Memorandum by The Regeneration Practice
THE EUROPEAN COMMISSION (EC) RULING RESULTING
IN CANCELLATION OF THE UK GAP FUNDING PROGRAMME
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,
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
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.
GAP FUNDING HAS
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.
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.
GAP FUNDING AND
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.
where a job of community value is
where an historic building is restored
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
renaissancemy evidence to the Committee Inquiry into the
Urban White Paper refers.
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.
The Regeneration Practice