Clegg left reeling as steel giant drops bid for loan

ONE of Yorkshire’s best-known manufacturers has pulled out of the Government’s flagship private-sector growth scheme in a serious blow to Nick Clegg and the coalition.
Nick CleggNick Clegg
Nick Clegg

Sheffield Forgemasters, the industrial giant which was promised a £36m loan from the Regional Growth Fund (RGF) in 2011 for a major investment programme, has withdrawn from the scheme without receiving any money.

The announcement is a personal blow for the Deputy Prime Minister, who faced sustained criticism in Sheffield – where he is a local MP – after his Government cancelled an £80m investment loan to the firm in June 2010.

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Mr Clegg pledged then that “when the public finances become clearer”, the Government “stands ready to do everything we can” to support Forgemasters.

Within weeks the Lib Dem leader had launched the £2.4bn RGF scheme, specifically to support private-sector firms outside the South East. The £36m loan to Forgemasters was announced the following year, to allow the firm to invest in new manufacturing equipment.

But two years later, the money has still not materialised via the notoriously slow RGF process – and Forgemasters said yesterday its priorities have now changed.

“I can confirm Sheffield Forgemasters has withdrawn its current application for RGF funding,” said chief executive Graham Honeyman.

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“The company will continue its present programme of investments in plant, research and technology. This approach reduces the priority of larger capital investment projects at this time.”

The company said its decision was not linked to the Government’s announcement last week that Britain’s first new nuclear power station in decades, Hinkley Point, will be built by French firm EDF in partnership with Chinese investors. Only 56 per cent of the work may go to British firms.

Forgemasters insisted it was still “leaving the way open” to invest in major capital projects in the future, and was at pains to stress its decision was not an indictment of Mr Clegg or the RGF scheme.

“I would like to record our appreciation of the RGF concept and the support provided by Nick Clegg as a constituency MP,” Mr Honeyman said.

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The decision to abandon the RGF loan after two years of negotiations is, however, a damaging setback for Mr Clegg’s flagship scheme, which has been repeatedly criticised for the speed at which successful bids are processed.

The Commons public accounts committee described the scheme’s performance as “highly disappointing” in a report last year, warning it was “scandalous” so few of the projects promised funding had received any money.

Angela Smith, the Labour MP for Penistone and Stocksbridge, said the decision was further proof that Yorkshire firms are being let down by the “tortuous” RGF process.

“I’m really saddened that Forgemasters has had to decide not to go ahead with this investment,” she said. “First of all the Government pulled the rug out from under Forgemasters when it cancelled the £80m loan. Then, what was supposed to be an alternative, the RGF process, has proved incredibly tortuous to get promises of investment off the table and available for use.

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“And once again the UK supply chain has been bypassed in developing the new energy capability this country needs.”

Forgemasters had planned to invest the original £80m loan in a huge 15,000-tonne forging press – only the second in the world – to allow the firm to play a leading role in developing Britain’s next generation of nuclear power stations. That scheme was cancelled when the coalition scrapped the loan within weeks of being elected in 2010. Mr Clegg blamed Labour for “making promises the country cannot afford to keep”.

A spokesman for the Lib Dem leader said last night that Forgemasters remains “a vital part” of the Sheffield economy and that Mr Clegg would “continue to work closely” with the firm over the coming months, with the Government “standing ready” should it decide to make a further RGF bid in the future.

“This decision has been made solely by Sheffield Forgemasters,” the spokesman said. “They know what is best for their company.”

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Forgemasters director Peter Birtles said other parts of the business were now “yielding better results than the projects with RGF funding”, and that Forgemasters had faced a “moral dilemma” about whether to proceed.

“That money could be available for someone else,” he said. “We have found other, better things to do, and we didn’t want it to be lost.”

Mr Birtles said the £36m loan related to three projects – refurbishing a small forging press, installing machine tools for the offshore oil and gas markets, and a scheme to install a steel refining plant.

“Things have changed in our markets,” he said. “We are spending a lot more time and money in research and development.

“As time has gone by, some parts of the market have become stronger than they were. The justification for these particular projects has weakened.”

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