
DTLR, making them generally unreceptive to simple and essential
recommended changes to draft guidance materials. A further frustration
has been the DTLR decision not to press the EU for a scheme to
support residential funding in spite of its wider policy objectives
in this field and, it is our understanding, as indication from
Brussels that they would be willing actively to consider such
a proposal.
2. IMPLICATIONS
OF THE
NEW REGIME
Whilst the new PIP regime is in many ways similar
to its predecessor, a number of new grant eligibility criteria
have been introduced which act as a major constraint to its practical
applicability. The key new features are as follows:
— the scheme must be primarily for
a business use. Whilst mixed-use schemes are acceptable, DTLR
has indicated that they may only contain up to 50 per cent of
housing. RICS believes this threshold is vague since it could
be judged by value, size or other measures. We have requested
clarification on this point from DTLR on several occasions;
— only small and medium sized enterprises
(SMEs) developing accommodation for their own occupation are eligible
for funding outside Assisted Areas; and
— a cumulative aid intervention ceiling
limits the amount of any public sector funding (including gap
funding) for which a scheme is eligible as a proportion of total
project costs. These levels depend on location and the status
of the project promoter in a complicated and, from the perspective
of regeneration, irrational way.
Research undertaken by Hewdon Consulting for
RICS highlights that only one RDA has undertaken any quantitative
research regarding the impact of the new regime. This in itself
highlights a general lack of focus on regeneration by the RDAs,
which is considered further below. This RDA study highlighted
a reduced likelihood of projects being eligible for funding under
the new regime, leaving the RDA with a difficult choice—between
losing important outputs against their Regional Economic Strategy
on the one hand or allocating greater public sector funding through
which to secure the same outputs on the other. In practice the
likely approach will be some direct development, for example the
reclamation and advance infrastructure for a mixed use development,
together with greater focus on strategic area-based priorities.
However, such projects are limited to public sector owned land,
which quite often owners are unwilling to sell and/or RDAs are
unwilling to embark on a convoluted compulsory purchase route
to acquire land. At the same time there is a loss of private sector
financial leverage and expertise, which does not appear to fit
with the Governments general desire to see increased private sector
finial investment in regeneration.
The RDA funded study highlighted above is based
upon historic projects framed against the former PIP programme.
Obviously under the new regime project promoters would be forced
to consider the associated eligibility criteria and they may therefore
bring forward proposals of a different nature and scale to fit
these. Hence, whilst crudely the project may proceed, the associated
"value engineering" may be to the detriment of the project.
This highlights a more wide-spread failing in regeneration work
whereby all too often projects are developed to chase funding
rather than tailored to local needs and may also involve compromise
on design quality, another area of policy focus for the Government.
The full impact of the change to the new regime
has not been felt because of the considerable number of PIP "survivor"
projects still held in the funding system. These projects continue
to be appraised under the former programme in line with an agreement
reached with EU in 1999. very soon these projects will finish
passing through the RDAs and the real implications of the change-over
to the new regime will be felt in earnest.
3. CASE
FOR A
EUROPEAN REGENERATION
FRAMEWORK
The implications of the new regime are highlighted
above. Given the delays involved in reaching this point and the
considerable number of weaknesses represented by the new regime,
we do not believe that tinkering with it will be sufficient to
address its shortcomings. In our view a more fundamental overhaul
is required. We therefore see a clear opportunity for a Europe-wide
Regeneration Framework.
In any event, the replacement schemes only run
to December 2006 therefore making another replacement scheme necessary
at some future point. It is essential that a prompt start is made,
given both the clear need for an improved funding framework for
England and the likely difficulties and hence time delays involved
in securing a framework which would accord with the needs of all
EU member governments.
RICS would like to see a Europe-wide Regeneration
Framework that allows flexible public-private regeneration partnerships.
Under the principal of subsidiarity we would like to see an overarching
framework giving maximum discretion to individual member states
to operate funding regimes that reflect their specific circumstances.
Any framework could also be used to focus and narrow the targets
set by the EC for measuring and monitoring programmes. These targets
add significantly to the bureaucracy involved in Objectives 1
& 2 programmes and deter private sector investors. We see
it as essential that DTLR champions better integration of funding-related
decisions by Brussels.
As a minimum, a European Regeneration Framework
must address a number of key issues that are set out below.
3.1 Residential Development
There is not currently a housing gap funding
replacement scheme. No more than 50 per cent of a scheme can be
residential. In most areas, housing forms an essential element
of mixed-use development schemes, but is not eligible for grant.
The RDAs may not see a need for a housing scheme because the outputs
from housing are not predominantly economic. However, housing
is a crucial aspect of any comprehensive approach to regeneration,
urban renaissance and neighbourhood renewal and its inclusion
is, in our view, essential. On this basis, the success of any
European Regeneration Framework should be predicted on its ability
to fund true mixed-use projects.
There is also a further point of principle here
in terms of the roles and responsibilities of the RDAs as regards
residential development. The Hewdon Consulting research highlighted
a general interest by the RDAs in residential development as they
recognised the essential links between securing both employment
and housing within mixed-use, area based regeneration. However,
the transfer of RDA reporting to DTI, coupled with the PIP replacement
regime's inadequate residential provisions, has restricted their
ability to intervene in this market. It is essential that the
Government takes a policy decision on how private-sector residential
development is to be coordinated. In our view, this should be
a key consideration in the ongoing review of English Partnerships.
3.2 Assisted areas and physical and economic
regeneration
One objective of regeneration is to address
spatial concentrations of poverty. The original gap funding scheme
was unambiguously directed at securing physical regeneration in
any deprived area. Assisted areas, at which the replacement schemes
are targeted, are defined as areas where DTI can give support
to businesses, not necessarily where the public sector needs to
improve the physical environment. The two do not necessarily go
hand in hand. There are significant concentrations of poverty
in areas that are not assisted and where the new regime is not
available (other than to SMEs), such as Leicester. That is recognised
in the distribution of other EC grants so it is anomalous that
it is not recognised in the gap funding regime for capital projects.
Equally, areas like Luton and parts of London, with flourishing
property markets, have assisted area status but have minimal need
for gap funding. A better approach to defining need is required.
3.3 No restrictions on grant level
There should be no arbitrary restriction on
the level of grant available. The grant levels (or, strictly,
the cumulative aid levels) available to the private sector under
the new schemes are too restrictive, even with Tier 1 Assisted
Areas, for tougher schemes. Instead, the new regime places emphasis
on direct development, which, as noted above, has a number of
weaknesses as the main RDA tool to deliver regeneration.
3.4 Grant aid directed at site and development,
not occupier or developer
Under the provisions of the new schemes, where
a proposed development project is bespoke, SME occupiers
get more grant than large firms. Where the proposed development
is speculative, there is extra grant for SME property developers—not
a group one normally associates with economic deprivation. These
measures appear to have been put in to make the schemes acceptable
to the EC. In our view, physical regeneration schemes should not
discriminate in favour of SMEs—it jut muddles their objectives.
Support for SMEs is an economic objective that should be pursued
by purpose-specific policies, not tacked onto a wholly different
objective.
4. LACK OF
TAKE-UP
OF CURRENT
SCHEMES
In spite of the weaknesses of the new regime
as highlighted above and the case for a new European Regeneration
Framework, a key short-term concern remains the relatively poor
take-up by the RDAs of the approved replacement regime. Clearly
until a European Regeneration Framework is approved this remains
the best available opportunity to engage in private sector-led
regeneration projects within key deprived areas and will remain
so for some time to come.
A short-term barrier is that despite DTLR having
finalised its Guidance Note to the RDAs, a more detailed set of
guidance materials, similar to the old English Partnership Best
Practice Manual, is required to facilitate its implementation.
Whilst we understand that DTLR has agreed with the RDA/EP Best
Practice Group that the latter will take responsibility for drafting
these, we are concerned again at the potential for delay. We do
not understand why an earlier start could not have been made on
these, dovetailed into the finalising of the overarching guidance
notes. We are also not clear at this stage whether these will
be drafted by already busy RDA/EP officers or whether sufficient
dedicated resource will be made available. In our view the latter
is essential.
The research undertaken for RICS by Hewdon Consulting
highlights that RDAs do see a role for the PIP replacement schemes
within their overall portfolio of activity, although this will
increasingly form one of a number of tools applied to strategic,
area-based initiatives. We support a more strategic focus by the
RDAs, although we remain concerned in several areas:
— small projects with clear regeneration
merit may be missed because they do not feature on the RDAs' strategic
radar;
— a greater emphasis on area-based
regeneration by its nature means that projects take longer to
plan and deliver, with outputs therefore only achieved much further
down the pipeline; and
— this necessitates a much broader
range of skills within the RDAs, particularly around development
management, which our experience suggests may not be available
in sufficient quantities at the present time.
RDAs should therefore think through their practical
capability to deliver against their strategic objectives prior
to relegating the PIP replacement schemes to a relatively low
funding priority.
Our experience suggests that the approach each
RDA intends to take, and they appear to be very similar in the
main, is not known to the market. The success of private sector
involvement in regeneration is predicted on confidence and certainty.
Ultimately, the process of grant award relies upon RDAs inviting
applications from developers or occupiers. In these terms, it
is therefore incumbent on the RDAs to communicate to their respective
markets how they propose to take forward the new regime. While
RDAs have engaged in some conferences and briefing sessions, in
our experience this has left the market with more questions than
answers. A more focused and detailed approach is required.
A relatively simple additional step that could
be taken to improve the visibility and awareness of the new regime
is to give it a proper name. Terming the programme the "PIP
replacement schemes" does not highlight the fact that it
is now operational or the breadth of activities it can cover.
To date, RICS has used the term Brownfield Investment Grant or
"BIG". Whilst we acknowledge that the regime offers
more than solely grant opportunities, we feel that this or another
name should be selected and adopted with immediate effect.
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