European Regional Development Fund

Written evidence submitted by the National Housing Federation

1. Summary

· Since 2009, 4% of ERDF in England, i.e. £100 million, could be used for social housing refurbishment. However only half of this amount has been redirected to such projects so far. We recommend that CLG encourages the Local Management Committees (LMCs) to redirect the remainder £50m as grant or below market loans to coincide with the Green Deal launch in Autumn 2012.

· Because of its requirement for match-funding, ERDF leverages additional funding and results in investments that amount to at least double the original grant/loan provided by taxpayers.

· Our understanding is that in its fifth cohesion report response, the government has supported the continuation of a structural fund programme for England. We recommend the Committee focuses on the next round of structural funds (including ERDF) 2014-2020.

· The application of ERDF regulations has been very strict in England leading to additional bureaucracy. This should be simplified and access to the funds made easier going forward.
The Commission’s latest regulations proposals for structural funds post 2013 and its proposed Common Strategic Framework encourage maximising the impact of structural funds by focusing on fewer investment priorities. The regulations also make housing fully eligible to ERDF alongside regeneration activities, and allows for the combination of funds such as ERDF and European Social Funds (ESF) to finance integrated programmes.
The Federation is keen for energy efficient refurbishment to be prioritised in the next investment programme to support the implementation of the Green Deal, and for ESF to work alongside it to finance the upskilling of Green Deal workers and address unemployment.
The Federation would also encourage the use of ERDF as a regeneration fund to cater for the disappearance of pathfinder finance. Finally we are keen on the partnership approach suggested by the Commission to identify investment priorities and are ready to contribute to the investment plan post 2013.

The National Housing Federation represents 1200 independent housing associations in England. Our members are not-for-profit social enterprises that provide two and a half million affordable homes and neighbourhoods services to over five million people. In 2011, the turnover of our members was over £12.5 billion, with an annual expenditure on maintenance of £3.6 billion [1] . Last year, they built 43,636 new homes [2] , and employed 155,491 staff [3] . They are community organisations that invest in their neighbourhoods and whose services benefit one in ten of the population. For example our 2008 Neighbourhood Audit showed that they invested £435 million, two thirds from their own resources, in neighbourhood facilities and services like community centres and training. [4]

The Federation welcomes the opportunity to respond to the Committee’s enquiry into ERDF.

Since 2009, where managing authorities have made use of the legislation amendment that enables member states to redirect up to 4% of their ERDF allocation to energy efficient refurbishments, housing associations have been able to access ERDF for retrofit projects in some regions and are delivering successful projects.

2. How and on what is ERDF spent?

Until 2009, housing was not eligible for ERDF.

Since the Commission’s legislation amendment of 2009 as part of its economic recovery package, Member states are allowed to redirect up to 4% of their ERDF allocation to ‘energy efficient refurbishment and the use of renewable energy for social cohesion purposes’.

This means that circa £100 million could have been used since 2009 for social housing refurbishment projects. However only about half of this amount has so far been redirected to this priority as several managing authorities, and LMCs have opted out of making use of the legislation amendment.

Our understanding is that there is still about £900 million of ERDF available that needs to be spent before 2015. We have also heard that match-funding has been an issue for putting together some projects.

We believe that CLG should encourage the LMCs to make use of the legislation amendment and redirect the remainder £50 million to energy efficient refurbishment projects in social housing to coincide with the launch of the Green Deal in Autumn 2012. We share John Hills’ concerns in the recent final report of his fuel poverty review that aspects of the Green Deal policy could actually worsen fuel poverty rather than improve it. As currently established Energy Company Obligations (ECO) is likely to be unfair and regressive, being paid for by low income consumers with little prospect of them substantially benefitting.

Green Deal finance or ECO could provide the match-funding required for ERDF. The additional subsidy would help enable the Green Deal to work for social housing tenants who often underheat their homes, which means that energy efficient improvements do not always yield the same energy savings as for the average homeowner. This is likely to be made worse by the fact that much of the cost-effective improvements will have been done in social housing.

The capital investment leveraged by ERDF in this case would not only reduce carbon emissions and address fuel poverty but also stimulate employment. Indeed the Department of Energy and Climate Change (DECC) has estimated that the Green Deal should sustain 100,000 jobs by 2015. Ensuring that this funding is available to social housing landlords who operate at scale, would allow the government refurbishment initiative to start on a right footing and demonstrate what it can achieve to owner-occupiers, therefore making it attractive and sustainable going forward. It would also provide the scale necessary to enable the finance markets and supply chains to expand in readiness for a long-term delivery.

Should the Committee and CLG prefer to leave it to the LMCs to decide whether to spend the funds under this priority, it is worth bearing in mind that the 4% are monitored on a UK basis. This means that if a region has already spent their 4% allocation and would like to invest more in this priority, they could do so, provided that other regions decide not to take up the opportunity. CLG should explore this option with the regions as some coordination is necessary to allow for this to happen.

3. Is the taxpayer in England obtaining value for money from the ERDF?

The advantage of ERDF is in the fact that it requires match-funding in order to be accessed. The match-funding requirement means that often bidders have to develop partnership with other organisations and leverage additional funds from their own resources, other public funds and private sources. The grant therefore goes further than its initial value.

For example, in the North West, the REECH project led by Sefton Borough Council and in which Dane Plus, Riverside, Helena Partnership, Liverpool Housing Trust, Villages Housing, One Vision Housing as well as British Gas are taking part is worth over £15million, but the value of the ERDF grant is less than half of that. The project covers the Merseyside area and aims to provide external and internal insulation to 3,686 hard to treat properties in an area of high deprivation, stimulating local businesses.

4. Could the funds contributed to, and paid out on, regeneration through ERDF be spent more effectively by repatriating ERDF to the Government in London?

Our understanding is that this question has been answered by the government in its response to the Fifth Cohesion Report, where it was confirmed that there would be a structural fund programme (including ERDF) post 2013.

We would recommend the committee focuses on the next round of ERDF 2014-2020 and ensures that the right priorities are selected.

The LGA produced a report ‘More than Money’ which looked at the advantages of ERDF, including its leveraging aspect, the fact that it tends to spur partnerships and creativity. It also helps member states share knowledge and expertise with other EU member states on common issues such as carbon emission reduction and employment creation. It is also a flexible financial instrument that can be used, when matched with additional funding, as a below-market loan, which has the potential of revolving forever. Such an example exists in London where the then Regional Development Agency set up the Low Energy Efficiency Fund (LEEF) worth £100m, made up of £50million ERDF and match-funding (land, cash etc.). The fund provides low-cost loans for carbon saving projects.

The Federation is particularly interested in the priorities of ERDF, which for the current round includes the opportunity to use the funds for social housing retrofit and for the next round, regeneration and energy efficient refurbishment.

5. With the abolition of the Regional Development Agencies responsibility for ERDF passes to DCLG. What effects are these changes having on the administration, assessment and payment of ERDF?

Housing associations who have accessed ERDF have not reported any change following the change of responsibility.

6. Other comments on current ERDF programme and on upcoming 2014-2020 structural funds programme

Access to ERDF for housing retrofit projects has been difficult due to the fact that this investment priority was only allowed half way through an already established investment programme. As a consequence, many managing authorities were unsure how to deal with it and concerned of falling foul of EU regulations. This has led to the negotiation of projects lasting in some cases for over 18 months, creating problems for bidders who had to commit funding and staff to the project. Ensuring that priorities are identified at the start of the programme is key and we are keen for housing retrofit, in support of the Green Deal, to be one of the priorities from 2014 onwards.

Conservative interpretation of ERDF regulation has also meant that certain sources of match-funding, such as Feed in Tariff (FIT) revenues were deemed non-compatible, jeopardising several projects. ERDF regulations are the same for each member state so it is unfair that French bidders were allowed to use FIT revenues as match-funding for ERDF projects and not English ones.

Feedback from organisations bidding or in receipt of grants has outlined the heavy bureaucracy attached to ERDF, which in some cases does not appear to come solely from the Commission or its regulations. For example, we know that in some regions, the EU programme team only funded retrofit projects led by local authorities, because they believe that housing associations receiving EU grants would cause problems with state aid rules. In fact housing associations are considered by the EU as ‘Services of General and Economic (SGEI) providers and the same state aid regulations and exemption apply to them that apply for local authorities. The latest Commission regulations encourage simplification. We would recommend this be looked at as part of the work undergone to shape the next funding programme.

The Commission published its Common Provisions Regulation for structural funds post 2013, which outlines similar regulations for all five European funds to facilitate closer coordination. More recently, it published its Common Strategic Framework, which aims to help member states identify the priorities it wants to focus on, in order to maximise the impact of European funds and enable them to create their partnership contracts with key stakeholders, ensuring that any investment decision benefits from a bottom-up approach.

We welcome the Commission’s proposals of full eligibility of housing to ERDF, the possibility of combining various structural funds such as ERDF and ESF to create an integrated investment programme. We are also pleased that the new regulations encourage member states and regional management authorities to work in partnership with non-governmental organisations to draw up the investment plans and design partnership contracts.

We therefore welcome the BIS consultation on investment priorities and governance arrangements for structural funds post 2013.

The priorities for ERDF we will be suggesting England should focus on include:

- Supporting the shift towards a low-carbon economy, particularly the housing sector. This would allow EU funds to complement the Green Deal and enable us to put together an integrated investment programme where ERDF co-funds capital investment and ESF finances upskilling, training and apprenticeships.

- Promoting social inclusion and combating poverty: this priority would allow England to provide a replacement for the Housing Market Renewable Funding. ERDF in this case could again be combined with ESF to allow for place-based projects to regenerate entire areas. The lack of regeneration funding was already outlined recently in the conclusions of the Communities and Local Government committee Sixth Report. In this case, ERDF would address an existing gap.

We also believe that the governance structure of ERDF and other funds need to be thought through in order to allow for the combination of funds to happen and for integrated projects to be developed.

We will be responding to BIS’ consultation on structural funds post 2013, suggesting priority proposals and address the issue of how best to allow for the combination of funds where governance structures are different.

National Housing Federation

April 2012