Coalition wipes out £600m of region's funding

The figure emerged after the Government announced new details about its regional growth fund to help private sector expansion in areas dependent on public sector employment.

The Chancellor said the fund would be increased to 1.4bn and extended to three years "to lever in private investment in areas of our country where it has been too absent over the last decade".

The UK fund will be open to bids from local enterprise partnerships from next year, but even if Yorkshire-based LEPs manage to secure their fair share, Yorkshire will still lose out.

The 66 per cent cut stems from the abolition of regional development agency Yorkshire Forward, which received around 300m a year under Labour.

The quango has had no confirmation of funding beyond the current financial year.

The coalition Government blames the regional development agencies for failing to narrow the wealth gap between the North and South of England despite spending billions of pounds and has accused them of lacking accountability.

Damian Dewhirst, associate director at Grant Thornton, said: "As things had stood, Yorkshire Forward would have got 900m over three years. As things look, the LEPs will get 300m over three years. There is a net loss to the region of 600m."

Up to five LEPs will be formed in Yorkshire, with proposals from Leeds and Sheffield city regions likely to be among the first to be given the go-ahead. If approved, they will have to quickly prepare bids for funding.

Mr Dewhirst said the extension of the regional growth fund would mean greater continuity for job creation and business growth plans put forward by the LEPs, but warned that the new organisations would take up to 18 months to get up and running.

He added: "That means there will probably be a gap in the provision of services that businesses and local communities need. The bidding timetable is also extremely tight. Tight timetables make for poor bids and therefore poor delivery."

Barry Dodd, who is leading efforts to create an additional Yorkshire-wide enterprise partnership, said the new fund "will be all about return on investment".

"We need to make sure we have the best bids for the most money," he added.

Overall, the Department for Business Skills and Innovation will see cuts totalling 25 per cent. The Government will save 1.5bn from the abolition of the regional development agencies and has ordered savings of 400m in administration spending.

A White Paper is expected soon on local growth, which will include more details on the growth fund, tax increment financing and LEPs.

Business reaction to the spending review was generally positive, although concerns have been raised about whether the private sector will be able to create enough jobs to fill the gap left by the public sector cuts.

Richard Lambert, director-general of the CBI, said: "The Chancellor has got the strategic direction of this spending review right. He has stayed the course outlined in the June Budget, with economic growth a top priority.

"We particularly welcome the extra 2bn a year on capital spending, and the focus on areas that support growth. These include transport and other infrastructure, education and science, and the low-carbon economy.

"The spending cuts, though painful, are essential to balance the UK's books and build its future prosperity. Now the Government must deliver its promised savings by re-engineering public services."

Miles Templeman, director-general of the IoD, added: "The only way we get a private sector recovery underway is through macro-economic stability, and this will only be achieved with sustainable public finances.

"Opponents of today's spending reductions need to wake up to that fact.

"The alternative is a tax hike which would damage the economy in both the short and long term."

Long-term gain hopes for support service sector

Companies in the support service sector face some short-term pain but should be able to capitalise on public sector reforms from 2012, commentators have predicted.

The Government outlined plans yesterday for total spending cuts of 81bn and average real budget cuts of around 19 per cent by 2014-15.

Mark Burke, a partner at accountancy firm Grant Thornton, said: "In the next 18 months support service providers will be hit by rough and ready measures to cut spending across the public sector.

"By 2012, I expect the public sector to refocus on delivering quality services and getting value for money. Providers that can deliver cost effective support services should benefit disproportionately from this transition."

He added: "The fact finance directors in government departments are increasingly held personally accountable to deliver sav-ings should make it easier for support ser-vice providers to identify who to approach with offers that deliver such savings.

"The public sector needs to adopt best business practice in procurement if it wants to achieve efficiency savings while providing quality services expected by the taxpayer."