Business grants a ‘waste of money’

Study warns subsidies are potentially “wasted” on large manufacturing firms

Grants to revive Britain’s poorest regions are “wasted” on manufacturing firms of more than 150 employees, according to a study. 

After looking at manufacturing plants in England, Wales and Scotland before and after they received government support, academics at the London School of Economics have argued that grants to larger firms are a waste of taxpayers’ money. They found that government subsidies, such as the Regional Selective Assistance (RSA) programme or its successor, the Grants for Business Investment scheme, created jobs only when given to concerns employing fewer than 150 workers.

Professor John Van Reenen said: “It may be that larger firms are manipulating the system and just pocketing the subsidy or it may simply be that grants have a bigger effect on small firms as they are much more cash-strapped.”

The authors of the study also warned the government that subsidies could put a dent in productivity figures because they “probably” help less efficient businesses grow. They looked at the impact of the subsidies between 1986 and 2004.

From 1972, RSA grants were handed out to firms in disadvantaged areas with high unemployment and low income levels. The subsidies were designed to “create and safeguard employment” in manufacturing and allowed firms to build or modernise factories.