House of Commons - Regeneration - Communities and Local Government Committee

Regeneration - Communities and Local Government Committee Contents

5 Stimulating regeneration

82. The Government has to find alternative ways of funding regeneration and needs a coherent plan for encouraging private sector involvement, including through the provision of gap funding and the closer alignment of public funding streams. In this chapter, we consider what our evidence indicates about some of the further options for stimulating regeneration activity and attracting private investment. In doing so, we have been particularly mindful that we should not look at any measure as a 'silver bullet' but should rather consider its potential contribution to a broader, comprehensive approach to regeneration.

Tax Increment Financing

83. Regeneration to enable growth defines Tax Increment Financing (TIF) as a "power to allow local authorities to borrow against predicted growth in their locally raised business rates". It suggests that this "could provide funds for key infrastructure and other capital projects, which will further support locally driven economic development and growth".[166]

84. We heard mixed views about the contribution TIF could make to regeneration, with some suggesting it would work better in places where the market was strong than in the more deprived areas. Julian Dobson of consultancy Urban Pollinators stated that "TIFs in particular work well in a rising market" and questioned whether TIF was "going to address the issues that we are concerned about with regeneration".[167] Hull City Council made a similar point, saying that it would be effective in places where "increased tax revenues are sufficiently certain" but that "where the risk of tax increases not materialising is significant it will be more difficult".[168] Igloo said that, while TIF was to be "strongly welcomed in principle", it had concerns that it would "be used not for urban regeneration but for projects like large shopping centres that may even make things worse for deprived communities who see their local shops decline".[169]

85. Others felt that TIF had its place if considered alongside other financial tools. The Association of Greater Manchester Authorities welcomed the TIF proposals "as part of a broader suite of tools to enable local authorities to secure growth".[170] The National Housing Federation expressed its support for "the development of innovative financial mechanisms that can help drive forward regeneration". It said that "TIFs [were] one potential tool to support development and infrastructure that would otherwise be unviable" and called for the Government to "help unlock the potential of other mechanisms".[171] The City of Bradford welcomed the TIF proposals and declared itself "keen to explore how a TIF could help secure the delivery of local schemes that have stalled as a result of the recession".[172]

86. Those expressing support for TIF also emphasised the need for a swift implementation. The British Property Federation welcomed the Government's commitment to TIF but said that it was "disappointing [...] that TIF is already a reality in Scotland whilst its introduction in England still looks a long way off". It suggested that "TIF should be implemented at the best possible time i.e. when the economy is emerging from a downturn" and argued: "It would also make sense to take maximum advantage of the current interest in and enthusiasm for TIF".[173] The Local Government Association called for TIF to be "implemented quickly", adding: "It is particularly important given that the reductions in the public budgets available for regeneration will take effect from the next financial year that we do not lose momentum on regeneration and that the new tools available locally are brought forward as quickly as possible".[174]

87. We asked the Ministers when the first TIF schemes were likely to be operational.[175]Mr Shapps subsequently wrote to us to say that TIF "would be taken forward through the forthcoming Local Government Finance Bill, timing of which is subject to Parliamentary approval". He added: "We will be consulting on proposals shortly and we would want to make progress as quickly as possible following that consultation".[176] These proposals were included in the consultation on the Government's wider proposals for business rates retention, which was published on 18 July 2011 as the first phase of the Local Government Resource Review.[177]

88. It is important not to consider Tax Increment Financing as the answer to all regeneration problems. It relies on an increase in business rates revenue and accordingly may not be successful in some of the most deprived areas. Nevertheless, it offers the potential to raise finance for regeneration in certain circumstances, and should be available to local partners alongside other tools. We agree that the best time to implement TIF would be as the economy emerges from recession. We look forward to its introduction at the earliest opportunity and to seeing how the Government's proposals work out in practice.

Enterprise Zones

89. In the 2011 Budget, it was announced that 21 new Enterprise Zones would be created in England. The publication of Regeneration to enable growth predated this announcement. However, the Government's written evidence refers to the zones, stating: "Through a combination of fiscal incentives, reduced planning restrictions and other measures, these Zones will help kick start new investment and drive the creation of new private sector jobs in the areas they cover".[178]

90. Our evidence expressed some support for the introduction of Enterprise Zones. The Thames Gateway London Partnership suggested that "the plans for enterprise zones could [...] help to regenerate deprived areas by providing incentives for business growth and encouraging new investment".[179] The National Housing Federation was also supportive of the proposals, and spoke of an "opportunity to learn from the 1980s experience of enterprise zones to ensure that they deliver real sustainable growth and are cost effective".[180]

91. There were, however, warnings that the zones could simply lead to displacement rather than generating new economic activity. Katie Schmuecker of IPPR North said that her organisation's "evidence from using [Enterprise Zones] in the past is that they are much better at attracting employers from the surrounding area to relocate than they are at creating new employment opportunities". She also expressed concerns about the size of the proposed new zones, stating that "if they were larger, it might help to overcome some of these issues about displacement".[181] Chris Brown, Chief Executive of Igloo, said of Enterprise Zones, "on balance, they are a bad thing. They are bad either because they are located out of town [...] or because when they are in town, there will be huge displacement effects across the boundaries". He pointed to the proposals for an Enterprise Zone in Birmingham, saying that "the area that is going to be negatively affected by occupiers who will no longer go there is much bigger than the area of the enterprise zone".[182] Michael Gahagan of the Housing Market Renewal Pathfinder Chairs said that Enterprise Zones were "a mixed message and a mixed baggage", adding: "you do have to be very careful where they are located".[183]

92. Mr Shapps acknowledged that "we have to be careful to learn the lessons of history with things like Enterprise Zones." He added that he thought "the balance [was] about right on the Enterprise Zone front", saying, "I think it will a big boost to areas that may struggle, but not a massive disadvantage to others who will have other policies coming down the line".[184] The Government's prospectus for Enterprise Zones speaks of its approach "learning from previous experience" and suggests that "minimising displacement" will be an important component of this. It suggests that partnerships wishing to establish Enterprise Zones consider "how [...] the development of the Enterprise Zone [will] benefit the wider community and economy".[185]

93. While Enterprise Zones may bring some benefits in terms of private investment, we are concerned about their potential displacement effect and the impact this could have on surrounding places. It will be important to ensure that the new zones do not have a detrimental effect upon the regeneration of the wider area in which they are located; rather, it is crucial that they demonstrate a positive impact on nearby deprived communities. We welcome the Government's commitment to minimising displacement and to learning from the 1980s experience. We recommend that the Government work with local partners establishing Enterprise Zones to ensure that each zone has a strategy for bringing benefits to disadvantaged communities across surrounding areas. These strategies should be informed by lessons from the earlier experience of Enterprise Zones.

Public land

94. Public land has an important role to play in stimulating regeneration. The Homes and Communities Agency said, "Land is an increasingly important currency to unlock development." It told us of its work with councils "to identify the strategic contribution our land can make" and declared itself "committed to not hold land longer than is necessary and to dispose of our land on terms where it can contribute to delivery".[186]

95. Our witnesses discussed possible innovative approaches through which the contribution of land to regeneration could be maximised. One such approach involved the creation of "local asset backed vehicles". The Housing Market Renewal Pathfinder Chairs set out what these entailed:

In the classic situation the local authority puts land into a specially created company and seeks equity funding from the private sector. The company, which is jointly owned, is then able to borrow against its assets to invest in its area and the returns are distributed between a dividend and a re-investment into the area.[187]

The Chairs said that "such as scheme, or a variation of it, would certainly seem to have its place" but warned that it was "a long term solution and [...] as yet untried". They added that the Government could increase the appeal of such an approach "if [it] were to make it clear that any borrowing by such a body would be outside the local authority's prudential borrowing limits".[188] The Leeds City Region had "made significant progress in developing proposals around a city region [Local Enterprise Partnership] based Asset Backed Vehicle" which could "form a long-term sustainable self-financing development and regeneration delivery vehicle".[189]

96. Some private sector witnesses felt that the public sector was not doing enough to make the best use of land. Kier Property expressed "frustration at the inability of the public authorities, especially councils, the [Regional Development Agencies] and the HCA, to engage meaningfully with the private sector in developing plans to achieve high quality regeneration initiatives". It called on DCLG to promote an approach

such that the public authorities with land that could be used for regeneration purposes should be encouraged to see the wider benefits of utilising their land, possibly whilst adding in the land banks of developers and other private sector landowners to form more comprehensive areas of land to regenerate. Starting from a position of gifted land, with possibilities for financial returns as schemes take off, should be the default position for such public land owners when entering into such regeneration schemes.[190]

The British Property Federation believed that councils "should be encouraged to use their role as enablers and their new general power of competence in order to facilitate and, where feasible, 'de-risk' regeneration schemes". It suggested that they "might seek to use their land assets more constructively than they have in the past to achieve longer term regeneration objectives; [and] do more to expedite land assembly, an integral part of most regeneration schemes which often involves significant time, cost and associated risk".[191] Chris Brown felt that there were "cultural" issues preventing the public and private sectors working more closely together and that overcoming these by building trust and confidence was "actually a huge challenge". He added, "Changing the minds of local authority estates directors that there is a new way of doing things is a really big ask".[192]

97. Mr Shapps told us that the Government was "really keen to see Government land developed" as it was "of little use to us as unused, underdeveloped brownfield or whatever it happens to be at the moment." Government departments had been asked by 10 Downing Street to "bring forward their Government land" and that "what you might describe as a star chamber" was being established "to challenge [the departments] over how that process is going". The Minister added that he was "going to be very clear with the Homes and Communities Agency that they should take a strategic business view on this, and understand that their goal is to enable development, not to stop it". He also spoke about the "enormous possibilities" of the Government's "Build Now, Pay Later" scheme, through which certain publicly owned sites are made available for the construction of new homes on a 'deferred payment' basis, so that developers do not have to pay for the land upfront.[193]

REGIONAL DEVELOPMENT AGENCY ASSETS

98. A particular theme of evidence was that the assets of the disappearing Regional Development Agencies (RDAs) could make a useful contribution to regeneration. The National Housing Federation, for instance, spoke of "a real opportunity to maximise the value that these assets can bring to regenerating areas".[194] Hull City Council also expressed support for the use of the assets "to deliver the best possible outcomes for regeneration, rather than simply being sold to the highest bidder". It added: "Clear guidance is needed as to how assets will be incorporated into regeneration schemes, on what basis they will be transferred and at what value in order to maximise local outcomes".[195] The National Association for Voluntary and Community Action warned against a "fire sale" of the assets, arguing that "disposals [should not be] allowed to proceed before communities have the opportunity, to be provided in the Localism Bill, to nominate some of these assets as being of community value and of bidding to acquire them".[196]

99. On 6 July 2011, the Business and Enterprise Minister, Mark Prisk MP, announced that it was the "Government's intention to transfer the majority of the RDA land and property portfolio, into a 'stewardship' arrangement through which local partners, including local authorities, businesses, LEPs and others will be able to influence their development and ensure they are developed in a way which maximises economic outcomes for the area". He added that title to the assets would be transferred to the Homes and Communities Agency (HCA), which would be "responsible and accountable for managing the portfolio".[197] Giving evidence shortly before this announcement, Pat Ritchie, Chief Executive of the HCA, told us what was meant by the term "stewardship":

It means that we will work with local partnerships to agree a long-term plan for the use of the RDA sites, often sites that are alongside our own ownerships in a number of regeneration schemes. That plan would then be subject to what we are calling a co-operation agreement with that local partnership, and any income from the assets would be then used at a local level to support the development of those assets that need investment.[198]

Asked why the asset could not just be transferred directly to the local enterprise partnerships (LEPs), she said: "Should [the LEPs] be able to acquire the assets at market value and be able then to deliver those assets, then that is an option that we would look at through the stewardship model".[199]

100. The Local Government Association expressed concern that its members were "being asked to pay full market value for RDA assets". It suggested that "a fair approach to the local taxpayer would recognise that the transfer of an asset from an RDA to a council is in fact neutral to the public sector balance sheet, and should not therefore require a charge on council taxpayers".[200]

101. When we asked Richard Hill, Deputy Chief Executive of the HCA, whether the insistence on market value would constrain local partners' ability to set up asset-backed vehicles, he told us that the HCA's approach "was not seeking to secure always maximum market value". He added that the HCA could "structure both finance and potentially the vehicle, so there is a risk sharing approach on that land". Asked whether the Treasury restricted the HCA's ability to enter into this sort of arrangement, he said:

We clearly have to work within the framework that Treasury gives us, but that does give us some flexibility to do things for different uses and to structure vehicles in different ways, and potentially to put the land into asset-backed vehicles if that was something we wanted to do.[201]

102. The Minister, Andrew Stunell, stressed that there was "a balance [...] in terms of making sure that, so to speak, the Government is not left with the liabilities and other people walk away with the assets". Mr Shapps added that the Government had "no desire to hoard land at a national level when it could be used far better to aid local communities and all sorts of local ambitions from housing to economic development".[202]

PUBLIC LAND: CONCLUSION

103. There is doubtless great potential for public land to be used in stimulating regeneration. Our evidence suggests that innovative approaches such as local asset backed vehicles have an important role to play, especially over the longer term. However, we have heard concerns from private sector witnesses that the public sector is not always prepared to engage in such schemes. In particular, the Regional Development Agency assets could make a significant contribution to regeneration. We welcome the intention that local partners will be able to influence how the assets are developed. However, it is as yet unclear how effective the "stewardship" model will be at supporting locally-led approaches to regeneration; this is an issue to which we may wish to return at a future time. We also have some concerns that the Homes and Communities Agency's insistence on receiving market value from any transfer to local partners may hinder some innovative uses of the assets. This appears to be symptomatic of the public sector's aversion to taking risks with its land.

104. We recommend that DCLG issue guidance to local and national public bodies on how public land can best be used for regeneration. This guidance should include provision for an independent expert assessment of whether a particular site is viable and its potential for delivering regeneration. It should also encourage public sector organisations to be prepared to take greater risks with their land. In particular, the Government should instruct the Homes and Communities Agency to transfer land to local partners at no cost where benefits in terms of regeneration can be identified.

105. It is also important to maximise the contribution that asset backed vehicles could make to regeneration. We recommend that the Government's guidance make clear that borrowing by asset backed vehicles will be considered outside of local government prudential borrowing limits.

European funding

106. Regeneration to enable growth identifies the European Regional Development Fund (ERDF) as a possible resource for regeneration, stating that it could provide "potential funds to support local regeneration and stimulate economic development projects".[203] The financial tables provided to us by the Government included ERDF in the list of funding streams allocated across the spending review period. It is broken down into £1.4 billion "unallocated funds" and £1.044 billion "committed funds".[204]

107. Our evidence expressed concern about the possibility of ERDF money being returned unspent, pointing to doubts over the availability of match funding given the forthcoming demise of the Regional Development Agencies. Keith Burge of the Institute of Economic Development said that his members found it "curious at the very least" that there were "areas of the country where the Government can double its money with EU assistance" but that "through withdrawal of its spending it [was] missing out on the opportunity to lever that additional resource in".[205] CEDOS/ADEPT warned that the "cuts to [Regional Development Agency] funding present a major challenge to drawing down the remaining ERDF funding and therefore to the process of economic regeneration in this country".[206] It concluded that there was "an urgent need for the Department of Communities and Local Government to put in place a plan across Government and work with local authorities and local enterprise partnerships to ensure match funding is identified and made available to draw down the ERDF remaining across the current English programmes".[207]

108. Several witnesses also discussed the potential contribution to regeneration of Joint European Support for Sustainable Investment in City Areas (JESSICA). The Construction Industry Council said that this had "the potential to lever in additional sources of public and private investment; and to create a sustainable fund to support regeneration activity well into the future".[208] The regeneration company Igloo viewed JESSICA as "a very positive development in regeneration funding", but felt that there was insufficient awareness of how it could be used:

The paper [Regeneration to enable growth] doesn't mention JESSICA funding, which we view as a very positive development in regeneration funding. In the current circumstances where there is an almost complete absence of both equity and debt for urban regeneration, JESSICA could help fill the gap (although it is not without its technical challenges) although it needs to be supported by public subsidy as gap funding in regeneration areas. However the major barrier to delivery of JESSICA funds seems to have been first the lack of recognition of its importance amongst public sector European funding professionals and politicians and subsequently the dislocation caused by the wind up of the RDAs.[209]

A similar point was made by Ken Dytor of the British Property Federation, who spoke of the need "to ensure that the knowledge base about the tools that are available is improved by far".[210]

109. During our visit to Greater Manchester, we heard that the Greater Manchester Local Enterprise Partnership had developed proposals for an investment model which would in part involve the use of "Evergreen" funding, comprising JESSICA and funds from other sources, and would allow money to be recycled and reinvested. In subsequent evidence to us, the Association of Greater Manchester Authorities said that their "long term vision for Evergreen is ambitious with the fund forming the cornerstone of a much wider investment fund or funds, attracting private and public investment into projects across the area".[211]

110. Mr Shapps assured us that it was Government's intention "to spend every single penny" of the ERDF allocation, adding: "Goodness knows we pay enough in, and we would like the ERDF money out again".[212] In a subsequent letter, he described Greater Manchester's proposal as "exactly the sort of innovative thinking that Government wants to see in regeneration".[213]

111. At a time when the resources of central and local government are limited, it becomes particularly important to make use of the European funding available for regeneration. Among other things, it could provide a potential source of gap funding to help lever in private investment. We are pleased that the Minister is committed to spending "every single penny" of England's European Regional Development Fund allocation. However, a significant sum remains uncommitted and there are doubts about whether the necessary match funding, much of which has previously been supplied by the Regional Development Agencies, can be found. We recommend that the Government set out proposals for working with local partners to identify sources of match funding, with a view to ensuring that all remaining European Regional Development Fund money is spent.

112. Our evidence suggests that JESSICA could lever in additional resources for certain projects, and, once invested and returned, provide an ongoing, sustainable fund for regeneration. We have seen plans to make innovative use of it in Greater Manchester, as part of a wider bundle of funding streams. We have heard, however, that further work is needed to make practitioners aware of how it can be used. It is perhaps telling that no mention is made of JESSICA either in Regeneration to enable growth or the Government's memorandum to this inquiry. We recommend that the Government disseminate to relevant bodies guidance setting out the possibilities for the use of JESSICA in regeneration. This guidance should include examples of schemes in which JESSICA is already being successfully employed.

166 Regeneration to enable growth, Tables Back

167 Q 67 Back

168 Ev w38, para 3.6 Back

169 Ev 216, para 6.14 Back

170 Ev w117, para 1 Back

171 Ev 125, para 2.16 Back

172 Ev w24 Back

173 Ev 209, para 11 Back

174 Ev w127 Back

175 Q 396 Back

176 Ev 179 Back

177 Department for Communities and Local Government, Local Government Resource Review: Proposals for Business Rates Retention: Consultation, Chapter 5 Back