Appendix 3 - Additional response from
the Department regarding the inquiry into the EU Informal Summit
7 March 2006
At the Committee's hearing on Tuesday 7 February
of evidence on the Ministerial Informal Summit on Sustainable
Communities, I undertook to write to the Committee about the current
position with regard to State aid issues.
First of all, I should say that the Department for
Trade and Industry has overall lead for the UK on State aid issues,
although my officials liaise closely with DTI officials particularly
where ODPM policies and programmes are directly concerned, as
with the ongoing review of the Regional Aid Guidelines (RAG) to
be applied from the end of 2006. They also liaise closely to
influence the overall direction of the Commission's State aid
policy, to meet the UK's policy needs and interests.
Some members of the Committee will be aware that
the Government had particular difficulty with the European Commission
in 1999 over our arrangements for funding regeneration via English
Partnerships, under the "Partnership Investment Programme"
(PIP). Indeed Clive Betts specifically referred to this when
asking about progress with State aid issues. The Commission's
concern was that the remit given to English Partnerships for the
PIP was too broad: there was no guarantee that aid given by EP
to any individual development project would only cover a market
failure, so not distort the relevant land or property market and
not be an illegal State aid. They therefore said that the proposed
PIP scheme was "incompatible with common market" - that
is, illegal. So we had to rethink our regeneration funding policy.
Instead of the PIP, the Commission advised us to
develop purpose-specific schemes, which would clearly identify
the purpose for which an aid was to be used, the justification
for it and the end beneficiary. We subsequently put forward a
number of such schemes, including the Partnership Support for
Regeneration (1): Support for Speculative Developments (N 747/A/99);
the Partnership Support for Regeneration (2): Support for Bespoke
Developments (N 747/B/99); Support for Land Remediation (N 385/2002);
and the Historic Environment Regeneration Scheme (NN 95/2002).
All of the separate schemes were approved by the Commission, but,
as Clive rightly said, the approvals all expire at end 2006.
Although we are required to report annually on the use of State
aid under the approvals, and have done so, it is too early to
say whether they enabled EP and the Regional Development Agencies
to fully meet the original PIP objectives. Nonetheless, to ensure
some certainty for developers as to the rules applying post 2006,
I have just agreed that officials should renotify these schemes,
without amendments, and seek extension of the approvals until
about 2013 (ie the period to which the new RAG will apply).
The European Commission has been consulting on the
post 2006 RAG since May 2004, when it issued a first draft of
its proposals. This would inter alia have significantly reduced
the population coverage in the UK's State Aid Assisted Areas from
30.9% to less than 10%. Whilst this would have been consistent
with the Lisbon Council agreement on "less and better targeted"
State aid across the EU, we were concerned that the reduction
was too great and the safeguards (to ensure better targeting)
too few. The DTI led a public consultation on these proposals,
and responded to the Commission in the light of the responses
received, in September 2004. The Commission then issued a further
revise of its proposals in January 2005. However, the revised
text was little different from the first; so the UK made a demarche
to the Commission, together with France, Germany and Austria,
noting in particular the need for a filter mechanism which would
better identify those areas really in need of aid.
In response to these and other Member States' comments,
the Commission issued a further text July last year, to which
they invited Member States' responses by mid September. This
text was a definite improvement from the UK perspective: it increased
the UK's permitted population coverage ceiling to just over 20%,
and it introduced criteria for identifying areas of lesser but
specific economic need (the Tier 2 areas, under Treaty Article
87(3)(c)). We were therefore broadly content with this version,
which the Commission subsequently adopted on 21 December last
year.
The RAG itself only defines the Tier 1 Assisted Areas
(these are the regions having per capita GDP of less than 75%
of the EU25 average.) It is for individual Member States to now
put forward proposals to the Commission for designating Tier 2
areas in their territories, complying with the various criteria
identified in the RAG. For the UK, because of the reduction in
permitted population coverage, this will mean a significant reduction
in such areas. The DTI has therefore just launched a public consultation
on the proposals, inviting views on which of the current areas
should maintain the Assisted Area designation, on any areas which
might now be designated and on any other criteria which might
identify other pockets of deprivation in need of aid. The consultation
document is available on the DTI website at www.dti.stateaid
The Commission has set no deadline for submitting
these proposals. However, to ensure that developers, investors
and other stakeholders have certainty about the position post
2006, this stage of the consultation will close just after Easter
(19 April); DTI will then draw up proposals on the basis of responses
to it and, after consulting again on those draft proposals, plans
to submit them to the Commission in July. My officials will be
actively involved in consulting ODPM stakeholders for their views,
and to ensure that the eventual proposals do not adversely affect
current ODPM policies and programmes.
I should also mention that the present European Commissioner,
Neelie Kroes, confirmed shortly after her appointment in November
2004 that she intended to carry out a strategic review of the
current State aid rules and frameworks. The scope, key points
and timetable for this review were set out in the "State
Aid Action Plan" which the Commission published last June.
The UK welcomed this plan, because its objectives fit with what
we have been seeking for a long time: that is, fewer detailed,
complicated rules, more flexibility for Member States particularly
with lesser amounts of State aid, and a better Commission focus
on those aids which have a significant impact on the EU single
market as a whole. The UK's response to the Plan (also available
on the DTI State aid website), which we submitted last August,
included an annex giving our views on how the rules relating the
funding of land and property redevelopment might be improved.
This text was drafted in consultation with all ODPM's stakeholders,
particularly English Partnerships, English Heritage and the Regional
Development Agencies. A copy of this annex is attached. ODPM
and DTI officials have had an initial discussion with Commission
officials to discuss the UK response; action now lies with the
Commission to draw up proposals in response to both the UK and
other Member States' comments.
Finally, as you may be aware, the Commission has
just issued a "vademecum" (that is, a ready reference
document) on "State aid control and regeneration of deprived
urban areas". This sets out their position on allowable
State aid for regeneration. We will be responding to them on this
document in due course, as it does not set out as much guidance
as we would have liked; but at least it shows they have been listening
to us about the need for it!
JOHN PRESCOTT
Reply to the European Commission's Review of State
Aid: UK Proposals for Reform of Rules Relating to Land and Property
Redevelopment
STATE AID SUPPORT FOR LAND AND PROPERTY REDEVELOPMENT
IN SUSTAINABLE COMMUNITIES: UK PROPOSALS FOR REFORM
Introduction
1. Many parts of the UK, and of other Member
States, currently suffer from physical, economic and social deprivation.
These areas are usually characterised by communities with a weakened
economic base, with large concentrations of under-skilled, unemployed
and socially disadvantaged residents who are surrounded by a poor
physical environment. They are typically areas of high crime
and high levels of social exclusion. These deprived communities
can be small and localised, often found within relatively prosperous
as well as disadvantaged regions and often outside the Assisted
Areas designated in the EU Regional Aid guidelines.
2. Overcoming deprivation involves creating a
built and natural environment in which people want to live and
work by providing amenities, tackling degradation and safeguarding
natural and built heritage. It should, in turn, also assist in
meeting economic objectives - in achieving self sustaining economic
growth which leads to job creation and sustainable improvements
in economic performance in all areas - and social objectives -
in meeting peoples' social needs by promoting social inclusion,
neighbourhood renewal, building social capital, promoting stronger
communities, better health and access to services and recreation.
3. The UK's Sustainable Communities agenda, which
is committed to delivering "thriving, vibrant, sustainable
communities", is designed to tackle these issues. The key
principles of this policy include encouraging the economic development
of urban and rural areas suffering from severe (and often multiple)
local difficulties, making affordable and decent housing the norm
throughout the country, improving the local environment at all
levels including at community level, empowering and strengthening
the communities themselves and also the protection of the environment.
The Sustainable Communities complements EU Cohesion Policy, which
of course has been recognised as a key policy dimension underpinning
the objectives of the Lisbon agenda.
4. Improving the physical appearance and infrastructure
of these areas - tackling physical deprivation - is a high
priority. Good quality, well-designed and affordable housing and
other buildings, as well as other improvements to the environment
and the development of high quality public space, can make a huge
difference in combating deprivation. Poor quality, ugly or derelict
neighbourhoods, by contrast, reinforce despondency and breed crime
and disaffection.
5. Communities in these areas often need assistance
to mobilise themselves to create organisations for mutual support,
including charitable activity and voluntary sports and recreational
facilities - tackling social deprivation. Small-scale,
community-based economic activity often has a valuable social
function as well as developing entrepreneurial skill-sets and
contributing to economic development within the area .
6. A major contribution can also be made by encouraging
entrepreneurship and small-scale business activity and by combating
the market failures which lead to economic underperformance
in these areas. This does not mean large-scale investment aid
for large or even for small and medium sized companies. Rather
it involves providing a business service "infrastructure"
- financial advisory services, business incubation facilities,
suitable business premises, which the market might not deliver
by itself. Very low intensity tax incentives may also play a part
in encouraging business to invest in a deprived area, rather than
elsewhere, yet without distorting competition to any significant
extent.
7. Many of the UK's most deprived areas lie within
otherwise relatively prosperous regions. General regional development
may not be the problem so regional investment aid is not the solution.
What is needed is precise targeting of joined-up investment in
physical, social and economic infrastructure to combat market
failures in these pockets of deprivation. Business investment
will then take care of itself.
8. This paper focuses on the changes needed in
the rules and frameworks affecting investment to tackle physical
deprivation. Examples of cases where such changes are needed,
because the present rules prevent or hinder appropriate public
sector intervention, are set out in the attached Annex.
Background: Existing Approvals
9. The Commission has already approved what forms
a suite of measures underpinning the physical redevelopment of
sustainable communities in the UK. This has enabled the United
Kingdom to support a range of measures, which have facilitated
individual redevelopment schemes in compliance with the State
aid rules.
10. In particular, the Commission's positive
decision on the UK's Support for Land Remediation scheme was very
helpful. Directorate General Competition themselves considered
their approval of the scheme to be a landmark case with Europe-wide
significance. The approval has provided the UK with the flexibility
to support the remediation of derelict and contaminated land,
within certain parameters but wherever the UK sees the need to
do so, without the risk that such support might be challenged
and considered an unallowable state aid.
11. Also, the Commission has approved schemes
which allow the limited funding of property developments on the
basis of the regional aid guidelines, the remediation work on
heritage buildings and sites, and provision of social housing.
These approvals, although not as broad as that for land remediation,
still went some way towards providing the UK with clear guidance
and discretion as to what could be supported in regeneration projects
inside and outside the designated Assisted Areas. Background
on these schemes is set out at Annex A.
12. Other approvals have helped, for example
the Community Development Venture Fund, the Coalfield Enterprise
Fund, the GRO and Credit Unions projects in Scotland and the Stamp
Duty Exemption Scheme.
13. The UK has used these approvals to support
a number of programmes and the benefits of these are already being
felt. However, it is timely to take stock given that both the
current approvals and the regional aid guidelines will expire
at end December 2006. The next section looks in more detail at
the need to continue or change the existing rules, and what further
guidance is needed particularly to enable support for tackling
physical deprivation.
Issues: Using State Aid to Tackle Market Failures
14. Deprived areas can be subject to a range
of market failures. The Commission has acknowledged the existence
of problem areas where incidences of market failure are high[1].
As a result of these market failures, areas remain socially distressed,
land is derelict or under-used, and economic activity is much
less than would otherwise be the case.
15. Market failures can arise from a complex
web of interrelating factors. Policy interventions need to take
account of this complexity and address individual facets of it
in a way that will contribute to an overall solution. The Commission
has endorsed the view that the public sector should be able to
support a package of measures combining the rehabilitation of
obsolete infrastructure with economic and labour-market actions
to combat social exclusion and to upgrade the quality of the environment[2].
There is a major role for the private sector to play, as it offers
significant additional resources that are otherwise unavailable,
and can bring in project design and management expertise to specific
schemes. Interventions must be in compliance with the principles
of fair competition, but there is real potential to improve prosperity
in all regions if horizontal measures are used to target specific
communities in need and complement measures for large geographical
areas. Targeted interventions will include a range of measures
that are not affected by State aid rules, but many desirable interventions
are caught, because of the very wide definition of State aid which
has been developed by the European Courts.
16. Socially deprived communities can be of any
size and occur in any area, including otherwise prosperous ones.
Within a region which performs well overall, there may be specific
local pockets (e.g. at NUTs 4 or 5 levels) where there are serious
problems of dereliction and deprivation. The UK has identified
its 2000 most deprived "wards"[3],
a number of which are located in otherwise well performing regions
which do not qualify for Assisted Area status under the current
Regional Aid Guidelines. Even fewer will be Assisted Areas under
the revised Guidelines from 2007.
17. Member States need the flexibility to target
support in such areas so as to be able to develop specific schemes
to remedy the problems. Otherwise, investment would be focused
away from these areas and they would suffer further decline.
18. The UK accepts that large-scale investment
aid in pockets of deprivation within otherwise affluent regions
cannot be accommodated under the Regional Aid Guidelines. But
the UK believes strongly that horizontal aid frameworks should
be designed to permit the targeting of the market failures in
specific pockets of deprivation. The market failures are not in
regional development, they are rather in very local physical,
social and environmental conditions. Remedying these will not
distort competition as long as end users pay market rates for
its use, the intermediaries needed to deliver the improvements
are chosen competitively where possible and they are paid the
minimum necessary for their work.
19. The horizontal state aid rules covering aid
for employment, training, venture capital, aid to SMEs, aid for
SGEIs and aid for environmental protection, allow for important
interventions in under-performing areas which can tackle failures
in labour and capital markets and achieve social and environmental
policy objectives.
20. However, there is much less clarity about
what measures can be used to tackle market failures affecting
land and property. The presumption has to be that any aid in
this area is not allowable unless it is covered by an existing
approval, whatever the potential benefits. Yet bringing back long-term
vacant or derelict property into use may yield environmental and
health benefits, reduce crime and vandalism as well as reducing
'visual blight' - externalities which are not captured by the
developer. It will also reduce pressure on greenfield sites. Data
shows that market prices do not adjust downwards to take account
of the additional costs of renovating long-term derelict properties,
and that once properties have been vacant for a year or more,
they are more likely to remain vacant
21. Following the withdrawal of the Deprived
Urban Areas Guidelines in 2002, the Commission stated that "it
would be helpful to examine whether there was a need for an additional,
specific instrument dealing with state aid for undertakings in
deprived urban areas, and what the basic features for such an
instrument would need to be"[4].
Whilst noting that needy pockets of deprivation are not restricted
to urban areas, the UK believes that such an instrument should
be part of the modernised state aid regime needed to support the
EU's Lisbon agenda.
Drawbacks and gaps in existing approvals
22. As described above, the UK has secured a
number of approvals relevant to tackling these issues. But there
are problems. This section sets out issues with the schemes as
a whole. Annex B gives examples of specific schemes which
have been affected.
23. The Land Remediation Scheme has enabled the
redevelopment of a large number of brownfield sites containing
derelict buildings and contaminated land. But a site may also
lie idle because the high cost of development in relation to the
potential end value means that the land has a negative value.
The barrier to developing the land lies not in its dereliction
or contamination, but rather in its location and possibly in restrictions
placed upon its use under the system of Planning for land use
(e.g. a town centre site cannot be used for warehousing or parking
because of transport issues). In such cases, the current landowners
will frequently decide to leave the site vacant rather than paying
for its development or accepting an inevitably very low price
for someone to take it away from them. The present scheme does
not enable the payment of grant to stimulate physically, socially
or environmentally desirable development in such cases.
24. This means that public authorities frequently
resort to buying plots of land in deprived areas and developing
it themselves as so-called "direct development". This
is often an inefficient use of public funds - more could be achieved
by leveraging in private finance. It is also hard to understand
why support payments for private sector-led land regeneration
is unacceptable, whilst the same activity by the public sector
is permitted, especially in view of Article 295 of the EC Treaty
and the wide definition of "undertaking" given by the
European Courts.
25. Another drawback in the existing approvals
is in the housing gap funding approval. This approval, which permits
grant to cover the difference between the cost of housing development
and its end market value, restricts such support to a maximum
of 60% of eligible costs. Not only was this a very arbitrary
and uncertain limit - it is far from clear what in every case
constitute eligible costs - the UK's experience suggests that
it is over-bureaucratic and unnecessary.
26. The important point in both the above cases
is that the payment must be the minimum necessary to overcome
the market failure. If it is, there will be no advantage outside
the normal course of trade to the developer. The imposition of
an arbitrary cap and/or restriction to Assisted Areas only makes
sense if the payment distorts competition.. But these payments
should not distort competition because they merely offset the
specific market failure. The amount needed to enable a social
housing project to go ahead may be 25% of development costs in
one case and 75% in another. To pay 50% in both cases would in
one case create a massive distortion of competition and in the
other be inadequate for the project to go ahead.
27. The UK believes that the Commission should
focus in cases like this on ensuring that Member States have transparent
and robust procedures for ensuring that the market would not deliver
the desirable outcome by itself (proving the market failure) and
ensuring that the minimum necessary is paid. The principle which
governs aid for SGEIs is also valid in these scenarios. In both
cases Government is engaging undertakings as intermediaries to
deliver an outcome which the market would not otherwise supply.
In both cases there is only an advantage to the undertaking involved
if it is paid beyond the normal course of trade.
28. The UK government's proposed Business Premises
Renovation Allowance, which is currently before the Commission
for approval, represents another potential instrument for triggering
economic regeneration through physical redevelopment. It would
provide a 100% first year capital allowance for the renovation
of any business premises in the 2,000 Enterprise Areas which have
been vacant for more than one year.
29. The UK accepts that a state-wide tax incentive
such as this inevitably fails to calibrate exactly the minimum
necessary to overcome the relevant market failure in each case.
However, this measure's administrative efficiency and very low
aid intensity allow it the potential to have a substantial impact
at low cost to the Government and with very little risk of significant
distortion of competition.
30. For regeneration to be really effective,
more certainty, coherence and co-ordination is needed. Simply
relying on those approvals already gained, important as they are,
is not enough. In any case, the validity of those approvals expires
at end 2006. This is too short a time horizon for most developers
even to design a scheme, especially if land has to be purchased
and/or reclaimed, let alone see it to completion. So certainty
needs to be given that aids for such land and property development
schemes, if allowable up to 2006, remain allowable at least until
2013.
Way Forward: General Approach
31. The UK believes that horizontal measures
are the way to tackle the issues set out above. The Commission
road map has set out a philosophy for horizontal measures based
on tackling market failures. The Commission's recent decision
on Services of General Economic Interest, which the UK welcomes,
adopts this philosophy.
32. In the context of promoting physical regeneration,
the UK would suggest that this philosophy is applied on the basis
of the following principles:
- Physical redevelopment can bring wider social,
economic and environmental benefits, which should be recognised
in considering whether public support is necessary and appropriate.
Support should be provided only where there are wider benefits
to be gained.
- Where the market will not develop the land, public
support and incentives to secure private development are appropriate
where there are clear wider benefits resulting.
- Such support should, of course, be limited to
the minimum necessary to overcome the market failure.
- After land has been developed, use of that land
should be subject to market mechanisms (end users should pay the
market price).
33. This general approach sets out an economic
rationale to underpin policy and inform the assessment of specific
proposals.
34. In terms of specific future policy development,
the UK would wish the Commission to address the following areas.
Clarification of existing approvals
35. As well as having existing approvals extended
beyond 2006, it would be helpful to have guidance on how aids
based on different guidelines and approvals may be combined.
Tackling deprivation cuts across existing guidelines and block
exemptions as well as specific approvals, and would benefit from
consolidated guidance. Whilst it is sometimes possible to develop
schemes that maximise the use of different guidelines and approvals
covering different eligible costs, it is a very cumbersome approach,
and it is always uncertain whether the Commission will agree that
the rules have been correctly applied. More clarity could be obtained
through publication of a Vade Mecum explaining how all the existing
rules may be joined together to facilitate the desired economic
growth outside the Assisted Areas.
Aids not significantly affecting competition
36. The UK believes there is scope for increasing
Member States' discretionary use of support which does not significantly
affect competition. This issue has wider application than just
tackling deprivation, but can be particularly significant for
it. The UK welcomed the proposal put forward by DG Competition
concerning Lesser Amounts of State Aid (LASA), which would have
allowed Member States such increased discretion to a clearly defined
extent. The UK is disappointed that the measure was not approved
by the Commission, and considers that there is a growing need
for Member States to be able to allocate State aid that, whilst
of significance to the recipient, demonstrably does not have a
significant impact on competition within the EU.
37. This could be achieved through expansion
of the Block Exemptions, including raising the "De Minimis"
threshold (with perhaps a higher threshold for social economy
organisations, based on their delivery of greater social benefits)
and by adopting some of the LASA principles within the horizontal
guidelines. Revised guidelines should be much more economic data-based,
as the Commission has itself now proposed; and their enforcement
in relation to relatively minor payments to undertakings could
be left to Member States and the market itself, so that the Commission
need only consider larger aids which threaten to distort competition
seriously.
Review/renewal of guidelines and approvals
38. We would like to build on, and extend, the
existing approvals and guidelines to enable Member States to take
a more holistic approach to regeneration. There are four strands
to this policy:
- Extending the scope of existing approvals to
tackle the gaps described in paragraphs 22-30 above.
- Ensuring that existing horizontal guidelines
enable the holistic approach described above, and to make any
changes which may be needed to enhance their effectiveness in
tackling problems of deprivation. The UK will comment in detail
as the specific reviews are undertaken.
- In this respect, the impact assessment required
under the SGEI decision could usefully be used to help the need
for any further broader guidance on horizontal State aids.
- Developing a clear policy rationale to inform
future decisions, either on future guidelines, or specific approvals,
relating to physical redevelopment. This should be based on a
clear recognition that the problems of market failure apply in
the context of physical redevelopment. The 'road map' sets out
the basis for this philosophy: the principles set out at paragraph
32 above could be adopted to develop it further. It is for consideration
whether there should be a clear statement by the Commission on
this. The UK believes there would be great benefits in terms
of transparency and consistency in its doing so.
Procedural issues
39. Another problem which the Commission itself
has recognised is the uncertainty as to the time needed to gain
approval for an individual proposed aid. This is true even where
the aid is relatively small and the Member State itself is clear
that it will not distort the European market. The Commission
does have a two month deadline for its own response to any notification,
but this is suspended as soon as any response is given - and that
is usually more queries, rather than an approval. It might help
to streamline the process if, for instance, the Commission were
to consider a block exemption for proposed aids exceeding the
de minimis level but below to another limit, subject to their
being published in the OJEC and not objected to within a limited
period of up to perhaps 3 months.
40. This would enable the Commission to focus
on larger amounts of aid, and only intervening to ensure equality
of application across Member States in the most distortive cases.
CONCLUSIONS
41. The need to regenerate the most deprived
areas of the European Union in order to provide the benefits of
economic growth for all its citizens equally, is undisputed.
The guidance on State aids rightly aims to ensure that government
intervention does not jeopardise that aim by unfairly distorting
competition. However, there is also a clear need to give greater
certainty and extension of scope, subject to suitable constraints,
to Member States' governments to allow them to tackle market failures
wherever these occur, in order to assist the redevelopment of
deprived areas within the EU.
42. At present, investment aid is quite properly
largely restricted by the Commission's regional aid guidance to
the designated Assisted Areas. Significant market failures in
land and property development and in social, community and enterprise
development exist, however, outside as well as inside Assisted
areas.
43. The existing guidance and approvals on state
aid have gone some way towards helping clarify at least what may
be done within and outside the assisted areas. Yet the Commission
has on occasion treated payments to offset market failures as
if they were subsidies, even where clear evidence can be and has
been provided of the scale of the market failure concerned. And
even existing levels of certainty will be lost post 2006, unless
the current guidance and approvals are formally extended.
44. The UK would therefore recommend
(1) that the Commission consolidate the approvals
it has to date given to the UK and other Member States to facilitate
land remediation and property redevelopment, and extend their
approval of them to at least 2013;
(2) that the Commission helps to clarify and
streamline the approvals process, by inter alia raising the de
minimis limits, removing arbitrary ceilings on eligible costs
and introducing a "market approval" process for smaller
aids in a margin above the de minimis threshold; and
(3) that the Commission consider the need for
extending the scope of existing approvals in the light of a clear
policy rationale, which could be expressed in the guidance on
horizontal State aids in the light of the statistical data they
have received to date from Member States about their use of State
aids, and with a view to the longer term economic impact on the
EU as a whole.
45. It is important to consolidate the advances
made in previous years with state aid rules that avoid distortions
to trade and competition, but that will foster social progress
and economic growth by encouraging investment in weaker areas,
so that more and more deprived areas across the European Union
can be brought up to an acceptable level of prosperity. If deprived
areas can be given a decent physical environment, improved social
cohesion and encouragement of indigenous entrepreneurial potential,
they should have the basic infrastructure to attract market-based
business investment, without the need for investment aid.
Annex A
CURRENT UK APPROVALS
1. In 2001-02, the UK put forward a number of
individual schemes for approval following the Commission's decision
that the Partnership Investment Programme (PIP) did not comply
with state aid rules.
(i) Support for Land Remediation
2. The land remediation scheme enables the payment
of grant to developers to meet up to 100% of their costs incurred
in bringing derelict land back into use. A further 15% of costs
is permitted where the land has been polluted and the original
polluter cannot be found. The land may be anywhere within the
UK: the Regional Development Agencies are responsible for administering
the scheme in their areas, and grant aiding developers direct.
(ii) Supporting Heritage Related Sites
3. The UK's Historic Regeneration scheme enables
funding bodies to support all the heritage-related costs associated
with the repair, restoration and rehabilitation of designated
historic buildings, conservation areas, ancient monuments, and
historic parks and gardens where this would not happen through
market forces alone. This is clearly of benefit in areas where
the development value of the land on which a heritage building
is located may be considerably greater than the value of the land
net of the maintenance cost of the buildings on it.
4. Being able to support the extra costs associated
with a building's designation as a heritage asset is most helpful
when combined with other forms of state support. The Commission's
approval restricted the use of the grant towards meeting the maintenance
cost of the heritage building; it did not allow the costs of redevelopment
of the building into e.g. office space. Nonetheless, the scheme
has enabled a number of heritage sites to be at least maintained,
since the landowners receive the grant support towards such costs
even if the building does not generate other income. Moreover,
support for a heritage building's maintenance may be combined
with support for other aspects of a redevelopment scheme, if for
instance it includes social housing, or business units for SMEs.
(iii) Support for Housing Developments
5. The UK's "Partnership Support for Regeneration"
scheme aims to increase the stock of housing available for owner
occupation. Owner-occupation tends to stimulate a demand for improvements
in local public services and the local environment, thereby contributing
to the overall regeneration of the area.
6. The costs of providing owner-occupier housing
in deprived areas can be greater than the value of housing, particularly
if the land is contaminated or derelict, however. This scheme
provides the minimum grant necessary for private developers to
be able to meet the difference between the cost of building and
the open market value. There has been significant take-up of
the scheme; but the UK still has a significant shortfall in good
quality housing stock.
7. The UK welcomes the Commission's recent Decision
on State aid support of Services of General Economic Interest
(SGEI), and the specific inclusion of social housing within its
scope. This will enable much more specific and targeted support
for social housing without the need for separate notification
to the Commission.
(iv) Stimulating business establishment and property
development
8. Two approvals for bespoke and speculative
property development allowed the UK to support the redevelopment
of land and property for commercial purposes, where the costs
of the redevelopment or refurbishment would exceed the value of
the redeveloped or refurbished land or property. These were key
approvals to trigger the necessary physical conditions for economic
regeneration (even though support for large development companies
was not permitted outside the Assisted Areas).
9. In addition, the stamp duty exemption for
disadvantaged areas removed the requirement for businesses to
pay stamp duty (4% for most transactions) for commercial property
transactions in the UK's 2,000 most disadvantaged areas (called
Enterprise Areas). The aim of the scheme was to encourage business
establishment and property development in disadvantaged areas
by tackling market failures which lead to dereliction and abandonment,
lack of local services and community dislocation as residents
commute to find work. The rate of transactions for commercial
property is around six times lower than the rate for wards in
the rest of the UK. Hence there is inefficient price formation
in the market which this measure aims to overcome. The stamp
duty exemption scheme has since been wound up and is to be replaced
by the "Business Premises Renovation Allowance" scheme,
currently being considered by the Commission.
10. In addition, the Commission has approved
two further regeneration-based schemes, the "Support for
environmental regeneration" scheme and the "Community
/ voluntary (neighbourhood) regeneration" scheme. These
schemes allow government support of environmental work linked
with regeneration and small, locally based schemes put forward
by voluntary groups and operated on a not-for-profit basis.
ANNEX B
EXAMPLES OF PHYSICAL LAND REGENERATION PROJECTS
CURRENTLY PUT AT RISK BY THE STATE AID RULES
Northampton Joint Initiative, Northampton, Central
England
The area for proposed development is made up of three
sites, located in or adjacent to the flood plain of the River
Nene, which make up a total area of approximately 97ha and are
located west and south east of Northampton town centre. The main
issues in relation to these sites are the poor quality environment,
including two former landfill sites; poor access; and fragmentation
and under-utilisation of the current facilities. Land ownership
is currently shared by various public and private landowners.
The proposed approach is to develop the three sites
together, as this will generate benefits which the sites individually
cannot do. A feasibility study for the project identified that
development had not taken place due to the interaction of "multiple
market failures", including redevelopment costs exceeding
the likely financial return and too many stakeholders with conflicting
interests.
The high redevelopment costs meant that it was unprofitable
for any one landowner to develop their own site, without further
development on related sites and provision of the necessary transport
infrastructure. In order for redevelopment to take place, landowners
would have had to come together and co-ordinate their actions,
which they were unwilling to do.
The rationale for government intervention is therefore
based on generating positive external benefits to society that
would not otherwise be realised. The need is as great as any
pocket within the designated UK Assisted Areas, but because it
is outside those areas, the permitted intervention rates are low
and the necessary private sector investment may not be levered
in.
Bickershaw Colliery, Wigan, NW England
The former Bickershaw colliery site extends to 18ha
in size and is located on the western edge of Leigh, two miles
from Leigh Town Centre and five miles from Wigan Town Centre.
The former Bickershaw colliery site comprises two distinct areas:
- Plot 1, to the north is 11.8ha of despoiled land
and was previously used for operational colliery buildings and
storage. The site is now cleared of previous structures. To the
north of Plot 1 is a significant colliery spoil area and partly
reclaimed land known as Bickershaw North, owned by Wigan Council
and the NCP.
- Plot 2 is 5.5ha and was the former pithead area,
with five capped shafts located in the central area. Two of these
are fenced and vented to allow gas monitoring by the Coal Authority.
Roughly triangular, the western boundary lies close to a group
of disused buildings in private ownership, formerly used for commercial
purposes associated with the colliery.
The proposed project involves comprehensive reclamation
of the 18ha site making available some 15ha of residential land,
1,000 sq m of retail space, together with a 4,000 sq m marina.
The marina is crucial because the Leeds-Liverpool canal is an
increasingly important link to the wider inland water network.
Private sector development of the site has been hindered because
of the uneconomic costs of land the necessary land remediation,
and the difficulty of securing all the land from its various owners.
State aid was therefore needed to
- deliver benefits to the local population and
wider sub-region through reclamation of the site;
- to provide local communities with access to enhanced
open space provision and recreational opportunities;
- to improve access to a wider choice and diversity
of housing and local employment opportunities, particularly for
residents in the adjoining estates, which are characterised by
deep seated socio-economic problems.
But although these needs are very great, only limited
State aid is permitted (Wigan is a currently a designated Art
87(3)(c) area) and it will be very complex to make use of the
several relevant State aid approvals in combination. Even so,
the aid will probably not be enough, because of the social character
of much of the land use, yet it is very hard to see how such payments
would distort competition to any significant extent in any relevant
market.
Snowdown Colliery, Amersham, Kent, SE England
This site is in a prosperous part of the SE region
of England; well outside any designated Assisted Area. But as
at Bickershaw the problems of market failure apply: the land is
derelict, due to subsidence from the mine workings, and the associated
community has run down because the former colliery workforce is
now largely unemployed following the closure of the coal mine.
There are only poor transport links to surrounding communities,
and the mostly social housing is in large rundown estates. Because
of its geographical location, the site cannot benefit from the
necessary levels of State aid required to attract private sector
investment - the costs of land remediation and necessary social
housing significantly reduce the site's attractiveness to any
would-be developer in the region.
Chatterley Whitfield Colliery
Chatterley Whitfield Colliery is a 80 ha site located
in Stoke-on-Trent, a Tier 2 assisted area in the West of England.
It is the aim of the local community and several
regeneration bodies to preserve this colliery as a heritage site
and to convert existing buildings into viable commercial office
space. It must first overcome several obstacles, such as the need
to reclaim much of the land (which is currently dangerous and
at various stages of decline) and the necessity to find private
sector support for the schemes.
The area surrounding the Colliery has been in steady
decline since its closure in 1976. Housing stock is of very
poor quality and the citizens of Stoke-on-Trent are among the
most disadvantaged in the UK in terms of unemployment, health
and education. Its need is therefore comparable to a site within
the Art 87(3)(a) area of West Wales and the Valleys, but because
it is in the relatively more prosperous region of Shropshire and
Staffordshire, [the relevant NUTS 2 region] only limited State
aid support can be given, which is insufficient to lever in the
necessary private sector investment.
Manningham Mills, Bradford , West Yorkshire, England
This is a very large site in a part of the former
industrial heartland of the north of England. It is a heritage
site of industrial archaeological interest. Like the former colliery
sites, the costs of bringing the site back into use are greater
than the potential redeveloped value. Again, being outside the
Assisted Areas, the levels of permitted State aid are too low
to attract the necessary investment. However, the Historic Regeneration
scheme should enable at least the maintenance costs of the site
to be met. What is less clear is what other development -perhaps
the provision of work units for SMEs, for example - might also
be supported as a part of a single scheme to regenerate the buildings
and immediate area, rather than the building alone.
Manningham Mills is an example of a scheme which
would benefit from the clarification of the State aid rules, and
additional guidance on how they may be applied together.
1 In "The programming of the Structural Funds
2000-2006: an initial assessment of the Urban Initiative",
Brussels, 14 June 2002, COM(2002) 308 final. Back
2
Communication from the Commission to the Member States of 28 April
2000 laying down guidelines for a Community initiative concerning
economic and social regeneration of cities and of neighbourhoods
in crisis in order to promote sustainable urban development (URBAN
II): OJ C 141,19.5.2000, p8. Back
3
NUTS 5 level areas, roughly equivalent to the size of an urban
"commune" or a small town. Back
4
(EUROPEAN CONFERENCE OF MINISTERS RESPONSIBLE FOR REGIONAL PLANNING,
79TH MEETING, 25 OCTOBER 2002) Back
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