Exclusive: How firms are ‘blackmailing’ the govt growth fund
9:50 am - November 2nd 2011
| Tweet | Share on Tumblr |
After revelations last month that the much hyped Regional Growth fund had yet to spend a single penny, the government faces further embarrassment as details emerge of projects eventually selected for funding.
The government said on Monday it planned to invest £1bn in 100 companies to create new jobs.
But some bids go as far as arm-twisting the government to hand over money in return for keeping jobs in the UK.
One of the first successful funding applications to emerge FOI requests undertaken by Liberal Conspiracy concerns Bridon International Ltd, successful in its application for £2.2 million.
Key sections of the application (some extracts at the end) indicate that Bridon regarded the grant as a ‘sweetener’ for them to remain operational in the UK, rather than as an additional investment in the UK economy.
Bridon have identified and investigated two viable locations for this facility, Neptune Energy Park at Newcastle and Gelsenkirchen in Germany. The final decision regarding the location of the proposed facility has not yet been taken and will be significantly influenced by the availability of grant support from the Uk Government. If the project were to proceed in the UK, it would entail capital expenditure of £17.3 million in addition to the annual lease cost of £1.1 million, and would creat 39 jobs. It would also safeguard the 150 existing jobs at the Willington Quay site.
…
If the project proceeds in Gelsenkirchen, we will adjust our European operations accordingly, as Gelsenkirchen becomes Bridon’s main manufacturing centre…..Under this alternative the Willington Quay site will cease to be viable…. If the project proceeds in Gelsenkirchen not only would there be no private sector investment in the Uk and no job creation but the 150 existing jobs at the Willington Quay site would also be lost.
This effectively changes the fund from its stated purpose of job creation (in fact only 39 new jobs are projected to be created) to one which is focused almost exclusively on job retention.
Bridon isn’t alone in taking this approach either.
Another bid by the company Holroyd (owned by the Chinese company CQME) outlined a plan to establish a “brand new high–technology and research facility” for Holroyd and its sister businesses.
It is projected to bring in 130 to 150 new jobs, “including a substantial number of PhD and Degree leve positions,” says the application, to the Rochdale area.
The bid stated:
Without [Regional Growth Fund] support, the project will not go ahead in the UK as it leaves us with a shortfall of £2.82 million having taken account of a £17.625 million contribution from CQME and a £3.055 million comtribution from Holroyd Precision.
…
Without RGF support, it is a certainty that CQME will either move to Holland or Germany as an alternative or take the slower route in transferring the technology into China, with resultant slow loss of employment in the UK.
There is no suggestion that any of the companies have acted improperly.
Other problems with the RGF
And then there questions about the bidding process itself.
44 of the 50 round 1 applicants refused to release their applications to the RGF.
Other bids to the RGF, such as one by the Historic Buildings Trust (Prince’s Regeneration Trust spin off), are unclear about other public sources of funding (Euro money, English Heritage) rather than the private investment we were promised.
Yesterday, The Times also revealed that grants had been made to local councils in politically marginal areas and to companies who are significant backers of the Conservative Party.
—
Note: Both the Times report and a piece on the Financial Times website used the above information.
—
Bridon Holdings Bid to Govt
| Tweet | Share on Tumblr |  |
Paul Cotterill is a regular contributor, and blogs more regularly at Though Cowards Flinch, an established leftwing blog and emergent think-tank. He currently has fingers in more pies than he has fingers, including disability caselaw, childcare social enterprise, and cricket.
· Other posts by Paul Cotterill
Story Filed Under: News
Sorry, the comment form is closed at this time.
Reader comments
Presumably this is an argument for having no growth fund and just cutting corporation tax (more) instead. It’s arguable, but not what I’d expect from the left.
Because there is no way to prove additionality. No way to prove what would have happened without the fund if there is a fund.
Just a further note on this:
I should stress that while two main examples are picked out here, it is actually to these firms’ credit that they have released their actual applications (however redacted), following BIS’s enquiry to them over whether they would do so. 44 of the 50 rounds applicants have refused to release any of their application, and a case is now being compiled for the Information Commissioner regarding the public interest in disclosure of all bids. One firm refusing to release its application, just for example, is Capital for Enterprise Ltd, which is 100% owned by BIS.
There is no suggestion that the firms concerned have acted improperly, and in many respects you have to admire their nouse in picking up on the opportunity, seeing the Fund’s inherent sensitivity to the approach they adopt, and going for it.
The problem is with the design of the Fund, because it allows this to happen.
In addition, the headline is not mine, and in light of the above, I would have preferred the snappy ‘blackmailing’ in inverted commas. Hint, hint, Sunny.
Joe @1: You are right that there is no way to prove what would have happened, but I think the fact that the RGF input tends to make up about 10% of the costs only, and the financial muscle that these two MNC’s (and they are just the iceberg tip, I suspect) possess, I do think you can make a pretty good case that the investment would have happened anyway, and may even have been delayed because of the unwieldy funding/due diligence process.
I’m not against regional investment etc. but I think this Fund is poorly and hastily deisgned for political showboat purposes. I’d much prefer the RDA model of selective investment in public infrastructure that benefits firms and firm clusters so that it attracts them to invest.
Corporation tax is a red herring here.
“But some bids go as far as arm-twisting the government to hand over money in return for keeping jobs in the UK.”
Well, yes, this is what happens when governments start spraying money around. Those with political power manage to make sure the money gets sprayed in their direction.
This is one of the arguments against having governments spray money around of course….
It was long a consideration in assessing applications for previous schemes of regional assistance in eligible areas that applicants with internationally mobile projects could otherwise locate the projects abroad. Another test routinely applied was “additionality”, meaning whether it was likely that the project would go ahead without regional assistance. Believe me, there were many cases where companies would decide to invest in a project and even start work on it before making the applications for assistance.
I would be interested to know what conditions make Germany and the Netherlands more suitable for both the two companies cited above if they do not receive government grants (which is effectively a bribe to set up business here). The key question is perhaps why we are losing potential growth opportunities in the international market, rather than one about blackmail. Surely it would be easier and more effective for government to address these issues (I’m guessing workforce skill levels and perhaps taxation are the problems here) rather than simply bribe a small number of companies to set up in conditions that they would otherwise not choose.
On the blackmail thing, I think Paul was correct to ask for inverted commas, since it is quite arguable that although these applications are clearly asking for money with implied threat otherwise, it is probably fair to say this was setting out a situation that has been determined – without this grant, the companies will not be coming to the country.
As to the political corruption, if you let politics control money, those who want the money will seek to control politics. It’s the central flaw of capitalism – and the two solutions are small government or state-controlled socialism. I believe the second one has been tried and failed…
44 of the 50 round 1 applicants refused to release their applications to the RGF.
Why are bids for government funds allowed to be private? That is a major issue – if you want funds from a democratic government, then the demos have the right to see your case.
“There is no suggestion that the firms concerned have acted improperly”
Screw that. Of course they have. Tax audit time!
@5 – Right, and we should just give up and slump back into a depression.
@7: “I would be interested to know what conditions make Germany and the Netherlands more suitable for both the two companies cited above if they do not receive government grants (which is effectively a bribe to set up business here). ”
Ford in Britain, which used to assemble cars at Dagenham and Halewood, transferred the operations to Belgium and Germany at times when labour costs – wages + employer welfare payments – were higher than in Britain.
The claimed reason was that labour productivity was sufficiently higher to offset the labour cost disadvantage. Whatever the reason, Ford no longer builds cars in Britain although it does make car engines in South Wales to supply the requirements of its mainland European car assembly operations – engine manufacture is highly automated nowadays. Ford sold off its interests in Range Rover and Jaguar after investing billions but Tata, the present owner, is reportedly running those operations very successfully.
Peugeot used to have a car assembly plant near Coventry but closed that down.
However, the Japanese car manufacturers – Nissan, Toyota and Honda – make a go of their operations in Britain and the Nissan plant in Sunderland is reported to achieve the highest productivity in Europe. By reports, the Japanese car makers export cars back to Japan.
It’s worth recalling that Britain usually ranks close to the top of international league tables in attracting Foreign Direct Investment (FDI) – America usually comes top – but some large part of that is investment in the financial services sector in London, which is reputed to host more foreign banks than any other global financial centre. That is a credible claim as London runs the largest global market in foreign exchange by far and is a major market for launching corporate bonds. London is also a prominent centre in Europe for running hedge funds.
Those are persuasive reasons why we need to be cautious about proposals for a Tobin tax on financial transactions unless that tax is also levied in other financial centres.
Reactions: Twitter, blogs
-
Liberal Conspiracy
Exclusive: How firms are blackmailing the govt's 'growth fund' http://t.co/dWQlaeLj
-
_
Exclusive: How firms are blackmailing the govt's 'growth fund' http://t.co/dWQlaeLj
-
Indigo May Roe
[Regional Growth]grants had been made to[marginal]local councils… &… significant backers of the Conservative Party. http://t.co/F4d3Mcxz
-
Carl Baker
Exclusive: How firms are blackmailing the govt's 'growth fund' http://t.co/dWQlaeLj
-
Alex Braithwaite
Exclusive: How firms are blackmailing the govt’s ‘growth fund’ | Liberal Conspiracy http://t.co/8AI8JTVz via @libcon
-
sunny hundal
EXCL: How companies are essentially blackmailing the govt "growth fund" for money http://t.co/bQxuKa1N shows @bickerrecord
-
fatty abdel rahman
EXCL: How companies are essentially blackmailing the govt "growth fund" for money http://t.co/oDm1Jtli shows @bickerrecord@sunny-hundal
-
Patrick Butler
EXCL: How companies are essentially blackmailing the govt "growth fund" for money http://t.co/bQxuKa1N shows @bickerrecord
-
David Hencke
EXCL: How companies are essentially blackmailing the govt "growth fund" for money http://t.co/bQxuKa1N shows @bickerrecord
-
Michael Carr
Exclusive: How firms are blackmailing the govt’s ‘growth fund’ | Liberal Conspiracy http://t.co/BB3Oyw3q via @libcon
-
Companies arm twisting Westminster on ‘growth fund’? « Slugger O'Toole
[…] more from Paul Cotterill at Liberal Conspiracy… Tags: Growth Fund Topic: Economy, Government Region: England, UK « […]
-
Stephen Carter
is anybody really surprised by the last para http://t.co/5AKKXsIG
-
Janet Graham
EXCL: How companies are essentially blackmailing the govt "growth fund" for money http://t.co/bQxuKa1N shows @bickerrecord
-
DPWF
Exclusive: How firms are ‘blackmailing’ the govt growth fund | Liberal Conspiracy http://t.co/3vQW2QDb via @libcon
-
Magnus
http://t.co/uYqjELAF Companies backmailing Government Growth fund. Outrageous.
-
monkey of darkness
http://t.co/uYqjELAF Companies backmailing Government Growth fund. Outrageous.
-
Stephen Newton
EXCL: How companies are essentially blackmailing the govt "growth fund" for money http://t.co/bQxuKa1N shows @bickerrecord
-
Googlyfish UK
http://t.co/NSnWhquQ Exclusive: How firms are 'blackmailing' the govt growth fund | Liberal … http://t.co/ZW33Do5I
-
Solar Shower « Though Cowards Flinch
[…] best to fanfare £1bn in ‘new’ (i.e. re-announced) investment of around £1bn from the largely discredited Regional Growth […]
-
» Return of a desperate urban policy? - MULE
[…] goodies for politically connected big business”, while others went as far as to claim the firms have effectively been blackmailing the government for money from the fund through thinly-veiled threats that they will relocate […]
Sorry, the comment form is closed at this time.
