The spending review is underway and is expected to lead to significant reductions in public spending by all the departments and agencies most directly relevant to regeneration. In particular the most targeted programmes (RDA spend, HCA) are likely to be minimal in future. This places more emphasis on:
- how private sector funding will contribute to the objectives;
- how private and community activity can substitute for funded programmes;
- whether the slimmed down public spending programmes will be distributed in ways that support regeneration;
- and how other incentives (notably tax measures) can be used.
Bringing private funding to bear
Private funding is essentially about projects. If they are demonstrably profitable then there will be investment. Where there is a weak case for investment this can be improved by:
- a better context: demonstrating improvements in the wider economy of an area and in its physical and social attractiveness;
- persuasive arguments about being a pioneer – as expressed in the “underserved markets” ideas;
- related publicly funded projects (such as transport) and services (such as skills);
- use of statutory powers, notably CPOs;
- simplification of statutory controls, especially planning;
- grants: most useful to eliminate a specific high cost factor such as land contamination;
- changes to the fiscal position, either generally or for a specific area
There are well established models for all of these approaches, from City Grant, through Enterprise Zones to UDCs and Social Housing Grant. Some are still in use; others might need refreshing.
Easy (EZ) TIFs
The Government has announced its intention to implement Tax Increment Financing.
In working up those ideas there is a major opportunity to create a more flexible tool that can be tailored to the needs of various areas. Enterprise Zones were introduced in 1980 and continued to be designated through to 1996. They give a simple and well understood incentive to the private sector, with the notable advantage that no detailed project approval is required. Areas should be identified where new development:
- would contribute to economic growth in the area;
- is unlikely to proceed at current values;
- requires some investment in infrastructure;
- could generate longer term returns in both private sector profits and public tax revenues.
Selected areas would then designated as EZTIFs with a mix of tax incentives and tax reinvestment which reflected the area’s characteristics. An area in central London might need mostly TIF; and area in East London might need EZ + TIF and an area in the North East might need mostly EZ.
The Government should aim to create the legislative framework within 12 months and then designate 10 -15 areas across the country.
Not bending but using
Regeneration is about making things happen that would not happen without intervention. If the market improved the conditions of every area in the country to a common level we could all pack up. This is the “market failure” that makes Treasury economists feel mildly well disposed towards regeneration and involves either grants or tax incentives to redress that failure.
In the public sector the discussion has focused on “bending main programmes”, adding in factors that deliver more to areas of need (or opportunity). That always placed the regeneration argument in second place – as an add on to the “normal” way of running things. With limited funding we must make the regeneration argument intrinsic to the way we use all public funding.
A new regeneration fund
As part of our toolkit we have generally had a fund available to undertake specific local projects: it has evolved from the Urban Programme to the Working Neighbourhoods Fund via City Challenge and the Single Regeneration Budget. It is about the turn into the Regional Growth Fund. Do we need such a fund and, if so, is the regional growth fund designed in the best way?
The case for such a fund is that:
- despite best efforts to use main programmes, there is a need for more flexible targeting;
- it can be used to bring together other minor funds and reduce overheads
- with limited funding there will need to be fewer significant interventions rather than a multitude of small interventions;
- it can be used in support of strategic changes and to incentivise local performance.
The case against a fund is that:
- a special fund undermines the incentive to use the main spending programmes in a sensitive way;
- the political pressures on distribution tend to produce too many schemes (over 600 SRB schemes).
- funding applications rather than distributing on a formula may be a reassertion of centralism.
On balance we believe that there is merit in a fund which:
- gives a long term (5 year plus) commitment to local area based change;
- is focused on no more than 25 places;
- accommodates demands from modest scale (<£5m) to significant scale (>£100m) rather than a fixed sum
- is coordinated with choices on EZTIFs.
The final shape of the Regional Growth Fund should reflect the wider purpose and the need to focus in a limited number of areas.
Actions on resources
Economic, Economy, Government, Housing, London, Regeneration
Use public tools to support private investment
Use a single integrated approach to EZs and TIFs (EasyTIFS)
Use main programmes
Develop the Regional Growth Fund to be a flexible support for up to 20 areas.