Large firm grants 'waste of money'

Grants to revive Britain's poorest regions are "wasted" on firms of more than 150 employees, according to a study.

After looking at every manufacturing plant in England, Wales and Scotland before and after they received government support, academics based at the London School of Economics (LSE) argue that grants to larger firms are a waste of taxpayers' money.

They found that government subsidies such as the the Regional Selective Assistance (RSA) programme or its successor, the Grants for Business Investment scheme, created jobs only when given to concerns employing less than 150 workers.

Asked why smaller businesses were the only ones taking advantage of the subsidies, 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, called The Causal Effects of an Industrial Policy, also warned the Government that subsidies could put a dent in productivity figures because they "probably" help less efficient businesses grow.

Their work at LSE's Centre for Economic Performance and Spatial Economics Research Centre 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.

They were designed to "create and safeguard employment" in the manufacturing sector and allowed firms to finance projects to build or modernise their factories.

The subsidies are now called Grants for Business Investment in England, but are still referred to as the RSA in Scotland and Wales.