The Regeneration Practice (TRP) specialises in brokering regeneration schemes with housing associations, educational institutions, industrial and housing developers, pension funds, multi-national corporations, small and medium sized enterprises, building preservation trusts, local authorities and community groups. TRP has extensive knowledge and experience of many forms of public financial support, private investment finance and the criteria variously employed by a great variety of agencies to achieve urban regeneration. These include extensive experience with GAP Funding and its forerunner, City Grant.

  The decision by the EC is based upon the contention that GAP Funding, as a direct grant to UK enterprises is State Aid which distorts competition and is therefore in contravention of Article 92 of the Treaty of Rome.

DOES GAP FUNDING DISTORT COMPETITION IN THE COMMON MARKET

  GAP Funding, unlike most other forms of State support for regeneration is a means of supporting projects which, based upon projections of total development cost including an allowance for developers profit, and market value are ones which "the market" is demonstrably unable to proceed with and make a profit. Providing the level of profit allowed in the appraisal reflects market conditions for similar development which proceed without public support it is clear that GAP Funding does not distort competition in the common market. If projects were not subject to a robust appraisal method or an excessive profit were written into the development costs at appraisal stage it would be correct to say that GAP Funding would in those circumstances distort competition in the market. In our experience GAP Funding has proved to be a robust method of correcting market failure by meeting the projected market deficit.

THE CONTRIBUTION GAP FUNDING HAS MADE IN URBAN REGENERATION

  GAP Funding is appraised by English Partnerships (EP) on a UK average "cost per job" of £8,000 allowing a developers profit reflecting development risk which in my experience varies from 5 per cent to 12 per cent. Dwellings are also seen as valuable outputs but the boom in house prices in some areas has led to a devaluation of dwellings as an output over jobs by EP in recent years. Infrastructure has been installed to open up large sites for access and contaminated land treated under GAP Funding. Here, outputs are taken as forward projections of (mainly) jobs created on the serviced land.

  By facilitating the operation of the market in unviable development huge sums of private investment have been levered into projects which have created jobs and dwellings over many years using GAP Funding and its predecessor, City Grant.

THE CONSEQUENCES OF THE EUROPEAN COMMISSION RULING

  I disagree that GAP Funding distorts competition in the market, rather it facilitates its operation in areas where it is unable to accept the development risk. Its suspension is holding up vital regeneration work; as an example I have a project which could deliver 170 affordable nurses bed spaces in Stepney, London but is stalled awaiting resolution of the GAP Funding issue. Set against this, the EC ruling does provide a valuable opportunity for a complete overhaul of a major and valuable instrument of social and economic regeneration. But time is of the essence.

WHAT ALTERNATIVE SCHEMES SHOULD BE CONSIDERED TO REPLACE GAP FUNDING AND WHAT PROVISIONS SHOULD THEY INCORPORATE?

1.  Direct development or reclamation and market sale by the RDAs

The shape of the replacement to GAP Funding goes to the heart of the Governments' view of the means to achieve an urban renaissance. Is it to be a process of facilitation of the market controlled from above by the RDA's in partnership with the development industry working to spatial master plans? This vision will achieve the physical regeneration of urban areas but there is clear evidence from the Enterprise Zones that the approach simply imports well-to-do communities into poor areas exacerbating the social divide between them without tackling their social regeneration. The post-war Comprehensive Redevelopment Plans which led to the construction of the tower blocks offers a further example of the social failure of a policy of top-down spatial planning and physical regeneration. Direct development or reclamation and market sale led by the RDAs will achieve economic regeneration without social regeneration with the likely outcome of a divided urban society and soaring crime rates.

2.  GAP Funding applied only in Assisted Areas

  The current proposal has led to the DTI picking out Wards within poor urban areas on a somewhat arbitrary basis due to EC rules which restrict the selection of Wards to encompass places where people live and work. This may work in dispersed rural economies or areas of failed coal or steelworking, for which the live/work rule was designed. But in modern urban conurbations this rule does not work as the economic and social map changes street by street. The whole concept of applying maps to determine aid for regeneration simply does not apply to the complex social urban geography of this country. In Tower Hamlets, for example, some of the poorest Wards in Europe are missed out from the proposed Assisted Status simply because officials identified Wards along the River Lea and the Thames in the belief these would be areas of employment growth as that is their land use planning status. However, this is counter to the logical approach which says waterways, traditionally the service yards of heavy industry now offer attractive living environments and should be earmarked to promote ribbons of housing, creating vibrant mixed use areas where currently stagnant areas of failing heavy industry prevail.

3.  Social GAP Funding

  GAP Funding has many good attributes; it is responsive to individual market circumstances and is a form of public support towards urban regeneration which interlocks perfectly with the operation of a market economy. Many other forms of support operate outside the market and to heavily stylised "outputs" and delivery targets leading to artificial plans and programmes.

  If GAP Funding were adapted to meet the social gap I believe it would offer an ideal tool to achieve a social and physical urban renaissance. This could be achieved by socially calibrating its output cost criteria and incorporating into this elements of the "social deficit" to be met to achieve an urban renaissance.

  It should be weighted to give greater or lesser support over the current job output rate of £8,000.

  For example:

—  where a job of community value is created;

—  where an historic building is restored to use;

—  where an affordable dwelling is created;

—  where contaminated ground is reclaimed;

—  where a training facility is created;

—  where a communal facility is created;

—  where public transport is subsidised;

—  where a building of minimal environmental impact is proposed.

  The financial weighting across these aspects should be locally agreed at neighbourhood level so that "Best Value" can apply to continually improve the social performance of urban neighbourhoods across the country.

  Social GAP Funding would recognise that the market is rightly only concerned with the economic balance sheet. By taking over the separate grant giving functions of the many existing organisations involved in urban regeneration this approach will resolve conflicts between the confused and conflicting appraisal methods for funding which currently form a barrier to an urban renaissance—my evidence to the Committee Inquiry into the Urban White Paper refers.

THE SCALE OF FUNDING REQUIRED TO ACHIEVE EQUIVALENT RESULTS AND WHO SHOULD ADMINISTER IT

  The concept that you determine the budget centrally and pass it to the RDA's proportionately will fuel top-down management of the urban renaissance. In principle, I suggest the current level of funding should be maintained and directed across the existing SRB Boards proportionately as they are existing local partnerships best able to understand local complexities and formulate local delivery strategies in their neighbourhoods.

Paul Latham
Managing Director
The Regeneration Practice

July 2000