Communities and Local Government

1. On 17 November 2003, the Government issued a consultation paper to local authorities, business, voluntary and community groups and the local community on the proposed London Thames Gateway Urban Development Corporation (UDC). This full Regulatory Impact Assessment (RIA) updates the partial RIA that accompanied that consultation paper, taking account of comments received from consultees.

2. To unlock the regeneration and growth potential of the London Thames Gateway.

3. As set out in the Sustainable Communities Plan (ODPM, February 2003 http://www.communities.gov.uk/plan/main/), growth in the South East can only be managed in a sustainable way, if the potential for development on brownfield land in the Thames Gateway is unlocked. The London Thames Gateway is a key location for this growth in the Thames Gateway. However, the area suffers from:

• disparate land ownership
• large scale potential across administrative boundaries
• major environmental challenges
• local infrastructure/access issues
• major programme management requirements
• marketing/inward investment challenges
• significant community exclusion/ serious skills deficit
• scale of contamination/groundwork issues

4. The issue is, therefore, what organisational arrangements are needed to tackle these problems and unlock the area's potential, and what would the impact of these arrangements be.

5. Unlocking the potential for growth and regeneration in the London Thames Gateway would have the effect of improving the quality of life for those in the area now, and in the future, with particular benefits for those currently living in areas of high deprivation. To unlock this potential, the establishment of an Urban Development Corporation (UDC) for an indicative period of ten years is proposed.
6. A UDC is a corporate body. Its objective is to promote regeneration in a particular area. It is run by a Board answering to the First Secretary of State. Their main source of finance is grant-in-aid from central Government, supplemented by European Regional Development Funds and receipts from the sales of land and capital assets. The Board comprises eleven members plus a Chair and Deputy Chair and is appointed by the First Secretary of State. In making these appointments the First Secretary of State is required to have regard to the desirability of securing the services of people having special knowledge of the locality.
7. UDCs are tasked with bringing land and buildings into effective use, encouraging the development of existing and new industry and commerce, creating an attractive environment and ensuring that housing and social facilities are available to encourage people to live and work in the area. For these purposes, a UDC may acquire, hold, manage, reclaim and dispose of land and other property; carry out building and other operations; seek to ensure the provision of water, electricity, gas, sewerage and other services; carry on any business or undertaking for the purposes of regenerating its area; and generally do anything necessary or expedient for this purpose.
8. Additionally, the proposals recommend establishing the UDC with planning powers, restricted to strategic applications and not householder or minor applications. The main groups directly affected by this would be the large developers and businesses who would typically seek to utilise strategic sites, the local authorities, who would be giving up planning powers, and the local community.

9. The organisational options for unlocking London Thames Gateway's potential are:

Option 1: Do nothing . This is the base case scenario where no changes are made to the existing organisational arrangements, and regeneration is taken forward by existing bodies.

Option 2: Set up an Urban Regeneration Company (URC) to bring together the partners involved in regeneration in London Thames Gateway to create the conditions for sustained private sector investment. URCs are independent Companies established by the relevant local authority and Regional Development Agency, as well as English Partnerships, the private sector and other key partners. URCs work towards a co-ordinated approach to the problems and opportunities in their target areas. While their principle focus is engaging the private sector in an agreed physical and economic regeneration strategy, this needs to be within the wider context of a comprehensive approach to tackling the problems, and identifying the opportunities, of an area.

Option 3: Set up an Urban Development Corporation with statutory powers to focus on regeneration and development within its area of operation.

Risks

10. The major risk is that the regeneration and growth potential in the London Thames Gateway is not realised, and the opportunity to deliver extra housing and employment is missed. This could happen through inaction, where limited development takes place, or through development being taken forward in a way that fails to deliver balanced sustainable communities.
11. Another risk identified from the formal evaluation of previous UDCs (DETR 1998), is that the UDC concentrates on growth to the exclusion of benefits to the existing community. The proposed strong representation of the local authority on the UDC Board will mitigate this risk, as will the setting of social and community outcome and output targets by Government.

Costs

Option 1

12. The "do nothing" scenario provides the benchmark against which the URC and UDC options can be compared. There are some baseline costs and benefits associated with the do nothing scenario. When assessing the other options, we need to analyse the costs and benefits over and above those in the benchmark case.
13. There is no direct cost to Government under the do nothing scenario.
14. No direct additional costs to business would follow from this option. However, under this option, the business environment that businesses operate in is likely to be less attractive than would be the case under either the URC or UDC scenario.
15. The Local Authority will continue to have to grapple with the large scale regeneration problems, which will distract them from other community priorities. Their efforts will not benefit from the organisational benefits that the other options offer, and the area will not be guaranteed the additional funding that a UDC brings.

Option 2

16. The URC approach is resource intensive. It requires considerable investment up-front by the URC partners in running the Company and commissioning baseline and masterplanning work. No additional costs would fall to central Government directly, but regeneration agencies English Partnerships and the London Development Agency would need to contribute towards the UDC from the budgets they are given by Government. It is not possible to quantify the costs of a URC at this stage as the costs will depend on the individual schemes that the URC takes up.
17. No additional costs to business are expected, beyond the contribution of any partners in the URC.
18. The local authorities would need to engage fully with the URC to make it a success. This may incur resources that could be used in other ways under the do nothing scenario. However, it is also likely that a URC will work with and help the local authorities with its work.

Option 3

19. UDC running costs would have to be found from the Thames Gateway programme, although the exact amount is still to be determined it is likely to be in the region of £2m per year. This would be made available over an initial three year period to 2005/06. The amount of programme resources available to the UDC to 2005/06 is in the process of being finalised, taking into account the views of partner organisations. Levels of funding for later years will be dependent upon the Regeneration Framework produced by the UDC and the outcome of future Governmental spending reviews.
20. No additional direct costs for business are expected.
21. The Secretary of State proposes to transfer from the local authorities to the UDC, power to decide planning applications and other planning matters that could have a strategic impact.

Benefits

22. Following the Government Spending Review in 2002, a £446m Thames Gateway programme has been established. The London Thames Gateway along with other areas in the Gateway will, in principle, be eligible for some of this resource for regeneration and growth purposes. The main benefits sought from the programme can be split into some general categories: environmental benefits, the number of homes built and the number of jobs created. It is important to analyse the benefits of having a URC or UDC over and above the benefits that would result under the do nothing scenario. It is important to stress that these benefits apply to all three options, but the scale of the benefits are likely to differ. It is very difficult to actually quantify these differences.

Option 1

23. Without organisational change, existing bodies and organisations in the London Thames Gateway could still seek funds for projects from the Thames Gateway programme. No deductions would need to be made from this programme for the running costs of either a URC or a UDC. However, this would involve using the various unconnected powers of Government and public agencies. Without a focal point for identifying projects and working them into viable propositions, we are unlikely to maximise the overall viability of regeneration activities, the impact they make on the area and the potential growth to be derived from the available resources.
24. Even so, it is estimated that under this scenario around 22,500 more homes would be built in the London Thames Gateway by 2006.

Option 2

31. Discussions with the Small Business Service (SBS) on the role of UDCs indicate that the proposed UDC is unlikely to directly affect small businesses. However, some respondents to the consultation felt that small business would bear the brunt of any relocations caused by the use of Compulsory Purchase powers. This is accepted, but would be equally true of a CPO led by the local authority, the Regional Development Agency or English Partnerships.

32. The UDC proposals are unlikely to cause a competitive impact. In order to make the London Thames Gateway a more attractive place for business the UDC will be working to improve the market environment. All projects will be subject to an appraisal process and funding will have to be compliant with European state aid regulations.

33. ODPM is establishing a framework for managing the proposed UDC. This will include detailed guidance on appraisal, management, monitoring and evaluation. A range of outcome and output targets will also be agreed. These will be monitored by Government on a quarterly basis. A full review of the UDC would take place after five years.

34. Consultation on these proposals within Government has taken place with:

• Treasury, Cabinet Office, Department of Trade and Industry, Small Business Service, Department for the Environment, Food and Rural Affairs, Department for Transport, Home Office, Department of Health, Department for Education and Skills, Department for Work and Pensions, and Department of Culture, Media and Sport.

35. Public consultation on the proposals has been undertaken with the local authority, business, voluntary and community groups and the local community. In line with Cabinet Office guidance, the consultation period was 12 weeks.

Summary of Pros and cons of each option

36. Option 1 will not enable the London Thames Gateway to achieve its regeneration and growth potential. While Option 2 would be a step in the right direction, the complex land assembly problems in the area support the argument for a single-minded body (Option 3) with statutory powers, including planning. The dedicated funding stream the UDC will receive from Government is another strong benefit.

I have read the regulatory impact assessment and I am satisfied that the benefits justify the costs.

Signed Keith Hill......................................

Date 06/05/04

Keith Hill, Minister of State,

Office of the Deputy Prime Minister.