“Perverse” cuts to regional funding will set back growth

The shaky foundations of the government’s economic policy have come under sustained criticism this week. First there were broadsides from both the outgoing and incoming director-generals of the CBI. Then the august National Institute for Economic and Social Research (NIESR) weighed in, with each calling for an urgent focus on growth.

But governments are judged by their actions and despite this growing clamour ministers are still set on a different course – one that will leave whole swathes of the country facing a rerun of the economic ruin that plagued the 1980s.

The Financial Times claims that Britain’s poorest regions are set to lose up to £430 million in funding from the Grants for Business Investment (GBI) scheme which supports around 1,800 projects across the country, predominantly in manufacturing, safeguarding around 80,000 jobs.

The paper reports the Department of Business saying GBI may be kept in place for “large exceptional projects” which might run to 150-200 in number – just 10% or so of the current total.

Labour’s former business minister Pat McFadden said:

“At a time when the government is calling on the private sector to step up and fill the employment gap created by public sector cuts, it is perverse to be cutting this support for private sector businesses and private sector job creation.”

From the other side of the equation, new research from Sheffield Hallam University underlines the importance of public sector job creation in deprived parts of the country:

“In the 100 local authorities outside London with the highest out-of-work benefit claimant rates 460,000 out of the 590,000 jobs added between 1999 and 2008 were in public administration, defence, education and health, or 78% [of the total jobs created].”

The loss of nearly half a billion pounds worth of GBI funding is the latest blow to investment in English regional economic development and comes after it was revealed there has been massive over-subscription in the first round of bidding to the new Regional Growth Fund (RGF).

Four hundred and fifty bids have been submitted for projects totalling around £2 billion. Yet the value of the fund is just £1.4 billion – and that is to cover three years. Meanwhile, enthusiasm for the new Local Enterprise Partnerships (LEPs), the emaciated, budget-less successors to Labour’s regional development agencies, is in conspicuously short supply.

Chris Fletcher, the deputy chief executive at Greater Manchester Chamber of Commerce says:

“There is… an appreciation of the local focus, but if there is a lack of central government support, and a lack of power, then the LEPs will quickly lose their sparkle.”

The scope and range of powers available to LEPs is still a mystery wrapped up in an enigma. Adam Marshall, the director of policy at the British Chambers of Commerce, says:

“There’s a stand-off between the government saying ‘get on with it’, and the LEPs saying ‘get on with what?’”

A leader in this week’s Birmingham Post is more succinct:

“To describe the way the government has gone about launching Local Enterprise Partnerships as a shambles would be putting it mildly. An unmitigated and embarrassing disaster would be a better choice of words.”

The full scale of the government’s regional economic myopia – and the inadequacy of their response – is now coming into sharp focus. But like millennial cultists, ministers pin their entire strategy on the private sector rushing in to fill the vacuum left when public funding for regional growth projects dries up.

We can expect the chorus of business leaders calling for a change of direction to grow ever louder as we head towards next month’s budget.