Grants axe 'threatens small businesses in poorer areas'

THE Government's decision to abolish a grant scheme that helps to create jobs in less prosperous parts of Britain will harm Yorkshire's small businesses, it was claimed yesterday.

The Industrial Communities Alliance has condemned the decision to scrap the Grants for Business Investment (GBI) scheme, because it believes it could "derail" the Government's goal of rebalancing the economy.

According to the alliance, most of the money from the scheme went to support manufacturers and its withdrawal will mainly affect companies in the Midlands and the north of England.

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The scheme provided a boost for small and medium-sized businesses in Yorkshire in areas that were hit by the decline of the mining and steel industries.

Between 2004 and 2010, around 428m of funding was made under GBI to English companies – which helped to create or protect 77,000 jobs, the alliance states.

Around 72m of this funding went to companies in Yorkshire and the Humber, according to research compiled by the alliance.

The alliance believes the abolition of the GBI scheme will undermine local regeneration schemes and hit the weakest parts of the economy.

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Coun Eion Watts, the chairman of the alliance, said: "At a time when businesses in our areas are struggling, the loss of this vital tool has come as a great blow. Since the 1970s, successive governments have seen the need to create and protect jobs in the less prosperous regions.

"We in the alliance, believe the Government should revisit their decision to abolish this scheme. It is a vital piece of kit in the regeneration toolbox, and firms in our areas will suffer without it."

The companies that have benefited from GBI in recent years have included Metalysis, a technology innovator for the speciality metals industry.

The company received a 1.5m grant in 2009. Metalysis, which moved from Cambridge to Rotherham seven years ago, commercialises technology for making metals used by the Space Shuttle and mobile phones.

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An alliance spokesman said: "GBI provides support for capital projects that wouldn't otherwise go ahead on the same scale or in the same location. It doesn't prop up lame ducks and it doesn't subsidise operating costs.

"GBI can only be given to larger companies in the assisted areas – mostly the less prosperous parts of the north and Midlands, yet the Government says it wants to reduce the economy's reliance on London and the South East.

"In the long run, the decision to dispense with this key tool of regional policy needs to be reversed.

"In the short run, the Government's intention to retain a residual GBI to deal with 'large-scale cases on an exceptional basis' needs to be given tangible form.

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"The abolition of the regional development agencies (such as Yorkshire Forward) should not be the pretext for the total demise of GBI. Prior to the creation of the regional development agencies, grants to business were administered by the Government itself. There is no reason why the Government should not return to this model."

The alliance said it did not expect the Regional Growth Fund to fill the gap left by the demise of GBI.

The fund is designed to spur private sector job creation in areas that will be hit hardest by public sector spending cuts.

Earlier this month, Lord Heseltine said the 1.4bn regional fund will be allocated to selected projects across the country which can demonstrate strong potential for economic growth. It is part of the coalition's strategy to rebalance the economy away from an over-dependence on the public sector as ministers take steps to cut the massive budget deficit.

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However, the alliance said: "The claims on this pot will be numerous, and the funding is likely to be spread well beyond just the assisted areas."

A spokeswoman for the Department for Business, Innovation and Skills said the Government is committed to supporting business projects that create growth, particularly in areas dependent on the public sector. She added: "We are refocusing support so it has the maximum impact on rebalancing the economy and targets projects that will create long-term growth and jobs.

"The limiting of GBI to large exceptional projects in the future will not harm firms that have used this type of regional support in the past and those with good projects may be eligible to compete for funding from the 1.4bn Regional Growth Fund."

The aims of the alliance

The Industrial Communities Alliance is an all-party association of local authorities in Britain's traditional industrial areas. It was formed in 2007 from the merger of two local authority associations – the Coalfields Communities Campaign and Steel Action.

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The group says its work builds on 10 years' collaboration under the banner of the Alliance for Regional Aid.

According to the alliance, its aims are "to articulate the needs of Britain's traditional industrial areas, to attract resources for regeneration, to press for balanced growth within and between regions and to provide a framework for information sharing between member authorities".