English Estates (Hansard, 24 March 1986)

§ Mr. Michael Fallon (Darlington)

I am grateful for the chance to instigate a short debate about English Industrial Estates Corporation, called English Estates. It is one of England's biggest developers and is certainly one of England's largest high-tech developers. That may not be as well known as it should be in the House, but it is known to us in the north-east, because over two thirds of its developing industrial footage lies in the northern region, just as its headquarters do. It is appropriate that a northeast Member should be sponsoring a debate about English Estates and allowing us the opportunity to explore with my hon. Friend the Under-Secretary the role of English Estates nationally and its particular importance for a region such as the north-east.

This is also a timely debate, because last week my right hon. Friend the Secretary of State was able to announce a substantial increase in the funding for English Estates over and above that which was originally feared. It was originally suggested that some £25 million might be available for that year, and for each of the next three years. My right hon. Friend has been able to ensure spending, although perhaps not funding, of some £32 million. That is a modest increase on this year's £30.5 million. It will help English Estates to carry forward the programme that it envisaged last year, and to finance continuing development in the north-east, especially in the counties of Durham and Cleveland. I understand that that forward programming will include a substantial development in Darlington, and I hope that my hon. Friend the Under-Secretary may be able to say something about that.

I welcome the increase in funding and the restoration of what was originally threatened to be a substantial cut. I particularly welcome the pledge that was originally given on 25 May 1984, that the provision made in English Estate's budget for the development at Chatham and the west would not affect its programmes and commitments in our assisted areas. There has been good news about funding and I hope that my hon. Friend the Under-Secretary will be able to confirm that.

Another important aspect for English Estates, in securing the medium-term future, is the corporation's management. I was a little disappointed that the efforts to put together a management-led buy-out last August now appears to have floundered. There would have been considerable advantages for the Government, in both the capital receipts that would have accrued from such a buyout, and the knowledge that Government programmes would still have been commissioned and carried forward by English Estates, as a private company.

There would also have been advantages to English Estates. It would have been able to set slightly longer-term objectives than the Government are often able to set for it. It might have been able to move towards a more broadly based and developed company, free of some of the constraints that Government and Treasury, of necessity, impose on such a public body. It would also have been free from the public expenditure survey committee lobbying and so on.

The company might also have been able to replace some of the more strict terms laid down by Whitehall for 763 the pay and conditions of staff, with a more commercial and realistic set of incentives and awards based on performance. Although that has not happened, I hope that the moves towards improved management will not be relaxed, and that initiatives such as the northern subsiduary of English Estates will be pursued. I also hope that on pay and reward for staff, the Treasury might be persuaded, once it has resolved the small matter of the English Estates report and accounts for last year, to adopt in turn a more flexible approach.

Another aspect which is relevant to the future of English Estates is the decision which will soon be made to end the three development corporations in the north-east—Aycliffe, Peterlee and Washington. Their life was extended again by the Government to 31 March 1988, which is less than two years away. I do not believe that there is any realistic prospect of a further extension being granted, even if we were in favour of it.

It is appropriate for the Government to consider soon the bodies that are best suited to take over, not simply the physical estates of those three new town corporations but their role in attracting inward investment and in making the localities more attractive places for development and industrial growth.

I realise that this is not entirely a matter for my hon. Friend the Parliamentary Under-Secretary of State for Trade and Industry and that his Department has to have consultations with another Department about it. I submit that English Estates, properly organised, is the best body to take on the development corporations' role. It is already based in the north-east. I believe that it could happily pool the estates of the development corporations with its own industrial estate to form a larger industrial portfolio. It might be able to sell the attractions of the north-east to a wider market, internationally and nationally, it might be able to retain some of the skills and expertise of the existing development corporations. It would certainly be able to ease the transition period by taking over an increasing part of the management of the estates.

Assisted areas, such as the north-west and the northeast, are crucial to the role of English Estates. I am not denigrating the developments undertaken at Chatham and in the west midlands. I understand the reasons for the involvement of English Estates in those areas. However, I believe that the greater challenge lies in the north of Britain, especially in the north-east, because that is where the greater development potential lies. In the north-east we have perhaps the greatest potential of any English region for further and future development. We have the space which the modern company needs. We have an abundance of attractively priced land and housing. We have the attractive countryside, which the modern company likes to have around it. Too much of that land lies undeveloped.

The register of publicly owned land, which was set up by the Government in 1980, reveals that a huge number of acres in public ownership are unused, undeveloped and awaiting development. There are more than 4,000 acres in Tyne and Wear, nearly 4,000 acres in Cleveland, nearly 3,000 acres in the county of Durham and nearly 2,000 acres in Northumbria—a total of just under 13,000 acres of publicly owned land—ripe for development but sat on by local councils. My hon. Friend the Under-Secretary of State may wish to consider when local councils are not prepared to develop land or to let other people have the 764 chance to develop it whether the Government, instead of ordering the land to be sold, should invite English Estates to develop some of it.

In the north-east we have not only space but resources. There are the natural resources of energy, water, offshore gas and coal. There are also the human resources—the skills in engineering which have been transformed into skills in the new technologies and the biotechnologies. It is often forgotten that 16,000 people work in the north-east in electronics and another 5,000 work in pharmaceuticals.

There is a fear in the region that we lose out to the south-east in high technology and new technology development and that too much applied research is heavily concentrated in the south. A recent survey shows that plants in the south-east have an average of 21 people employed directly in research and development. An equivalent plant in the north-east has only nine. The region has a lower record of product innovation. Those are all reasons why the role of high-tech development and the development of high-tech sites is pivotal to the future attractiveness of the north-east. That is why I believe that a successful English Estate, with its management given more freedom and its funding put on a surer footing, working increasingly in partnership with the local authorities and with the new towns as they come to the end of their natural life, is one of the keys that could unlock the door to a new and more prosperous north-east.

§ The Parliamentary Under-Secretary of State for Trade and Industry (Mr. John Butcher)

I thank my hon. Friend the Member for Darlington (Mr. Fallon) for his timely observations this evening, not least because the moment is approaching when we will be able to confirm, as a result of his inquiries, the decision that we can make regarding his constituency, but also because it is right to give a full airing to the undoubted benefits and advantages of industry and commerce building up their operations in the north-east. The undoubted advantages of Northumberland and Durham in particular are well worth restating at this juncture in our deliberations on English Estates.

Factory building has been an intrinsic part of successive Governments' regional policies for the past 50 years. Indeed, in the mid-1930s it was virtually the first and only form of regional assistance. Since that time a wide range of intiatives has been developed to encourage firms to set up, relocate or expand in the depressed areas of the United Kingdom. Over this time the factory building programme has evolved as an essential instrument of those policies, both complementing other measures and operating in its own right as an effective means of attracting employment to specific locations within the assisted areas.

Our policy on English Estates, and its recent record, represents an outstanding success for the Government. That is my third reason for welcoming my hon. Friend's speech.

On taking office in 1979, the Government came to the conclusion that measures intended to encourage business to set up, locate or expand in the assisted areas would not succeed if firms could not find suitable factories, workshops and offices. We asked ourselves if the private sector could be relied on to provide all the factories and industrial premises that would be needed in the assisted areas to ensure the success of our regional policies—a job it appeared to be doing quite adequately in the rest of 765 the country. Unfortunately, it could not. Some of the investment appeared to be too high-risk and to offer too low a rate of return to attract the large amount of institutional investment needed to ensure the adequate provision of suitable premises.

Finally, we asked ourselves whether English Estates was doing the best possible job in providing these premises. I am afraid the answer to this final question was a definite no. Civil servants in Whitehall and in the region had been telling English Estates what type of property to develop and where to develop it, selected the occupants and told English Estates what rents to charge. The consequences of their decisions are still plain to see—large, echoing, empty factory sheds that provided impressive evidence of the previous Government's concern for the regions when they were being constructed, but which have stood empty since then and demonstrated that concern is not enough. The factories stand as mute evidence to a failed policy of building monuments to the past rather than workshops for the future. In order to turn equal concern for the problems of these areas into economic regeneration, it was necessary to understand industry and commerce's basic requirements for new premises. This could be done only by those versed in the disciplines of the market place.

We quickly concluded that, although it was necessary to continue the advance factory programme, it was a job for property development experts and not for civil servants to carry this programme through. We therefore strengthened the board and management of English Estates with real experts in property development, and gave it financial and commercial objectives and broad policy guidelines to which to work. It was told by us to operate in the assisted areas, building factories where there was an underlying need in the market, but only in those locations where there was no prospect of finding private sector investors to undertake the development. We told it to concentrate on the type of development that would provide the most employment and bring a better balance to local economies. It was told to sell off the property as soon as it could, either to the tenants or to private investors. It was also told to secure the maximum rent that it could, without actually turning tenants away from factories that would otherwise stand empty.

With these objectives in view, English Estates was told to plan, develop, market and manage the development programme, while exercising its best commercial judgment. The many civil servant posts previously required for this work were saved and English Estates took it on with no overall increase in its staffing level.

The policy has proved to be an outstanding success. The new team at English Estates quickly identified an underlying demand for small units; many businesses in the assisted areas could not set up or expand because there was simply nowhere for them to carry on a business. English Estates pioneered the development of small factory units and the special rental terms and management techniques necessary to attract and nurture small business tenants.

English Estates now manages over 3,000 small units and many hundreds of companies owe their existence to these English Estates developments. These companies have their roots in the assisted areas and as they grow, as many will, they will provide an increasing number of jobs firmly based in the areas where they were born. I know that 766 my hon. Friend is most anxious that this point should be borne in mind. Growing mighty oaks from the little acorns may be a slow business, but it stands more chance of success in the longer term than attempting to transplant mighty oaks into an alien soil.

Under the old policies, English Estates was restricted to building premises for manufacturing industries. Its estates grew up without the mix of warehousing and offices that is so essential for balanced economic development at the local level. Under the Conservatives it has built warehousing and developed small suites of offices as well as factories. It has found institutional investment, up to £20 million so far, to help finance some of these developments. These units have found a ready market for businesses in the service sector that are anxious to service the manufacturing industries on the industrial estates. As a consequence, the estates are becoming more desirable locations for thriving modern industries.

Perhaps the most innovative developments of all have been those in response to this Government's policies of encouraging the interaction beween higher educational establishments and businesses engaged in the new technologies. English Estates is now the largest single high-tech developer in the country. Its technology transfer centres on university campuses provide a model which private developers have followed in the more prosperous parts of the country. At Bradford university, for example, it has provided one of the most successful high-tech developments in the United Kingdom. Similar developments have now been completed at Leeds, Hull, York and at Durham, and more are planned.

By means of this type of development, English Estates has provided a focus in the assisted areas for growth and prosperity in the industries of the future.

The policy of selling factories at every possible opportunity and getting the best rents we could from the market has paid off handsomely. As a result, English Estates returns to the Government nearly £2 from rents and factory sales for every £3 which the taxpayer invests in its programmes.

The success of the policy is demonstrated by the speed with which English Estates has filled its new units. Every one of the past five years has seen a record number of new factories occupied. The area of vacant factory space is now about half of what it was five years ago. In the north-east of England, lettings have shown a particularly encouraging trend. Not only is English Estates letting a record number of factories to new tenants there but over the past year a record number of existing tenants have expanded, creating more jobs in the process.

All this has been achieved by English Estates while operating under a hitherto bureaucratic financing system which completely divorced its commercial performance from the size and content of its development programme. The Industrial Development Act 1985 was introduced to correct this and provides the basis for a more commercial funding system. From 1 April this year English Estates will be able to use its income from rents and factory sales to fund its capital investment. My right hon. Friend the Secretary of State announced to the House on 19 March how these new arrangements would work in practice.

As for the actual size of the programme, over the past four years we have provided an average of £32 million grant-in-aid for English Estates to invest in new factory development in the assisted areas and in recent years in Chatham. In return, English Estates has surrendered about 767 £22 million in receipts from rents and factory sales in each of these years. On this basis, the net funding has averaged some £10 million a year. This year, English Estates will spend £31.7 million on capital investment, including about £2 million on the development in Chatham.

Next year, English Estates will spend at least £32 million on new investment but all of that will now go into the assisted areas. We have agreed to provide £12.6 million grant-in-aid towards that investment. Quite separate financing arrangements have been agreed for the development at Chatham, which will no longer effect the size of the programme that English Estates can carry out in the assisted areas. If English Estates matches its recent performance on factory sales and rents—and we have every reason to believe that it will in fact do better than that—more money should be available for it to build up a reserve for future years or to spend on more capital investment. We have high hopes that an even higher proportion of future investment will be funded from its own resources.

As for the £32 million to be spent in the assisted areas, the actual allocation to various locations within them is a matter for English Estates. It will allocate those funds to the travel-to-work areas in the assisted areas taking account of the level of unemployment in each. Those allocations have yet to be worked out, but, I am delighted to report to my hon. Friend that English Estates now has sufficient funds to undertake a £1 million development in Darlington shortly. English Estates is about to discuss with local interests how best to invest this sum to maximise job creation there.

We shall, of course, continue our policy of asking the board and management of English Estates to use their 768 development expertise and management skills to provide the type of development that is best suited to the needs of each location in terms of generating the most jobs for the money. English Estates is now in a position to reopen negotiations and discussions with interested bodies, including the local authorities in the assisted areas, concerning the type of development that it will be undertaking in the years ahead.

It is no secret that we have discussed with the management of English Estates whether we should now go the full way and privatise its organisation. But we have come to the conclusion that the present system, with English Estates implementing our policies through the disciplines of the market place, will continue to provide the most responsive and cost-effective means of carrying out the advance factory programme.

I opened by saying that I had a success story to tell, and I would like to close by saying that we hope for even greater success under a more commercial and market-orientated system in the future. All that has been made possible by the dedication and professional expertise of the board, management and staff of English Estates.

I should like to conclude by saying that I have listened carefully to what my hon. Friend said about the future of the three development corporations and I shall, as he invited me, refer his remarks tomorrow to my colleagues at the Department of the Environment, who will, no doubt, be getting in touch shortly in response to my hon. Friend's question.