MICHAEL HOWARD, Secretary of State for the Environment, today announces the 20 winners in the second annual round of the City Challenge. Rumours suggest it could also herald the end of the scheme launched in May last year by Mr Howard's predecessor, Michael Heseltine.

Of 15 major urban areas invited to bid last year, 11 were approved for regeneration schemes spending pounds 400m over a five-year period. In this year's round all 57 Urban Programme areas were invited to bid. The 20 winners will be able to spend a further pounds 750m over five years.

City Challenge has its critics, not least the mainly Labour local authorities which swallowed their pride and seconded senior officers to prepare bids. It has been likened to a sweepstake, dubbed 'Tarzan's Tombola', with many officers involved in the bidding complaining that a 'hard sell' presentation is worth more than the quality of the scheme.

Nevertheless, the future of many worthwhile development proposals hangs on today's announcement. For example, Greenwich council wants to turn the Royal Arsenal area of Woolwich into a tourist centre. Several of the schemes involve reclamation of environmentally damaged inner-city land. In Derby, city-centre land contaminated by manufacturing processes, including asbestos and chemicals, and a waste dump emitting methane gas, are scheduled to be cleaned. They will become home to new hi-tech businesses and part of the planned University of Derby. The council stresses that many of the beneficiaries of its bid should be residents in the area, which is the most impoverished in the city.

Both Derby and nearby Nottingham have extensively consulted local people. Derby council converted a shop into an office to liaise with local residents and encourage community involvement. In Nottingham, a winner last year and bidding again, community bids were invited using a process comparable to that of the Urban Programme. Nottingham's bid includes a proposal to convert the old and now derelict Babington colliery in the city into a development site, and to build stations for the proposed light rail system.

Schemes approved last year include one from Tower Hamlets, with very high Bangladeshi and Somali populations, for new language and training programmes, and a 'Community Compact', bringing together the private, public and voluntary sectors.

However, the environment minister John Redwood, answering a parliamentary question earlier this month, said that no decision had been taken on the future of City Challenge, other than that existing commitments - including those named today - will be met over their full five-year programmes. It is understood that Michael Howard is not happy with City Challenge, which is strongly associated with his high-profile predecessor, and may be willing to end it. The Treasury has made it clear that it would like the scheme scrapped to produce savings.

The Treasury's view is ironic, as City Challenge has been financed by 'top slicing', or cutting, other programmes. The Labour Party says that the Urban Programme has been cut this year by pounds 14.3m, and housing investment by a further pounds 48.5m, to pay for City Challenge. The Urban Programme dates from 1969, when it was a Home Office scheme, and Labour has complained that the Government is trying to phase it out. Nevertheless, many in local authorities believe it is no longer the right approach to inner-city problems. In particular, revenue spending through the Urban Programme can lead to future main programme commitments, causing conflicts with central government over spending levels, and possibly to charge-capping.

The range of inner-city assistance - City Challenge, the Urban Programme, city grants, housing corporation grants, derelict land grants, city action teams and Urban Development Corporations - make the Government's urban policy look like a hotch-potch of activities without clear direction or purpose. For this reason the Government's Housing, Land and Urban Development Bill is to create a new body, the Urban Regeneration Agency, to co-ordinate these activities. The URA is due to be up and running by late next year. However, the Government has yet to decide what powers and responsibilities the agency shall have. Another problem for Mr Howard is that the first chairman is Peter Walker, appointed by Mr Heseltine and politically close to him. Mr Howard's ability to direct inner-city policy is seen to be undermined as a result.

One key problem which may be passed on to the URA is what to do with the Urban Development Corporations. These have recently suffered stinging attacks, with complaints over property development losses, and hints by Mr Redwood that he would be willing to see them closed down. This is considered most unlikely by Dr Bob Colenutt, of the Centre for Local Economic Strategies, who has made a close study of UDCs. He thinks the Government is 'stuck with them' until they can show a clearer return on the pounds 2bn it has given them.

The danger of the property development approach of the UDCs is most graphically illustrated by the fate of Canary Wharf. The London Docklands Development Corporation was seen as the jewel in the crown of urban regeneration, having been given more than pounds 1bn since 1987, roughly equal to the sum allocated to all the other UDCs put together. Among the criticisms of LDDC is that it has built top-quality housing for executives and their families, but done nothing for the housing conditions of local people.

Dr Colenutt believes that the UDCs took a too narrow, property-centred view of urban redevelopment. 'It looked OK against constantly rising land values, but without this it looks like a bottomless pit. The other problem is the lack of accountability locally, which was bound to lead to running friction between the community and officials.

'Any urban regeneration agency must have a brief to create tangible benefits, for example affordable housing, more local employment and training opportunities and a better physical environment. These should be measured, and the agency tested against this,' he concludes.

One approach advocated by Dr Colenutt, now being considered seriously by the Department of the Environment, is to copy some of the models used in the United States. These include minimum levels of local investment from some businesses, and a 'local labour' clause to ensure that communities benefit directly from regeneration. The adoption of this proposal would be ironic as the Government has been antagonistic to local authorities using such clauses in their own contracts.

The DoE is apparently impressed by America's Community Development Corporations, which have taken a very different route to our own UDCs. Most notably they see economic development and housing improvements being closely linked, and place a priority on awarding development contracts to local businesses.

Chris Wadhams, director of Shape housing, and originator of the DoE- supported People for Action programme, said: 'The Community Development Corporations and Neighbourhood Housing Programmes in the States are assisting people to set up their own groups, and helping people to build their own housing estates.' He added: 'Sometimes they also burn them down later, which is a bit of a problem.'

People for Action are trying to encourage housing associations to be a mechanism for economic development, and have set up a construction company which is winning building contracts, and recruiting exclusively from the areas where the building is taking place.

Whether America, in the light of the Los Angeles riots, will be seen as the right example to look to is an interesting question. But Michael Howard - and Peter Walker - will find no shortage of advice or alternatives on how to shape urban policy for future years. Whether either can now pull the pieces together to create a coherent policy, leading to reductions in unemployment, riots and crime, could still turn out to be one of the Government's toughest problems.

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