TUESDAY 30 APRIL 2002
Andrew Bennett, in the Chair
Examination of Witnesses
LORD FALCONER OF THOROTON, Minister for Housing, Planning and Regeneration, MR PAUL HOUSTON, Divisional Manager of Regional Regeneration Programmes Division and MR STEVEN STRINGER, Head of State Aid and Coalfield Branch, examined.
(Lord Falconer) I am Charles Falconer, Minister for Housing, Planning and Regeneration. On my right is Paul Houston, Head of State Aid Division and on my left is Steven Stringer, State Aid Policy Adviser, all in the Department of Transport, Local Government and the Regions.
(Lord Falconer) Could I very briefly say a few remarks and then go straight to the questions. Thank you very much indeed for inviting me to give evidence this morning. State Aid rules are there to prevent countries from distorting fair competition and trade and supporting ailing industries in a way that distorts trade within the European Union. Such action damages competition within the community. We wish to see State Aid rules enforced but not expanded way beyond their purpose. They should not inhibit regeneration which has no effect on European Union trade. We must watch to ensure that our regeneration schemes do not breach the State Aid rules but I think the fundamental problem is that the consequence of the PIP decision impacts on a wide range of regeneration projects. I cannot believe that the Commission wanted to stop the vast majority of worthwhile projects. Indeed, their agreement to the gap funding scheme so far indicates that that was not their intention.
(Lord Falconer) That is what they did, indeed, that is right and we have to see a way through to try to get us back as close as we can to what the State Aid rules are intended to achieve. We have to find a way of rebalancing the application of State Aid rules to regeneration. We have accepted the PIP decision. Whether or not we were right to do so in the way that we did is open to debate but we are where we are and our priority must be now to move forward. We all know that there are some extremely worthwhile regeneration projects out there which are making a real difference to people's lives. It is simply unacceptable that the State Aid rules can prevent such projects from going ahead and we must find a way of removing that barrier. We must be realistic but we must also acknowledge the urgency of the issue. The current strategy is two-track: notifying and seeking the Commission's approval of new schemes and seeking to persuade the Commission of the need for a new regeneration framework. We have taken a number of steps to fill the gap left by the closure of PIP. In addition to the approved schemes, we have notified the Commission of a gap funding scheme for housing and you have heard evidence about the fact that Scotland went there first and we are going there now after Scotland, and you will no doubt want to ask my questions about that aspect of it. With the assistance of the RDAs and English Partnerships, we are developing two further schemes which will be notified to the Commission shortly and again I think you know about them: one allows for Aid up to 100 per cent to cover the cost of remediating derelict and economically damaged land; the other scheme will enable gap funding support for the bringing back into use and conservation of historic buildings and land and that scheme will complement one currently being run by English Heritage. The second part of our strategy is to work towards a new regeneration framework. We have been successful in the support of some other Member States. We are working hard to persuade the Commission. They are wary about any proposals for new frameworks. It was discussed at a ministerial meeting in October attended by Sally Keeble. Again, you have heard about the meeting and I think you had a representative present as an observer at the meeting which took place in London recently to discuss State Aid regeneration. It was well attended. Several other Member States attended together with representatives from the Director General Competitions bit and the Director General Regional Policy bit of the Commission. It was a constructive meeting. There was an open and frank exchange of views particularly on the need for a holistic approach to regeneration, the nature of market failure and the need to fully engage the private sector in regeneration. I want to build on this. We cannot let our long term aims get sidetracked. It is very important that we take realistic but determined and consistent measures to drive this agenda forward. It is urgent for us to find a solution. Finally, as from next week, a new unit with more staff in the DTLR which will have specific responsibility for taking this issue forward will be set up. Thank you for that opportunity.
(Lord Falconer) The current situation is that PIP put a stop to a lot of gap funding schemes which everybody thinks should go ahead. The process by which we are trying to re-open the door for that is a process which at the moment has a piecemeal aspect to it, namely getting agreement for specific schemes, but it has the goal of getting a regeneration framework which will open the door which has been closed by the PIP decision. It is not a happy situation at all and, by the nature of what is going on at the moment, namely permission being sought for particular schemes by the Commission, it is piecemeal rather than overall.
(Lord Falconer) No, I do not think that would be a fair analogy at all. I was not there in December 1999; I do not know what specific advice was given. I do know that what motivated the decision was the fact that if agreement was not reached with the Commission, then there was a danger that the pipelines schemes on PIP would be lost. So, a tricky tactical balance had to be struck by the department at that particular time. It is always possible in retrospect to say that the wrong balance was struck but, if the position had been that we lost both future schemes and the pipeline schemes as well as a result of not reaching agreement as we did in December 1999, then there would have been perhaps a whole section of people in addition to those presently complaining who would also be complaining about what happened. I think it is all too easy for me to say that the wrong decision was reached. I do not think that necessarily it was. It was a difficult tactical decision.
(Lord Falconer) The Chancellor Gordon Brown specifically raised the issue during the Belgian presidency as Arlene McCarthy was saying before. You had evidence from the DTI and the effect of their evidence was, "We are happy to push lines that other departments give to us." So they are happy to push the line that the DTLR wish in relation to gap funding schemes. So, I do not think there is any problem, looking across Government, at getting a coherent cross-governmental approach.
(Lord Falconer) The White Paper made it clear that they wanted the State Aid rules to be enforced in order that there should be a level playing field as far as economic competitiveness is concerned. That is what the White Paper was addressed to. I do think that it remotely undermines the support that the Chancellor and the Treasury have given to getting a regeneration framework onto the table for debate which is very, very important as far as making progress with the European Union is concerned.
(Lord Falconer) I do not think that is right. In order for the thing to be focused, I was focused on the competitiveness of the European Union and steps that we had taken to increase competitiveness. It maybe was not an appropriate place to deal with the regeneration framework issue.
(Lord Falconer) If you are talking about the particular agenda that that White Paper has, it may well be that the regeneration framework was not really part of the mainstream of that debate.
(Lord Falconer) It is the DTLR Department's role to be pro-active. In government, State Aid overall is the responsibility of the DTI but we are the department responsible for regeneration and, insofar as it is relevant, housing issues as well. We should be pushing the agenda and the evidence you received from DTI officials makes it absolutely clear that they are prepared to co-operate but that they expect us to push the issue.
(Lord Falconer) Yes and I think the implication of your question is that there does need to be a pro-active pushing of this agenda because - and this is no criticism whatsoever of the European Union - they, as it were, are waiting for things to happen rather than, as it were, casting around for solutions.
(Mr Houston) I think one-and-a-half is the answer in terms of full time equivalence specifically engaged on this issue, but there were also a number of other expert staff, lawyers and so on, engaged from time to time around the department.
(Mr Stringer) There will be four people involved in State Aid regeneration work.
(Mr Stringer) Four full time supported by our economists and our lawyers.
(Lord Falconer) They were not, no. The position was that they were put together within the department. There had been widespread canvassing of the issues in the specialist press. Mr Houston or Mr Stringer will correct me if I am wrong on this but my understanding is that they were not canvassed with the property industry, for example, before they were put.
(Mr Houston) The two replacement gap funding schemes were discussed extensively with the regional development agencies, English Partnerships and so on.
(Lord Falconer) I took your question to mean, were there people like Tom Bloxham who are actually engaged in the process of physical regeneration who were actually consulted about the speculative and non-speculative gap funding schemes and my understanding was that they were not. The people who were consulted were non-departmental public bodies such as English Partnerships and the Regional Development Agencies, but I did not understand your question to be covering them, you were asking whether the actual people on the ground who do it for a living were consulted and my understanding is that they were not.
(Lord Falconer) It took some time for the department to work out what the right response would be to what had happened as a result of agreeing to the PIP decision in December 1999. There was then a period of time after the schemes were notified to the Commission, I think two or three months, when they considered them and then gave approval.
(Lord Falconer) There were difficulties about putting the guidance together; I think it took about nine months to get the guidance out and that was because there were complications and legal problems, which seems to me to indicate a part of the problem because, as a result of PIP going, the replacement schemes are all inevitably hedged about by various rules which would not apply to PIP schemes. That means that they are more complicated to enforce. It also means that writing guidance on them takes longer than it otherwise would in relation to the old PIP scheme.
(Lord Falconer) I am not an expert in relation to this. I would be very unwise to say that I was satisfied with it because immediately 28 people would pop up and say, "What about this line?"
(Lord Falconer) I have seen the guidance, I have turned the pages -
(Lord Falconer) I could not say that I have read it, no, because the moment -
(Lord Falconer) When I saw it, I thought it looked very complicated, but then I thought that, if you knew what you were talking about, maybe it would be easier. I do not dissent from a proposition that is around which is that the rules of these schemes are complicated, but that was a necessary function of getting permission from them from the European Union. If they are complicated, then the guidance inevitably is complicated. I am very conscious of the fact that the more complicated the scheme is, the more complicated the guidance and the more of a turn-off it is for developers to start trying to access them.
(Lord Falconer) It has been given to the RDAs and English Partnerships and I think it is for them to circulate the guidance. I think it is available on the website.
(Mr Stringer) I think it is, yes, but in addition to that we also did a joint piece of work with RICS for guidance for the industry itself because the guidance which the Minister has been talking about is internal guidance on how the RDAs and English Partnerships might use these schemes. We wanted to make sure that the industry understood it and did some work with the RICS and they produced guidance for us which would be targeted towards the industry and developers in a way which they would understand rather than the internal guidance about how you operate a scheme.
Sir Paul Beresford
(Lord Falconer) I can understand that. I think the difficulty about all of this is that you have to press with the European Union to get a solution which is as many schemes as possible approved for you to open the door in relation to individual schemes, bringing you up towards a regeneration framework which I think everybody agrees, assuming it said the right things, would be the best solution to the problem that one has. That does require a period of persuasion and discussion with other Member States and the Commission.
(Lord Falconer) I have no idea how long it is going to take but it should take as quickly as we can make it take. The problem is that it is not entirely in our hands.
(Lord Falconer) I am aware of those problems. I have also read the evidence you have in relation to it which is pretty powerful when it come s from people like Chris Brown and Tom Bloxham who are of pretty high standing in the physical regeneration industry. As Mr Stringer pointed out, a joint exercise was done with the RICS in order to try to make it as comprehensible as possible. We must obviously, in the light of the evidence that has been given and the general atmosphere around the guidance, look to see whether or not, perhaps again working with the RICS, we can make it more comprehensible, but there is this fundamental difficulty that it, to some extent, reflects the complexity of the schemes.
(Lord Falconer) Yes, we will see what we can do in relation to that because the noises about this are pretty strong.
(Lord Falconer) I think there are a hugh range of gap funding schemes and that, if the scheme were opened, people like Yorkshire Forward would be interested. However, we have to first of all get to the stage where the door is much wider open for those schemes than it is at the moment.
(Lord Falconer) It is.
(Lord Falconer) When you say "promote the availability", I think as wide as possible a circulation of the availability of these schemes to potential developers should be made. If you mean further than that, should Yorkshire Forward be starting to, as it were, make up the gap with their funding, I think they should be looking at all the options they have in terms of schemes to see what is best in the context of their strategic view of what is done in Yorkshire.
(Lord Falconer) These questions are to some extent touching on an issue that has come across in earlier parts of the evidence that were given to you about whether RDAs are too interested in economic development and too little in regeneration? They recently, in a joint statement made with the department, committed themselves to being just as committed to regeneration as they had ever been and were determined to -
(Lord Falconer) That is a lawyer's point, if I may say so. They were seeking to convey to the department - and I accept this - that they are committed to the regeneration aims which are in their statute, were agreed again with the Chancellor and with the Deputy Prime Minister in March 2001. So they are committed to the -
(Lord Falconer) It is what the RDAs are telling the Government. I did not detect from the evidence of the man from Yorkshire Forward that he was saying they were not committed to regeneration. They were saying that they were committed but they obviously also have economic development aims. From where the Government sit, we would be keen to see them taking the role that they say they are taking in relation to regeneration. We would also be keen to see them making maximum use of the gap funding schemes that are available.
(Lord Falconer) We do not give specific guidance about the selection of sites. We in effect say to the RDAs, "You have to work out what the economic strategy for your region is. You have roles to regenerate and roles to promote economic development. You have a single pot of money and the decisions about how and where you invest in the context of those overall gains/issues are a matter for you, not for Central Government."
(Lord Falconer) Government has a whole range of policies like, for example, promoting brownfield development before greenfield development. The decisions they make about specific investments and specific sites should be in accordance, like as with everybody else, in the context of basic Government policy on those sorts of issues, but the extent to which, for example, they decide to do direct development as opposed to development in partnership with the private sector or leaving the private sector to do a particular thing are essentially decisions for them and not for Central Government.
(Lord Falconer) No, I do not. I have some figures but they would not be done by reference to urban renaissance but I am told that they are quite unreliable figures, but I will give them to you -
(Lord Falconer) Unreliable because they are plainly based upon not, as it were, an analysis of particular statistics but a pretty rough and ready approach. It is about, in terms of direct development by the RDAs, £200 million per annum and set to rise.
(Lord Falconer) I do not know where that £200 million is spent. I can give you -
Christine Russell: I think we would find it helpful if you could find out where that is spent.
(Lord Falconer) I certainly will. I can give you an example but that is not really what you are after. An example is the project in Liverpool, the Man Island project, which involves the acquisition and development of a prominent site on Liverpool's waterfront which is £9.8 million by the North-West RDA which is an example of direct development, but you are not after an example, you are after the sort of scale of the activity.
(Lord Falconer) That sort of specific guidance would be contrary to the approach which is saying that it is for the Regional Development Agency to develop the economic strategy for the region; they have to promote regeneration and economic development. How they do it within existing overall Government policy -
(Lord Falconer) They should obviously be making a difference in terms of where they spend their money in a way that it would occur anyway. I am not giving a particular case but, if they are intervening to compete with the private sector in relation to a site that is bound to get developed anyway because the private sector would do it, then obviously a question mark arises as to whether or not that is a sensible use of money, but if the principle of the RDAs is that they should make the essential detailed decisions about how they spend the money in their single pot of finance, then it would be wrong for Government to start prescribing the precise circumstances in which they should be in partnership with the private sector, in which circumstances they should compete with the private sector and in which circumstances they should deal with difficult sites because that would be quite contrary to giving the RDAs a significant degree of freedom in how they spend their money.
(Lord Falconer) They produce a regional economic strategy, they report to the Regional Chambers; their success depends upon what they deliver by reference to -
(Lord Falconer) Are they successful in delivering their regional economic strategy? We also have targets for things like the remediation of contaminated land and that is a very clear indication of whether or not they are making progress in dealing with areas that need regeneration.
(Lord Falconer) They have been set targets like brownfield land, like fighting deprivation, like progress in relation to urban renaissance. Those targets are set down in particular documents that are agreed. So one can see to some extent whether or not they are making progress in those areas.
(Lord Falconer) The increase in funding because of PIP going out of the window.
(Lord Falconer) That was the intention of increasing the funding as you rightly identify. It is given to them in the context of a single pot and they have to decide how it is spent. They accept the importance of regeneration as one of their objectives. That money is not ring-fenced.
(Lord Falconer) The increase was given because of the problem.
(Lord Falconer) The monitoring will come not by them being required to say how they have spent each pound but seeing the extent to which they meet the targets like the deprivation targets, the brownfield remediation targets et cetera.
(Lord Falconer) Exactly.
(Lord Falconer) We need to look to see what the outcomes will be of the expenditure that the RDAs make in relation to it.
(Lord Falconer) We would want that and, as I have said, the RDAs two weeks ago reiterated their commitment in the statement made jointly with the Government to the regeneration outcomes that they are required to reach.
(Lord Falconer) Yes.
(Lord Falconer) Yes.
(Lord Falconer) The RDAs will be able to keep the money that comes from any clawback and any gap funding scheme.
(Mr Houston) Can you expand on the question.
(Mr Houston) I believe that is correct.
(Mr Houston) It is certainly worth considering. I am not aware of representations having been made to us to look at that but we will certainly do that and talk to the Commission about it.
(Mr Houston) Certainly, yes.
(Lord Falconer) I cannot give any examples in relation to that. I do not know whether Mr Houston or Mr Stringer can.
(Lord Falconer) We do receive some information from the RDAs but the information I am getting at the moment in relation to both the speculative and the non-speculative gap funding schemes is that there has been very low take-up indeed.
(Lord Falconer) I am not.
(Lord Falconer) You are absolutely right, I am not happy with that at all because obviously it indicates that those two schemes, looking at them alone, have not filled the gap left by the PIP decision.
(Lord Falconer) The measures that will achieve that are obviously as widespread -
(Lord Falconer) Saying that to whom, to the RDAs?
(Lord Falconer) I am not sure -
(Lord Falconer) They did take a long time to do. All the evidence I have is that very few people have taken them up. I cannot confirm that nobody has taken them up and indeed I have reason to believe -
(Lord Falconer) I have the following note which says that a development under the speculative gap funding scheme of a range of SME business units, a total floor space of 6,531 square metres, public sector input of £1.4 million with private sector investment of £2.1 million is taking place in the north western region. I have got a redevelopment of a former power station under the Non-speculative Gap Funding Scheme which will reclaim 16 hectares of derelict land and lever 2.4 million of private sector investment. I have asked my officials for details of schemes under the Speculative or Non-speculative one, and apart from those two un-named examples that plainly exist I have been given no examples of any such schemes, although I will be corrected, again, if there are any examples. That may be because they are quite new schemes, but the obvious conclusion that anybody would reach from this is that they are not schemes that are taking (and this may be the wrong way of putting it) off in the market as an attractive way of funding the sorts of projects we are talking about. John is absolutely right, that is an extremely worrying aspect of all of this. Things may improve as they become more well-known. We should take every step we possibly can to give them publicity and provide simple guidance but, ultimately, it does involve making developers attracted to these schemes to actually make them fly.
(Lord Falconer of Thoroton) I assume that the range of small and medium sized enterprise business units with a public sector input of 1.4 million and a private sector investment of 2.1 million has some joint venture aspect to it, but I do not know what the detail of it is.
(Lord Falconer of Thoroton) Obviously, joint ventures with some degree of public sector involvement can take place outside Assisted Areas. I think the question is whether or not the joint venture has an element of gap funding being made up by the public sector - ie, is the public sector taking an undue amount of risk in relation to the venture?
(Lord Falconer of Thoroton) If you look at the schemes, only if you go to an SME, if it is an SME promoting a project, can you go outside the Assisted Area, unless it is Direct Development or a Community or Environmental project.
(Lord Falconer of Thoroton) I do not know. I have tried to find out the extent to which both the PIP decision and State Aid generally, as an issue, have affected schemes, but there is no clear statistical evidence. Work is being done at the moment to try and find out what the effect of both the PIP scheme and the State Aid position generally is. I do not know when you intend to report, but when the work is done could I let the Committee have a copy of that?
(Lord Falconer of Thoroton) I was told the end of the month.
(Lord Falconer of Thoroton) I am sorry, I meant the end of May. I apologise.
(Lord Falconer of Thoroton) The truth is that it is this Committee's investigation that has led to a great focus on this issue. The difficultly I have in relation to this is that if you speak to people about this issue it is incredibly important. If you speak to Chris Brown, Tom Bloxham and people involved in the regeneration field, they say there are lots and lots of schemes that are not going ahead that would otherwise go ahead. So I have been trying to find out what, in fact, is the statistical evidence to show what the impact has been of the PIP decision. So, for example, I do not know the extent to which Direct Development has, in some cases, replaced what would have been done by a PIP scheme. The general view of people involved in the field is that this is a very, very important issue, and that it has had a detrimental effect on a large number of schemes, or prevented a number of schemes going ahead. So until there is statistical evidence to the contrary, we should take the view this is an important issue that needs a very, very high priority.
(Lord Falconer of Thoroton) Yes. That is why we want the State Aid issue evidence to look not just at the question of what is the effect of PIP going but, also, what is the effect of State Aid freezing or chilling other developments. One noticeable effect of the PIP decision is that within Government people, perhaps understandably, are much more wary of getting themselves into a State Aid problem than they perhaps had been before.
(Lord Falconer of Thoroton) The bit of government that is, as it were, the repository of wisdom on whether it infringes the State Aid rules or not is the DTI. So as far as central Government is concerned, advice is sought from the DTI on State Aid issues. In terms of front-line staff ----
(Lord Falconer of Thoroton) In terms of the particular issues that I have raised in relation to State Aid, yes. I am not sure if Louise's question is directed to advice for DTI or whether it is directed to how, for example, the RDAs deal with problems about State Aid that arise in relation to particular projects.
(Lord Falconer of Thoroton) Submitted to who?
(Lord Falconer of Thoroton) Paul will interrupt if I am wrong, but if it comes to DTLR we would then seek advice from the DTI in relation to it. The process, I suspect, can take too long from time to time.
(Mr Houston) Ultimately, the advice comes from DTI but you have put your finger on what is proving to be a real problem - a kind of logjam - in terms of getting advice on State Aid issues. We are very aware of it and so are the DTI, we are talking to them about it and they are talking to government offices. By way of trying to partially make this problem easier, we are also considering (or, actually, the DTI is considering), I believe, putting some generic notifications to the Commission related to Objective 1 and Objective 2 areas which would allow these projects to get State Aid clearance much more quickly.
(Mr Houston) No, it only indicates that I feel slightly wary of speaking for the DTI. I do happen to know that they are doing that.
(Lord Falconer of Thoroton) I find it almost impossible to believe - though how wrong I have turned out to be - that there is an inter-state trade in social housing or development, but that was, presumably, what underlines the PIP decision. The reason why housing has got caught up is because some PIP schemes were housing schemes, and that is where the problem comes from. For better or for worse, that is where we are in relation to that.
(Lord Falconer of Thoroton) I assume the reason for the order in which the schemes were put - the Non-speculative and Speculative schemes for Assisted Areas and for SMEs - was on the basis that those schemes, on the advice of up-threat (?), were ones that would be quickly and readily passed by the Commission because they chimed in with specific exceptions referred to in Articles 87 and 88. As far as housing is concerned, what has provoked the housing applications is the risk document that is referred to in the supplementary memorandum that I put in and, obviously, the fact that Scotland got their housing scheme approved. So the scheme that we are now putting in - encouraged by the risk document and the European Union and encouraged by what Scotland have proposed - we anticipate will be successful.
(Lord Falconer of Thoroton) I would not like to say that. The civil service in Scotland came up with the idea and the DTI then put it. We, sensibly, have built on that.
(Lord Falconer of Thoroton) That may be right. I think it is a combination. It is team work in Scotland, I am quite sure.
(Lord Falconer of Thoroton) No, it has not, because there is an insufficiently detailed proposal in relation to individual places. So, for example, we do not know the extent to which it would be Direct Development and we do not know the extent to which there would be partnerships. I think it would vary from place to place what the position would be. Equally, we do not know the extent to which some will be in Assisted Areas and some will not.
(Lord Falconer of Thoroton) I cannot say it will not. I very much hope it will not. It would very much depend upon the particular schemes.
(Lord Falconer of Thoroton) The problem about it is that if there are these schemes available there are probably less of the difficult sites being addressed. That might have an effect. I do not think, overall, it will significantly affect the Government's progress in getting to the 60 per cent brownfield land target that they set in PPG 3. However, it is an unavoidable fact that easier access to gap funding than now meant there would be more money available for those difficult sites which, obviously, tend to be the contaminated or brownfield sites.
(Lord Falconer of Thoroton) I do not know.
(Mr Houston) As I understand it there was a particular issue that they wanted to address in Scotland and, as it happened, around that time the Risk Capital guidelines came out from the Commission, last autumn, which appeared to provide them with a window of opportunity for pursuing that particular, rather constrained scheme, which they did. They told us about it, but they went ahead on their own. Having seen their success in getting the scheme through, it seemed to us to be the obvious thing to build on that and notify a substantially wider scheme, which is where we are at the moment.
(Mr Houston) The gap that exists in schemes?
(Mr Houston) In both those circumstances it will be a gap-funded scheme, in the same way that PIP was.
(Mr Houston) I think the minimum is two months. With the Commission it can be, as we have heard, anything up to a year or more. We are optimistic it will be, say, less than six months.
(Lord Falconer of Thoroton) As I said to Andrew's question, it will depend upon the detail of each individual scheme that is put together, because in some cases it will be Direct Development that will deal with market renewal and in other places it might be in partnership with the private sector. We would have to look at each scheme to see the extent to which there was a State Aid problem. I hope there would not be, but I cannot say there would not be because there will be different schemes in different places.
(Lord Falconer of Thoroton) Very much so. I do not think you saw the document that was put to the meeting in March but it is based on the proposition that State Aid should not apply where what the state is dealing with is a market failure. That, critically, is what the market failure funded housing is all about. It is basically saying that if we convince the Commission that there should be a regeneration framework which allows the state to assist in those markets which have absolutely died, and that is made clear by the framework, then there would not be any problem in relation to it. As you established with Arlene, we cannot give any real indication as to when that framework might come about.
(Lord Falconer of Thoroton) That is what is going on in the Department of Transport, Local Government and the Regions, and it is the ministerial team supported by the group that Paul and Steven represent within the officials at DTLR.
(Lord Falconer of Thoroton) Yes, it does, but it has to recognise - as we all recognise - that you will get a lot of help by asking from outside what schemes there are and what ideas can be put together, and we will do very well if we extend our reach beyond our own resources, which is, I think, the sensible way that any organisation should operate when it needs to think of innovative schemes (because you are right we need innovative schemes) to try to expand the range of possibilities for developers as much as possible.
(Lord Falconer of Thoroton) It would be my department, yes.
(Lord Falconer of Thoroton) The DTI, as I have said, is the sort of expert on the rules and regulations position and we liaise with them on their advice on State Aid issues. Obviously, regeneration is an important economic and financial issue and the Treasury supports and helps us in developing the schemes that we have in mind.
(Lord Falconer of Thoroton) Individuals?
(Lord Falconer of Thoroton) First of all, it is ministerial responsibility to drive the thing forward, but we ministers are not experts in thinking up innovative regeneration schemes; we look to advice from Paul and his team. Paul and his team discuss widely with the outside world the development of these schemes.
(Lord Falconer of Thoroton) In relation to regeneration and housing schemes, it is the DTLR.
(Lord Falconer of Thoroton) It is there. Again, I have asked if there is any scheme that I could, perhaps, draw attention to where it has been used and, unfortunately, no such information was available. So I cannot draw your attention to any scheme where it has been used.
(Lord Falconer of Thoroton) Well, yes.
(Mr Houston) Shall I respond. On the first matter, the Environmental Aid Guidelines, we are actually designing a scheme for notification to the Commission on dereliction aid, which could take, as part of its rationale, the Environmental Aid Guidelines. So that is something we do have our eyes very firmly fixed on.
(Mr Houston) Yes, we have been looking carefully in that time.
(Mr Houston) We have a draft of a scheme for Dereliction Aid almost ready to go to the Commission.
(Mr Houston) That is much more difficult because that is a framework which was apparently, I understand, originally created in response to a French request some years ago and it was very tightly tailored to their requirements. Although we have looked at ways in which we could build on this, it is so restricted in terms of the purposes for which it can be used and the areas in which it can be used that we have rather concluded that it cannot be used in its present form. One of the things we are talking about with the Commission is whether there might be a better Deprived Urban Areas Framework ----
(Mr Houston) That is something we will certainly want to talk to the Commission about - whether a better one could be put in place.
(Mr Houston) There is quite a wide range of extant frameworks and guidelines, of which the Risk Capital Guidelines are another example. Part of our approach at the moment is to look at all of these to see what schemes might be designed within the ambit of those frameworks to notify the schemes to the Commission and to build up a body of permissible State Aid, on which, at a further stage, the Commission can then design a regeneration framework. As somebody said earlier, it is a messy process and it is a long process but it is one we are taking forward.
(Lord Falconer of Thoroton) Culture and heritage is an important source and means of driving forward regeneration. There is a heritage scheme that we are shortly going to notify to the European Union at the same time as we are notifying the dereliction scheme. The rate of intervention for the heritage scheme would be what?
(Mr Stringer) It would be up to 60 per cent, I think, or in some cases, where you have a listed building, you could actually fill the gap entirely that is created by the difference between the value of the properties at the end of it and the cost of the renovation and works.
(Mr Stringer) No, the rules will be designed around a very similar scheme that is already being run by English Heritage, so the two would fit seamlessly together. So they will be designed around listed buildings, conservation areas and, also, what is described as historic parks, gardens and land. They will fit with those sorts of schemes, so it is not the end-use that is important, it is the actual categorisation and distinction of the actual property and land that will fit with it. We have designed it so that the RDAs, English Partnerships and, probably, local authorities will be able to contribute to schemes where English Heritage buildings are in need of development, such as listed buildings in town centres that they want to bring back into economic use.
(Mr Stringer) That is right. The scheme will allow local authorities to be able to contribute to these schemes. I think where you have to be a bit cautious is the fact that the RDAs, clearly, have an economic regeneration remit and so, therefore, where they invest in these schemes there has to be a linkage between their responsibilities and the heritage and conservation of the property. Provided those two fit together, as they do in a lot of schemes (and I suppose Manning Mill is a classic example of that), then there is no reason why the RDAs and English Partnerships and local authorities should not invest.
(Lord Falconer of Thoroton) Central Government is responsible for them deciding that they adhere to their remit, but as I said before, it is not for us ----
(Lord Falconer of Thoroton) The DTLR and DTI monitor what goes on in relation to RDAs, and the DTI is in the lead in relation to that. Ultimately, it is for the RDAs to decide how they spend their single pot, it is not for us to say "You should spend this amount of money on a heritage revitalisation scheme; you should spend that money on Manning Mill". They have got to make those decisions within the broad remit of the targets that we set them.
(Mr Stringer) No, we have not. We are actually, at the moment, discussing the final drafting of the notification with the RDAs, English Partnerships and English Heritage to make sure that it fits within decisions that have been made on similar sorts of schemes under the heritage heading. So we hope to notify it in the next few weeks.
(Mr Stringer) It is very similar to what Paul was describing on the housing scheme. On average it takes something like four to five months to get a scheme through, so we would be hoping that we would get one through within six months.
(Mr Stringer) I think the answer to that is that we were aware that there some difficulties with these sorts of schemes, but it was not until that long ago that English Heritage came to us with a way in which they could actually tie in the work of the RDAs and economic regeneration with the sort of scheme that they had notified to the Commission. As you know, one of their schemes has been before the Commission since July last year. They see this as being part of that package going forward, and I think it is the case that it took them sometime to work out how the two organisations could work together before they could come with a notification.
(Mr Houston) November is the date in my mind.
(Mr Stringer) No, in November 2001 the Risk Capital Guidelines were finally issued by the Commission.
(Mr Houston) I am not sure.
(Mr Stringer) It may well be that the guidelines were issued earlier than that. We would have to check for you.
(Mr Stringer) Yes, we have. The principle set out in the Risk Capital Guidelines is actually quite important in establishing firmly that gap funding is the way in which we can move forward in regeneration. One of the things that we have been doing and will be doing in the future is talking with the RDAs and English Partnerships and our own lawyers about how we might interpret this to make sure that future schemes would be accessible. Likewise, the housing scheme we are using based on this premise, and we could see other types of gap funding schemes in the future using this same principle.
(Mr Stringer) We have regular discussions with the RDAs about the nature of different types of schemes that we might put forward. We do not have a timetable but this is on-going work that we are doing with them and it is really understanding how far the Commission would be willing to push that principle that is something we are working on, and working on with our permanent representative in Brussels as well.
(Mr Stringer) I expect we might well be able to see how they can be used in different ways.
(Lord Falconer of Thoroton) I think there is an increasing understanding, and the sense is that there was not a clear understanding in 1999 when the PIP decision was made about the British approach to regeneration. An understanding of the British approach and that it does not, in principle, offend against the State Aid rules is growing. The impression I have is that there is quite a long way to go in relation to that. Work needs to be done in that direction.
(Lord Falconer of Thoroton) I do not think that there are any particular countries that have similar schemes to ours. We have support amongst some northern European countries and from other countries as well, but our approach to regeneration does appear to be different from most other countries.
(Lord Falconer of Thoroton) What we want the consultants to do is look at other countries but, also, to put together details of the sort of market failure circumstances which could found the basis of a regeneration framework.
(Lord Falconer of Thoroton) They are going to report to us fairly soon.
(Mr Houston) A couple of months, I would think.
(Mr Houston) From now.
(Lord Falconer of Thoroton) The purpose of the framework is, basically, to seek to draw a distinction between a scheme that is intended to be regenerative and one that helps a business and, therefore, should be a State Aid. The sorts of activities that one would like to see covered by the regeneration framework are things like housing, heritage regeneration, remediation of contaminated land, the building of both Speculative and Non-speculative premises for offices, both for SMEs and bigger organisations - the whole range of things that have been covered by PIP but on a different basis, namely a basis that accepts this is regenerative rather than something that affects trade between Member States.
(Lord Falconer of Thoroton) I do not know. I think the quicker the understanding among other Member States that our regeneration principles do not threaten interstate trade and the quicker and clearer we establish the principles of market failure which underline the regeneration framework, the quicker it could happen. From all the people I have spoken to, I have had absolutely no indication about how long it will take. I heard Arlene at the end of her evidence giving you an indication of the various milestones one could look at, such as, for example, the reform of the State Aid rules in 2004. I think the way that we should approach this is we should treat it as urgent; it is a persuasion and a job of gaining support across Member States and we should, I think, not tie it to particular events in particular milestones for the future but seek to try and drive it as hard and as quickly as possible.
(Lord Falconer of Thoroton) Regeneration is one of the focuses of RDAs. Whether it is primary or not, it is not the only focus of what they do.
(Lord Falconer of Thoroton) I think you are quoting from what KPMG have said.
(Lord Falconer of Thoroton) I think if that is what KPMG have said it is not right; it is one of the focuses and one of the main or primary focuses of the RDAs.
(Lord Falconer of Thoroton) Yes, I would.
(Lord Falconer of Thoroton) I do, and I think the Stage One announcement about the review of English Partnerships was designed to try and do that. RDAs and EP should not be trying to do the same thing in the same place; RDAs should know that they are the people who should be driving the actual delivery agenda in the particular region. EP should become an expert on regeneration and brownfield developments. They should only hold national strategic sites or demonstration sites rather than overlapping in certain places with what the RDAs do. I think the lack of clarity about the roles of the RDAs and EP has not been particularly helpful.
(Lord Falconer of Thoroton) The Stage One announcement indicates that they will be pulling out of all development save Sites of Strategic National Importance and demonstrations sites, which means that their role in actually developing will be reduced but, also, they will gradually be giving up the land they have got in the new towns. So the way it will be resolved is that the activities of EP in actual regeneration terms will be restricted to those two areas.
(Lord Falconer of Thoroton) I think it will take sometime to get to a point where the precise roles of the two are clear, but I think we are moving in the right direction in that respect.
(Lord Falconer of Thoroton) Obviously that will be taken forward in relation to Stage Two of the EP review. How will it be clear that it is not in default of the State Aid rules? If the fund is used for Direct Development, there will be no problem in relation to that. If it is used for developments that fall within the current schemes, equally, no problem. It is a difficult question to answer without knowing the particular scheme that you are judging it against.
(Lord Falconer of Thoroton) That is one thing they could look at, yes.
(Lord Falconer of Thoroton) We would have to check in relation to each venture as to whether or not it did offend against State Aid rules. The Strategic Fund would be funding it. There would be specific proposals in particular areas of brownfield land and we would have to look at each one to see if it offended against the State Aid rules.
(Lord Falconer of Thoroton) We should be doing the latter rather than the former. We should be trying to ensure that Europe is comfortable with the Strategic Fund in relation to brownfield land. If that requires persuading them then we should seek to do that. I do not think the setting up of such a Strategic Fund would of itself offend. The way the difficulty would arise would be then for the individual sites that you had invested in; how you would invest in those individual sites would be the point at which the question about State Aids would be raised.
(Lord Falconer of Thoroton) Correct, and SMEs.
(Lord Falconer of Thoroton) Yes, it does give me real cause for concern, because the English Cities Fund was not intended, when it was set up, to be restricted to Assisted Area cities; it was intended to cover all the range of places, all the built-up areas, because deprivation in our towns and cities and urban renaissance in our towns and cities should not be simply restricted to those areas that are Assisted Areas. I think it is very problematic that that has happened, and it is an incredibly good example of what the practical effect of the PIP decision has been. There are people in English Partnerships who would say that the effect of the English Cities Fund being restricted is that it might have a detrimental impact on delivering some of the goals in the Urban White Paper. I think we have got to fight really hard to ensure that that does not happen, but there is absolutely no doubt that the English Cities Fund was set up on the basis that it would cover potentially all cities, not just some cities but all cities, and that is obviously a problem.
(Lord Falconer of Thoroton) The English Cities Fund is not being pursued specifically with the Commission. We are approaching it from a different angle which is saying "Look at all the sorts of schemes that we are putting together - heritage, dereliction, Non-speculative Gap Funding, Speculative Gap Funding, Assisted Areas and SMEs" - but, no, we are not taking the English Cities Fund head-on with the European Commission. Instead, what we are doing is trying to build up this patchwork of notifications and acceptances which might widen the circumstances in which English Cities funding can be used. Nobody is with the Commission saying "The English Cities Fund, as a matter of principle, should be okay."
(Lord Falconer of Thoroton) This is trying to place upon the developer a public service obligation and, thereby, get it into the exception to State Aid where the provision of the development is, as it were, a public service delivery obligation. That has been looked at. You have got some evidence from the DTI which suggested it was a difficult area. There was a recent case in the European Court of Justice that might provide some help in relation to it, but I am not aware of any detailed work going on in relation to it within the State Aid bit of government. Equally, it is not figuring at all, at the moment, in the Planning Green Paper, and the results of the consultation from that. It might well be worth looking at. The vibe I am getting is that it is not a very optimistic route.
(Lord Falconer of Thoroton) The first milestone that I would like to achieve is, obviously, approval of the housing scheme, approval of the dereliction scheme and approval of the heritage scheme. I would like to see all those thing happen within the next six months. Secondly, I would like to see the development of the basis of a market failure approach so that we have got the basis of a regeneration framework to put to the Commission, but with a view to them putting their input in. It has to be a joint exercise with them in working out what is the right approach. Thirdly, I would like to see during the course of the next six months a series of meetings, both with the Commission and with other Member States, in which the market failure approach is developed with a view to getting a wider understanding across the market and within the Commission of what it is that we are trying to achieve. Some of those have got time limits to them but the critical delivery, to make this really happen, is the regeneration framework. All the advice I have sought gives me no indication as to when that might be achieved. I think the critical things is to indicate that we, as a Government, think this is a high priority and that we, as a Government, think this is urgent. Until the statistics disprove what the likes of Chris Brown or Tom Bloxham are saying, we think that we should approach it on the basis that there has been a considerable drop-off in the amount of schemes that are going on which would otherwise have been funded by PIP.
(Lord Falconer of Thoroton) Extremely helpful.
Chairman: On that note, thank you all very much for your evidence.