Urban regeneration is aimed at breathing new life into towns and cities that have been left behind by economic change. Experience has shown that such regeneration tends not to happen naturally, or at least not quickly enough, if left entirely to market forces, and public policy often dictates that public sector intervention is required to kickstart the process.
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Public sector intervention in regeneration always raises issues of European Union (EU) state aid. The state aid rules dictate that public bodies cannot grant funds to projects as they see fit, on account of the potentially distorting effect on competition within the EU. If a developer or major employer chooses to invest in a project in a depressed area, they cannot receive unchecked state support just because, for example, the local council or another development agency feels it will be for the overall good of the region. That would be unfair on unaided competitors elsewhere in the country and the EU.
Similar principles apply when an existing major employer or a potential inward investor is given a subsidy to enter an area that has never been heavily developed.
State aid upsets the so-called ‘level playing field’ that EU competition rules are intended to protect. However, the state aid rules contain an intricate series of ways and conditions by which state aid can be granted legally, under the watchful eye and control of the European Commission (EC). Member states are therefore required to notify almost all grants of aid to the EC, and may not implement schemes granting aid until they have received EC approval. Recent developments in EU legislation will have significant consequences for the use of state aid in relation to urban regeneration.
Redrawing the map
The EC has recently revised the regional aid and structural funds regimes with a new set of rules for 2007-13. The regional aid map (defining those regions across the EU that can benefit from a more lenient regime permitting state aid for investment and job creation) and the structural funds map (setting out which regions are eligible to receive cash from the European Regional Development Fund budget) have both been redrawn for the new six-year session. As the UK is richer than the EU average — and has become more so following EU expansion — there are now fewer areas in the UK eligible for regional aid than there were in 2000-06, while the country’s share of the EU’s structural funds pot has similarly been scaled back.
Just as importantly, the EC has introduced a new Regional Aid Block Exemption which, as a general rule, means that regional investment aid schemes which comply with the regional aid map and the new regional aid guidelines can be implemented without prior notification to the EC. The Block Exemption lifts the obligation to notify in respect of transparent schemes, i.e. schemes for which it is possible to precisely calculate the aid intensity as a percentage of total investment costs ex ante, without the need for a risk assessment.
As such, the Government’s new Regional Investment Aid Scheme for Speculative and Bespoke Developments was not notified to the EC for state aid approval. It replaces two schemes that expired at the end of 2006, and which had been operated by English Partnerships and the RDAs as a significant source of their investment in urban regeneration. The scheme for the 2007-13 session is a simpler and more streamlined arrangement than its two predecessors, allowing gap funding for both speculative and bespoke development to bring derelict, brownfield or wasteland sites back into productive use.
However, this is only one urban regeneration scheme out of many, and is one subject to certain restraints regarding location and aid intensity. Other urban regeneration schemes that do not operate under the regional aid framework will not benefit from the Block Exemption, and must still be notified to the EC for approval. This is the case with, among others, Support for Land Remediation, the Historic Environment Regeneration Scheme, and Partnership Support for Regeneration (Social Housing). These have recently been renewed and extended for the 2007-13 funding period.
Uniting regulations
There is also the prospect of further change on the horizon. The EC is proposing to unite certain existing block exemption regulations as one ‘General’ Block Exemption Regulation (GBER), which was published in draft form earlier this year. As well as consolidating the existing block exemptions for regional aid, small and medium enterprises, employment and training in one single piece of legislation, the draft GBER also includes types of aid not previously covered by a block exemption — environmental aid and aid in the form of risk capital.
The inclusion of support for environmental purposes is the most relevant feature of the draft GBER from an urban regeneration perspective. Public authorities in the past have sought approval for certain types of urban regeneration schemes by referring to the EC’s guidelines on state aid for environmental protection. This permits, for example, gap funding of contaminated sites, and state aid for the relocation of polluting businesses (under certain circumstances). However, if funding for environmental purposes were to be brought under the auspices of a block exemption, the need to notify could be done away with altogether. As such, stakeholders in urban regeneration would be advised to watch the progress of the GBER very carefully.
As a final point, it should be noted that national and local governments are increasingly viewing urban regeneration in the round as a means to deliver social benefits to communities, as well as achieving purely economic goals. In this respect, urban regeneration can be viewed as one facet of broader strategic planning to tackle problems such as long-term unemployment, social exclusion and crime. Public authorities can, as part of a redevelopment project, seek to ensure that regeneration will support jobs in the surrounding area and encourage further growth and innovation in the private sector, for example by involving universities and science parks in the development of high-tech innovative industry. They may also include non-commercial cultural, heritage or sporting projects as part of an overall regeneration programme.
To do all of this, the public body has always to consider the use of state aid in a wider context. The possibilities within the state aid framework to support research, development and innovation, or risk capital for SMEs, or training or employment, for example, can all be utilised alongside an approved urban regeneration scheme. Similarly, there is scope to provide state aid legitimately for cultural and heritage purposes, or for schemes that protect the environment. Ultimately, any public body seeking to revitalise its urban areas should think about how it can maximise the permissible use of state aid to support its scheme in the widest possible context, and generate the broadest possible gains for the community.
David O’Keeffe is counsel on EU affairs and Will Sparks is a solicitor at
