Written evidence submitted by the Institute
of Economic Development
SUMMARY
Whilst reduced spending on regeneration is inevitable
within the context of public sector budget cuts, the expectation
that the private sector might fill the void is believed to be
high risk, particularly given that its activities may deliver
economic and social outcomes that do not accord with the government
priorities.
IED believes much more needs to be done, both to
facilitate private sector involvement in regeneration and to undertake
regenerative activities where it is inappropriate for the private
sector to take the lead given the nature of the economic and/or
social outcomes being pursued.
How effective is the Government's approach to
regeneration likely to be?
— — Reforming
and decentralising public services—this
is considered an interesting proposition, but without accompanying
resources, the theory may struggle to translate into effective
practice.
— — Incentives
for growth—key questions need
to be answered about the mechanisms through which resources generated
by development will be channeled and the uses to which such resources
can be put. There is also potential to explore additional financing
mechanisms to those currently proposed and to use RDA assets (or
at least the income they generate) to benefit areas in need of
regeneration. IED contends that LEPs are "political"
creatures and are not based on any assessment of economic functionality.
— — Removing
barriers that hinder local ambitions—the
Government appears to be placing a great deal of store on the
ability of relaxed planning rules supporting growth. Whilst this
has its place, it does appear to be a rather narrow approach.
In addition, IED has some concerns about the more recent announcement
of the designation of Enterprise Zones, with evidence in respect
of those created in the 1980s suggesting that there are more cost-effective
and sustainable solutions to local regeneration needs and opportunities.
— — Targeted
investment—we believe there
is over-emphasis on prospective benefits from investment in
Crossrail and High Speed 2, which will not accrue to large
parts of the UK. Naturally, the Regional Growth Fund, and investment
in adult skills are most welcome, but there are concerns about
the ability of Regional Growth Fund to facilitate a surge in private
sector enterprise when the overall resources for enterprise development
have been reduced and the support infrastructure has been dismantled.
What benefits is this approach likely to bring?
— There
has been no assessment of what sort of regeneration is needed,
where it is needed and how it might best be delivered. Regeneration
defined in terms of rail infrastructure, housing and Olympic legacies
leaves large parts of the country untouched and ignores most of
the elements of community-based regeneration undertaken by successive
governments over the past 30 years or more.
— Budget
cuts in respect of regeneration and economic development are resulting
in staffing levels being cut, activities being restricted and,
in some cases, regeneration/economic development functions ceasing
altogether.
What lessons should be learnt from past/existing
regeneration projects?
— Area-based
regeneration has been a feature of government policy over the
past 30 years or so. IED urges the Government to review previous
examples and introduce a new area-based regeneration programme
that complements and adds value to the types of physical developments
that have been proposed.
— There
is a need for absolute certainty in planning policy, very clear
statements concerning additional developer contributions required,
well enforced development timetables and overage agreements with
commercial developers where the public sector has a land interest.
What action should the Government be taking to
attract money from (a) public and (b) private sources into regeneration
schemes?
— Governments
cannot (and probably should not) seek to remove risk, but can
help private sector investors to establish the extent of risk
and provide clarity in respect of investment processes and timescales.
— There
may be a unique opportunity to devise a financial instrument that
attracts finance from individuals for investment in regeneration
projects, with the offer of competitive rates of return and with
the Government as guarantor rather than principal provider of
resources for particular regeneration schemes.
— At
community level, consideration ought to be given to encouraging
Credit Unions and other such bodies to become involved in the
financing of local regeneration projects.
How should the success of the Government's approach
be assessed in future?
Success will be determined by the extent to which
communities are vibrant and sustainable without the need for ongoing
public sector support.
1. Introduction
1.1 The Institute of Economic Development (IED)
is the leading professional body for economic development and
regeneration practitioners in the UK. Members include those working
in government departments, non-departmental government bodies,
local authorities, universities and a variety of private companies.
IED has no political affiliations and seeks to engage positively
with a range of partners in order to promote the interests of
its members, of the economic development/regeneration profession
more widely and, crucially, of the communities and business interests
the profession serves.
1.2 This submission is made in response to the
Government publication "Regeneration to enable growth: What
Government is doing in support of community led-regeneration".
IED welcomes the acknowledgement in the document of the importance
of regeneration/economic development in reviving communities and
helping to make them successful and sustainable.
1.3 We recognise the need for new approaches
to regeneration that require fewer public sector resources and
which make more effective use of those resources. However, we
believe that a re-balancing of some local economies from public
sector to private sector activity and ensuring that all communities
share in the benefits of economic growth will require facilitation/
intervention to an extent that does not appear to have been provided
for.
1.4 The submission draws on the considerable
experience of IED members in a wide variety of activities relating
to community-led regeneration and other community-focused regeneration.
Each of the questions to be considered by the Select Committee
is dealt with in turn.
2. How effective is the Government's approach
to regeneration likely to be?
Reforming and decentralising public services
2.1 Reforming and decentralising appears to be
all about empowering local areas to do things their way. However,
without accompanying resources (including the ability to build
capacity where it is needed), the theory may struggle to translate
into effective practice. Furthermore, the localism agenda is in
danger of ringing hollow unless backed by devolution of funding,
allowing great flexibility over spending decisions.
2.2 In addition, there is a danger that the pendulum
might swing too far, such that there is a loss of co-ordination
and strategic approaches and a greater tendency towards "nimbyism".
We would suggest that a framework be put in place to ensure that
decision making mechanisms are available at different spatial
levels to account for different interests.
2.3 Nevertheless, this approach could influence
the delivery of a host of public services, some of them central
to regeneration, such as policing and healthcare. However, there
are a number of points in respect of which clarification would
be helpful:
— Will
the structure of contracts to be let under the Work Programme
adequately provide for the needs of those requiring the greatest
levels of support and the development of local solutions to local
problems?
— Do
all communities have the capacity to lead regeneration activities
or will some require support in identifying and addressing priorities?
— Will
the mooted changes to the planning system result in radical re-designations
of land use in support of local economic development?
Incentives for growth
2.4 Incentives for growth focus largely on housing,
either directly in terms of development or indirectly in terms
of some of the proceeds of development (windfall and ongoing).
2.5 Tax Increment Financing (TIF) is an interesting
proposition but other mechanisms might also merit consideration,
such as area-based bonds. In addition, there may be merit in exploring
how localities might pool resources and/or recycle receipts from
investments (such as those made using Regional Growth Fund monies).
In other words, encouraging a movement away from grant giving
to an investment approach.
2.6 Consideration to pooling RDA assets of land,
property, clawback and investments into third party delivery vehicles
would also be a way of bolstering this resource for the good of
local areas. The use of European Funding to deliver local area-based
initiatives through a recyclable fund is also worthy of consideration,
in respect of which precedents exist in the form of Jessica and
Jeremie. Finally on this point, there may be merit in allowing
local areas to set a time-limited levy for a specific purpose,
in much the same way as is currently happening in Auckland, New
Zealand to pay for key infrastructure for the Rugby World Cup
2011.
2.7 The ability of local authorities to retain
locally raised business rates is a welcome move, provided there
is adequate compensation for the deprived areas that lack the
business base capable of generating significant revenues and where
the potential for growth in the business base is limited. These
limitations might include deprived areas being unattractive to
outside investors (especially some retailers) and/or the ending
of area-based programmes, such as the Local Enterprise Growth
Initiative (LEGI), which sought to boost enterprise in deprived
areas.
2.8 Although the New Homes Bonus is described
in the CLG report as a powerful incentive, it will in fact be
funded primarily by taking money out of the local authority Formula
Grant settlement. Although in year 1 of the scheme money will
come from that derived from the abolition of the Housing and Planning
Delivery Grant, progressively thereafter it will come from top
slicing the Formula Grant.
2.9 The Government acknowledges that the redistributive
mechanism of the New Homes Bonus means that the scheme will create
financial winners and losers: for any authority to gain financially
(relative to their allocation before the bonus), one or more authorities
must lose financially. Consequently, areas needing regeneration
could be adversely affected by the changes—areas where development
is significantly affected by the reduction or cancellation of
other housing investment streams such as housing market renewal
grant, housing private finance initiative, reduction in affordable
housing grant etc. In some areas this will be compounded by a
focus on net additional homes for the New Homes Bonus limiting
grant in regeneration areas that require demolitions to precede
the building of new homes.
2.10 It is also in this section of the CLG report
that LEPs get a mention. They will: "be working across real
economic geographies to drive economic growth and ensure that
decisions are made locally". IED's belief is that LEPs were
largely formed on the basis of discussions between Council Leaders
and Chief Executives and are therefore "political" creatures
rather than based on any assessment of economic functionality.
2.11 Again, there are a number of points in respect
of which clarification would be helpful:
— Will
income from locally raised business rates be ring-fenced for re-investment
in business development activities?
— To
which local community organisations will income from local developments
be distributed?
— How
much discretion will they have on how they might choose to spend
it?
Removing barriers that hinder local ambitions
2.12 The Government appears to be placing a great
deal of store on the ability of relaxed planning rules to support
growth. Whilst this has its place, it does appear to be a rather
narrow approach.
2.13 In addition, whilst local authorities may
be freed from restrictions imposed from above, there is a danger
that they will become burdened with having to deal with a multiplicity
of community-based approaches. Furthermore, these might not only
be inconsistent but in conflict.
2.14 There is also the possibility of the re-emergence
of an old burden—too many resources taken up by competitive
bidding processes with uncertain outcomes and decisions made at
the centre rather than locally. It is hoped that Round 1 of the
Regional Growth Fund, with its central decision making and a reported
£2.8 billion worth of bids chasing the £300 million
available, is not a precedent to be followed in respect of regeneration
activities more generally.
2.15 In addition, IED has some concerns about
the more recent announcement of the designation of Enterprise
Zones, similar to those created in the 1980s. Evidence suggests
that the net benefits are a fraction of the gross benefits, with
a huge amount of displacement. The vast majority of the jobs they
"created" in the 1980s were simply relocated from outside
the Zones. Worse still, cost per job figures were considered relatively
high, and local relocations of businesses created other problems
with abandonment of city centre sites for cheaper alternatives
out of town, requiring the design of an additional regeneration
remedy.
Targeted investment
2.16 Naturally, the Regional Growth Fund, and
investment in adult skills through the Early Intervention Grant
and the Fairness Premium are most welcome, albeit that the level
of resources available is perhaps disappointing.
2.17 There may be scope for further targeted
investment through the use of RDA assets or, at the very least,
the income that these assets generate. Although the CLG report
refers to them being "managed in a way that delivers the
best possible outcome for regeneration in local areas, while delivering
value for the public purse", IED would welcome a transparent
process and one that sees the value of these assets/the income
they generate re-invested in regeneration activities in the areas
within which those assets reside.
2.18 Again, there are a number of points in respect
of which clarification would be helpful:
— What
about the areas that will not benefit from either Crossrail or
High Speed 2 (and may even be made relatively less competitive
by these investments)?
— How
can the Regional Growth Fund expect to facilitate a surge in private
sector enterprise when the overall resources for enterprise development
have been reduced and the support infrastructure been dismantled?
— With
three quarters of Round 1 bids reportedly in contravention of
EU State Aid Rules, is it realistic to expect good quality bids
in subsequent rounds?
3. What benefits is this approach likely to
bring? In particular, will it ensure that the progress made by
past regeneration projects is not lost and can, where appropriate,
be built on? Will it ensure that sufficient public funds are made
available for future major town and city regeneration projects
as well as for more localised projects?
3.1 The CLG report says that the Government sees
its role as being strategic as well as supportive but what the
report does not do is provide any real strategy for regeneration.
There does not appear to have been any assessment of what sort
of regeneration is needed, where it is needed and how it might
be delivered to best effect.
3.2 Regeneration appears to be defined in terms
of housing, rail infrastructure and Olympic legacies. Not only
does this ignore most of the elements that have contributed to
community-based regeneration undertaken by successive governments
over the past 30 years or more, but it leaves large parts of the
country untouched. If there is a genuine commitment to community-led
regeneration, it might be helpful to understand which communities
need regenerating, in what ways and by what means.
3.3 In respect of overall resource allocation,
whilst the clarification of local authority budget cuts is noted,
this relates to overall expenditure. Taking into account the obligations
on local authorities to deliver statutory services to minimum
standards, this would suggest far deeper cuts in respect of non-statutory
services—such as regeneration and economic development.
Indeed, reports from IED members are that regeneration and economic
development cuts are resulting in staffing being cut, activities
being restricted and, in some cases, regeneration/economic development
functions ceasing altogether.
4. What lessons should be learnt from past
and existing regeneration projects to apply to the Government's
new approach?
4.1 Area-based regeneration has been a feature
of government policy over the past 30 years or so. There are some
excellent examples of regeneration funded by urban development
corporations, City Challenge, Single Regeneration Budget, Neighbourhood
Renewal Fund, New Deal for Communities, Working Neighbourhoods
Fund, Deprived Area Fund and Local Enterprise Growth Initiative,
amongst others. IED urges the Government to review these examples
and introduce a new area-based regeneration programme that complements
and adds value to the types of physical developments that have
been proposed.
4.2 There is a legacy from the economic boom
of land owned by speculative developers bought at the height of
the boom with a value expectation based on two bedroom apartments.
There is a need for absolute certainty in planning policy, very
clear statements concerning additional developer contributions
required, well enforced development timetables and overage agreements
with commercial developers where the public sector has a land
interest. Where these are in place, sustainable development has
taken place. Where this is weak, unsustainable bubbles have arisen.
5. What action should the Government be taking
to attract money from (a) public and (b) private sources into
regeneration schemes?
5.1 With regard to attracting funding from public
sources into regeneration, we would wish to highlight the issue
of EU funding. Cuts to RDA funding place a question mark over
the ability to draw down full allocations of European Structural
Funds and other EU funding. The ability of the Government to have
its investments in regeneration supplemented by EU funding must
surely represent very good value for money. Without a sufficient
contribution from the public purse, it would appear that EU funding
and the regeneration benefits it brings could be lost by those
parts of the country that need it most.
5.2 Governments cannot (and probably should not)
seek to remove risk, but can help private sector investors to
establish the extent of risk and provide clarity in respect of
investment processes and timescales. Developers will put funds
into schemes when:
— There
is certainty of delivery of public sector investment—failure
to deliver public sector infrastructure improvements continues
to erode developer confidence in ambitious regeneration schemes.
— There
is certainty on development costs (brownfield sites with uncertain
below ground conditions need public sector insurance) and certainty
on the level of the contribution required from investors (through
TiF, affordable housing provision, Section 106 monies etc.); and
— There
is certainty over development timescales—long and uncertain
planning consents, contributions from linked projects etc erode
investor confidence.
5.3 However, we recognise that the market is
dynamic and it moves. If development contracts funded through
public sector investment are sufficient to have a material impact
on the market itself, then firms will have no option but to accept
tighter margins and price risk differently. Risk is not solely
priced according to the perceived likelihood of the risk materialising,
but also on what is competitive within the marketplace.
5.4 Private investment in a regeneration context
has mainly been thought of in terms of financial institutions
and developers. However, given the role that the Government has
played in providing guarantees to individual savers and the desire
for individual savers to achieve better returns on their investments,
there may be a unique opportunity to devise a financial instrument
that attracts finance from individuals for investment in regeneration
projects, with the offer of competitive rates of return and with
the Government as guarantor rather than principal provider of
resources for particular regeneration schemes. For fairly obvious
reasons, such a model would need to wholly different to the approach
adopted in respect of Eurotunnel. It is suggested more as a savings
and investment scheme than a public share scheme.
5.5 In addition, at community level, consideration
ought to be given to encouraging Credit Unions and other such
bodies to become involved in the financing of local regeneration
projects. Some Credit Unions, for example, have significant resources
that could be invested for community benefit and to generate returns
for the investing body.
6. How should the success of the Government's
approach be assessed in future?
6.1 In order to be able to demonstrate the economic
and social returns on investment in regeneration, there is a needed
to identify indicators of success (such as new business starts),
establish data collection systems and undertake meaningful analysis
that links outcomes and impacts with the investments made. In
general terms, success will be determined by the extent to which
communities are vibrant and sustainable without the need for significant
levels of ongoing public sector support.
7. Closing Statement
7.1 The movement from regionalism to localism
is being accompanied by a substantial reduction in spending on
regeneration and economic development and a shift in emphasis
from partnerships in which the public sector played a lead role
to those where the private sector is expected to do so. Whilst
reduced spending on regeneration is inevitable within the context
of overall public sector budget cuts, the expectation that the
private sector might fill the void is believed to be high risk
and particularly given that its activities may deliver economic
and social outcomes that do not accord with the priorities of
government nationally or locally.
7.2 It is IED's view that much more needs to
be done, both to facilitate private sector involvement in regeneration
and to undertake regenerative activities where it is inappropriate
for the private sector to take the lead given the nature of the
economic and/or social outcomes being pursued. This will require
more resources to be invested, but it is important to regard such
spending as an investment and not a cost, with the potential to
generate significant returns, not least in helping facilitate
reduced spending in other parts of the public sector. For example,
there is a significant body of evidence to show that regeneration
investments can reduce crime, improve health and cut unemployment.
7.3 We would therefore propose the following:
— Help
for Business Start Ups—based on a need to ensure that those
in regeneration areas wishing to start or grow a business, as
well as those battling for survival, have access to the support
that will help them to achieve their goals.
— Reinforcement
of the Business Support Infrastructure—given the importance
of investing in economic development as a catalyst for economic
growth and to refine approaches to make them even better suited
to current and future needs.
— A focus
on Neighbourhood Renewal—to build on the good practice evidenced
by the more successful area-based regeneration programmes.
— Local
solutions to worklessness—providing appropriate support
and assistance to those concerned as well value for money to the
taxpayer.
— Boosting
Town and City Centres—to develop innovative and relatively
low cost strategies to help revitalise our town and city centres.
— A Strategy
for Sustainable Growth—to exploit opportunities afforded
by "green" technologies, to develop public procurement
systems that work for rather than against businesses rooted in
local communities and to ensure that people from all communities
can contribute towards the generation of economic growth.
— Imaginative
Funding Mechanisms—that utilise existing assets (held by
RDAs, credit unions etc) and attract subscriptions from members
of the public, alongside the public sector.
March 2011
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