Memorandum by Department for Transport,
Local Government and the Regions (ERF 17)
BACKGROUND
1. The Government has introduced five new
land and property regeneration schemes which partially replace
the Partnership Investment Programme (PIP). The new schemes will
enable the Regional Development Agencies (RDAs) and English Partnerships
(EP) to support a wide range of land and property regeneration
projects, including projects which can be taken forward in partnership
with the private sector. The new schemes cover:
— Speculative gap funding;
— Non-speculative gap funding;
— Community Regeneration; and
— Environmental Regeneration.
Only the gap funding schemes contain State aid.
(a) Direct development
— Involves a situation where a RDA
or EP undertakes development works on publicly owned or procured
land either by itself or with other public sector partners.
— Direct development may include:
Acquisition of land/buildings at market rates;
Provision of services/infrastructure;
Development/refurbishment of buildings;
Sale or lease of resulting project at market
rates.
(b) Speculative gap funding
— This involves the funding of projects
for the development of a site with no particular end-user in mind
and where the site is to be disposed of at market value.
— Projects may be supported in any
of the Tier 1 or Tier 2 Assisted Areas. Aid of up to 35 per cent
is available in Tier 1 areas. In Tier 2 areas, projects may receive
aid of between 10-20 per cent depending on location;
— Projects outside Assisted Areas may
also be supported provided that the beneficiary is a small or
medium enterprise (SME). Additional grant is available to SMEs
- up to 15 per cent in Tier 1 areas and up to 10 per cent in Tier
2 areas. Outside the Assisted Areas, medium sized enterprises
may receive grant of up to 7.5 per cent and small enterprises
may receive up to 15 per cent grant. The rationale for allowing
greater subsidy for SMEs is that this has less risk of distorting
competition than subsidy to large enterprises.
(c) Non-speculative gap funding
— This involves the funding of projects
for the development of a site for an identified company or individual
who will occupy the site following completion. A distinction is
made from speculative developments because, in principle, it allows
public authorities to choose projects with the aim of helping
the end-user, rather than simply regenerating a site, increasing
the potential for abuse.
— Projects may be supported in any
of the Tier 1 or Tier 2 Assisted Areas. The levels of aid noted
above also apply to non-speculative projects;
— Projects outside Assisted Areas may
also be supported provided that the beneficiary of the aid will
be a SME. The aid levels which apply to SMEs undertaking speculative
projects also apply to SMEs involved in non-speculative developments.
(d) Community regeneration
— This scheme involves making funding
available to community and voluntary organisations so that they
can take forward small-scale regeneration projects;
— Funding is only available for projects
which are put forward by such groups which are non-profit making
and locally based.
(e) Environmental regeneration
— The purpose of the environmental
regeneration scheme is to improve the environment by reclaiming
derelict or potentially derelict land and providing a cover of
vegetation;
— Subsequent uses of the site may
include public open spaces, nature conservation areas and playing
fields;
— Scheme may not be used for "hard
end" uses, eg offices, industrial buildings etc.
2. The schemes were approved by the European
Commission as follows:
| — Direct development
| — | Not formally approved, but the Commission confirmed that the scheme did not contain State aid.
|
| — Speculative gap funding |
— | 28 February 2001; |
| — Non-speculative gap funding
| — | 28 February 2001;
|
| — Community regeneration |
— | 13 March 2001; |
| — Environmental regeneration
| — | 28 March 2001. |
3. There will be expenditure in the current financial
year on direct development, community regeneration and environmental
regeneration projects. Details are set out below:
| RDA | Forecast Spend 2001-02—Direct Development (£m)
| Forecast Spend 2001-02—Community Regeneration (£m)
| Forecast Spend 2001-02— Environmental Regeneration (£m)
| Forecast Spend 2001-02—Gap Funding (£m)
|
| SW RDA | 31.6
| 1.5 | 4.4
| nil |
| EMDA | 0.84
| nil | nil
| nil |
| SEEDA | 17.87
| nil | nil
| nil |
| ONE | 19.71
| nil | 1.77
| nil |
| NWDA | 23.8
| nil | 14
| nil |
| Yorkshire Forward | 5.2
| nil | nil
| nil |
| AWM | 12.33
| nil | nil
| nil |
| LDA | 33.81
| nil | nil
| nil |
| East of England | 2.79
(Actual Spend
to 22.1.02)
| nil | nil
| nil |
EXTENDING THE
GAP GUNDING
SCHEMES
4. We are exploring with the European Commission the
possibility of extending the two gap funding schemes so that they
would apply in all areas of England, thereby enabling us to support
non-SMEs outside the Assisted Areas.
HOUSING
5. We are currently consulting the RDAs and English Partnerships
on the need for a new gap funding scheme which would permit the
payment of State aid for predominantly housing projects. We have
also had representations on this issue from, amongst others, The
Prince's Trust. We are seriously considering notifying the Commission
of a new gap funding scheme for housing in the near future.
BARRIERS TO
REGENERATION CAUSED
BY THE
CURRENT FRAMEWORK
6. The Government believes that the following features
of the new schemes may create barriers to regeneration:
— Gap funded projects must normally be located in
an Assisted Area. However, this restriction does not apply where
the beneficiary is a SME;
— There are limits on the amount of aid available
for gap funded projects;
— The extent to which housing may be supported as
part of a mixed use development is uncertain (see paragraph 5
for details of the action we are taking to remedy this situation).
7. Compared with gap funding, there are limitations to
the use of direct development:
— Direct development can only be undertaken on land
owned by the public sector and in some circumstances it may be
difficult to purchase particular sites;
— Direct development requires more up front public
expenditure than would be required under gap-funding;
— Under direct development, the public sector assumes
all of the developmental risk;
— Under direct development, the public sector does
not benefit from private sector expertise.
CONSEQUENCES FOR
THE URBAN
RENAISSANCE IN
TERMS OF
OUTPUTS, OUTCOMES
AND VALUE
FOR MONEY
8. Significant extra resources were made available to
RDAs—£60 million in 2000/01, £150 million in 2001-02,
thereafter land and property funding will form part of a new single
RDA economic development and regeneration budget with increases
of £350 million in 2002-03 and £500 million in 2003-04
compared with current budgets—to reflect the higher public
expenditure costs of these schemes. However, it is still likely
that the restrictions noted above will result in fewer outputs
in the short term and less progress towards outcomes. In the longer
term, as receipts from completed direct developments are received,
the number of projects, and therefore outputs, are expected to
increase.
9. No figures are available at present for outputs solely
attributable to the five new schemes. The RDAs will be asked to
provide figures at the end of the current financial year.
THE NEED
FOR A
NEW EUROPEAN
REGENERATION FRAMEWORK
10. The Government is exploring the possibility of permitting
the payment of State aid for regeneration purposes with the Commission
and other Member States. The Commission has sole responsibility
for the introduction of new frameworks under the State aid rules.
The Government has argued that if the Commission does decide to
introduce a framework, that it should permit, throughout the European
Community, the payment of State aid for the regeneration of brownfield
land to take account of market failure.
11. At an Informal Ministerial Meeting held on 9 October
2001, Sally Keeble, the Parliamentary Under Secretary of State
with responsibility for regeneration, pressed the case for the
Commission, in consultation with Member States, to introduce a
new regeneration framework. This was supported by four other Member
States[6] and a further
three supported the need for clarification of the rules on PPPs
and State aids.[7]
12. The Government supports the Commission's overall
policy on State aids which is designed to promote free competition
within the European Union and thereby contribute to the development
of a Single Market. It is, therefore, necessary, to find a balance
between achieving regeneration objectives and preventing abuse
of the system. The Government believes that such a balance should
be possible to strike. Payment of State aid for regeneration should
be permitted where this would improve efficiency and productivity,
contribute to the Community's wider goals, and enable Member States
to more fully engage with the private sector. In the Government's
view, any distortion of competition which arises through the payment
of State aid for regeneration is likely to be limited provided
that:
— Projects eligible for public sector assistance
are additional to investor's plans. They are non-viable commercially
and will only proceed with public sector support;
— The amount of public funds provided is the minimum
necessary to enable the site to be developed;
— The end-user pays a full market rate for the property.
CASE FOR
A NEW
FRAMEWORK
13. The Government believes that a good case can be made
for a new framework taking the following considerations into account.
14. The limited distortion of competition which may occur
can be justified by the resulting economic, social and environmental
advantages which flow from the regeneration of land. These advantages
include:
— A reduction of development pressures on greenfield
land;
— Economic, social and environmental advantages
of physical regeneration, including the improvement of the physical
characteristics and infrastructure of a site and the removal of
contamination or dereliction;
— Wider benefits—not only increasing the value
of a particular site but also the surrounding area;
— A contribution to the creation of new jobs, a
general improvement in the standard of living and the promotion
of social inclusion.
15. The EC Treaty allows in principle for flexibility
on the type of aid which can be approved. Under Article 87(3)(c),
the Commission can decide to permit State aid in order "to
facilitate the development of certain economic activities or of
certain economic areas". This is provided that the aid does
not "adversely affect trading conditions to an extent contrary
to the common interest". There is a strong argument that
physical regeneration serves Community objectives on improving
the standard of living and quality of life within the Member States,
achieving social cohesion and creating a better environment, and
promoting sustainable development.
NATIONAL LAND
USE DATABASE
16. A 1998 survey for the National Land Use Database
(NLUD) showed that there are approximately 57,710 hectares of
previously developed land in England that could be re-used. Other
Member States, especially those with a history of urban and industrial
restructuring, also have large amounts of brownfield land (eg
Germany's Ruhr Valley and former coalfield areas in Belgium and
France).
17. There is a strong case that the public sector should
be permitted to contribute to the regeneration of these sites—with
or without private sector partners—wherever the impact on
cross-border competition of the proposed aid schemes is limited.
18. The key reason why regeneration of some brownfield
land is not undertaken solely by the private sector is that the
cost of development would exceed the likely end value. Derelict
and contaminated land is widespread and exists even within the
most prosperous cities. The relatively higher costs of, for example,
demolition and remediation; extra costs of building in an urban
environment; lack of confidence; and the effects of high crime
and deprivation may hamper the development of such land and tend
to depress market values. However, brownfield land in urban areas
may have access to good transport links and its use can preserve
greenfield areas from development; it can catalyse regeneration
in that area and bring wider social and economic benefits.
19. Public sector intervention is sometimes essential
to bring forward brownfield land for socially responsible and
environmentally beneficial development. Where there is a need
for intervention, and such intervention would be compatible with
the Common Market, the Government believes that the State aid
rules should be developed to accommodate this.
20. The private sector has an important role to play
in the physical regeneration of brownfield land. This is reflected
in the increasing trend for Member States to work in partnership
with the private sector in order to take forward economic and
social cohesion. The benefits of working with the private sector
include:
— Levering in private sector resources reduces the
amount of public money required for a project;
— Working in partnership with the private sector
helps to bring a better commercial awareness to projects. Property
developers have expertise in interpreting market conditions and
developing projects that work with the grain of the market. It
is unlikely that the public sector would have a similar level
of expertise;
— In a number of Member States, the majority of
land requiring regeneration is privately owned. It would be costly
and time-consuming if the public sector had to acquire all the
privately owned land required for a development before the project
could begin;
— All or part of the risk can be transferred to
the private sector partner.
VIEWS OF
THE EUROPEAN
COMMISSION
21. Despite the above arguments, the Commission is quite
rightly concerned about the potential effect of State aid for
regeneration on competition within the European Union and needs
to take this factor into account as part of its decision making
process. The Commission is also treating our efforts in this area
with care in the wake of the PIP decision. The Commission are
concerned to ensure that aid for regeneration would not undermine
the discipline of the Guidelines on National Regional Aid. These
issues are complex and not capable of easy resolution. Control
over policy on State aid rests entirely with the Commission and
we have therefore embarked on a long process of negotiations,
with no certainty of early results.
22. However, this is likely to be an opportune time to
explore these issues with the Commission given that recent cases
suggest that the Commission's thinking in this area is evolving.
For example, the Commission recently approved a Scottish scheme,
Grants for Owner Occupation,[8]
under which the public sector provides a grant to private sector
housing developers in order to bridge the gap between high development
costs and low end values whether or not the projects are inside
the Assisted Areas. In addition, in its judgment in the case "Ferring
v Acoss",[9] the European
Court of Justice cast doubt on whether payments to developers
should be considered as "State aid" where they are paid
the minimum necessary to fulfil a non-economic purpose involving
no aid to the end-user, or to fulfil an economic purpose where
aid to the end-user does not exceed the maxima laid down in the
SME and regional aid frameworks.
CONFERENCE
23. The UK is hosting a conference in London, currently
planned for 21 March, to discuss the possibility of permitting
the payment of State aid for regeneration. The Commission and
all Member States have been invited to attend.
6
Denmark, Portugal, Austria and Ireland. Back
7
Sweden, Finland and Belgium. Back
8
Commission decision N497/01: C(2001) 3459 Final, 13.11.2001. Back
9
C-53/00, judgement of 22.11.2001. Back
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