'No loans from EU pot' until 2012

The coalition has admitted that no development schemes in the UK will receive cash through a European funding mechanism to support urban regeneration until next year - nearly four years after its use in the UK was approved by the government.

European Union: the UK's five JESSICA funds have £154m of European Regional Development Fund cash and £151m of match funding
European Union: the UK's five JESSICA funds have £154m of European Regional Development Fund cash and £151m of match funding

A spokesman for the Department for Business, Innovation and Skills (BIS) told Planning that none of the UK's Joint European Support for Sustainable Investment in City Areas (JESSICA) money has been spent.

The spokesman said that five JESSICA funds - with a total value of £305 million - have been established in the UK. These comprise £154 million of European Regional Development Fund (ERDF) cash and £151 million of match funding, he said. The funds have been established in London, the North West, the East Midlands, Wales and Scotland.

The BIS spokesman said: "The funds had to be negotiated with the European Commission and the European Investment Bank. This was a lengthy process due to complex regulatory requirements and the novelty of the initiative.

"No investments were made up to 2010/11, but it is expected that the funds will begin making investments in 2012."

The JESSICA funding mechanism is intended to support urban regeneration where the private sector is not interested and where there has been overt market failure.

Unveiled as part of the current round of the ERDF, which runs from 2007 to 2013, JESSICA cash must be spent by 2015. The funds can only be used in projects that create jobs and not in housing-led regeneration projects.

The cash is given to developers as a loan, rather than a grant, and receipts can then be recycled into further projects.

In February 2008, the UK government gave the green light for JESSICA projects to be created in the UK after seeking clarification on how the scheme would work.

A source close to the European Investment Bank, which advises regional authorities on setting up JESSICA funds, said that the delay in making loans through the mechanism was due to the complexity involved in setting up the funds.

Although the UK government had given the nod to the funding mechanism to be used back in 2008, the five UK funds are only now in a position to begin making investments, according to the source.

The source said that, while JESSICA funding was a "great idea", the logistics of setting up such funds had not been thought through.

"It has been more complex to implement JESSICA funds than the European Commission thought," the source said.

Stephen Clark, a senior director at property adviser CBRE who worked on the preparation of JESSICA project the North West Urban Investment Fund, said: "Because JESSICA uses state aid in a way that hasn't been done before, it took a lot of clarification on what could and could not be done."

He added that, in the North West, there was a political dimension in ensuring that the 18 local authorities taking part were sure that they would all get value from contributing to the project.

Stephen Nicol, managing director of economic development consultancy Regeneris, said: "There was conflicting advice from the European Commission and the Department for Communities and Local Government."

He added: "There were also issues relating to match funding regarding whether you can put property instead of cash in."

The source at the European Investment Bank added that the EC was likely to relax state aid rules to make it easier to access JESSICA funding.

Clark added: "Things should be easier with future projects. We were at the bleeding edge and the blueprints are there now for how to construct these schemes."

Earlier this week, the Scottish government revealed that the fund management contract for its new £50 million JESSICA investment fund had been awarded to a consortium led by fund manager Amber Infrastructure. It will offer loans to regeneration and energy efficiency projects in 13 local authority areas in Scotland.

The start of this month also saw the deadline close for expressions of interest in the East Midlands Urban Development Fund.

Joseph von Maltzahn, at Jones Lang LaSalle Finance, which is managing the fund, told Planning this week that it had received 35 expressions of interest in loan finance from projects across the region.

Fund Devolved Total Amount
administration/ value invested
region pounds pounds
Regeneration Investment Wales 40m 0
Fund for Wales
SPRUCE Scotland 50m 0
East Midlands Urban East Midlands 15m 0
Development Fund
London Green Fund London 100m 0
North West Urban North West 100m 0
Investment Fund

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