Fund shrinks as tax bites

However, the revelations today that the Government will take a large bite out of the fund by declaring it as income – and therefore taxing the money twice by claiming back up to 26 per cent in income tax – will infuriate businesses desperate for vital investment.

The Government has been quick to point out not all of the grants will be subject to tax. If the beneficiary does not pay tax, or if the grant is awarded to an intermediary body – such as a bank – then there are no tax implications.

But the RGF was supposed to stimulate growth and the Government’s mantra has always been that growth will be led by the private sector. It will be hard for the British economy to be “carried aloft by the march of the makers” – as George Osborne declared – if businesses are being shackled by double doses of taxation.

RGF money likely to come to Yorkshire is already meagre at best, about £189m in total, and clearly the scheme was always going to be distributing considerably fewer funds than the regional development agencies did because public spending was unsustainable under Labour, rocketing to about 48 per cent of GDP in the final years under Gordon Brown.

The taps from Whitehall were not just flowing, the pipe had burst and cash was being sprayed around the economy with little thought to the consequences should times take a turn for the worst.

But debt reduction can only be achieved through a combination of cuts and growth and the RGF was supposed to be one of the vehicles that drove that growth forward.

As Yorkshire firms which have bid for money will know, to get a penny out of the RGF they have to demonstrate not only value for money, but that they will create jobs and wealth also. If this is the case, and the Government trusts its system for vetting applications, it should back that investment rather than clawing a large part back.

Such hedging of bets betrays a lack of confidence that will permeate through the economy, weakening an already feeble recovery.