Regional Growth Fund

Lord Blunkett Excerpts

Tuesday 1st November 2011 Westminster Hall

[Angela Smith]

A Government who trusted the voice of the northern regions, and their intimate knowledge of their manufacturing base, would never have cancelled the Forgemasters loan. [Interruption.] If the hon. Lady thinks that is funny, people in Sheffield and south Yorkshire do not. Yesterday we heard an acknowledgement that the Government got it wrong on Forgemasters, and they have awarded a consolation prize, but nothing takes away from the fact that the original purpose of the loan has passed, and an important strategic opportunity has passed us by, thanks to the spiteful attitude of a condemned Government hellbent on cancelling what they saw as a Labour loan.

[Mr David Blunkett (Sheffield, Brightside and Hillsborough) (Lab)]

I congratulate my hon. Friend on this timely debate, and on her work on Forgemasters last year. Is it not a serious issue that although a previous Government—including the Department for Business, Innovation and Skills and the Treasury—did up to two and a half years of due diligence on the proposed loan to Forgemasters, in the past two and a half months, no such due diligence has been done? Despite the warm welcome for the money announced yesterday for Forgemasters, the board has not even approved the detail of how the investment is to be made. Last year, the Deputy Prime Minister wrongly described the original decision as political, but we now have a most vivid example of such a decision, with the Deputy Prime Minister arriving at Forgemasters, seeking to make a political gesture out of public money.

[Angela Smith]

I completely agree with my right hon. Friend. The Deputy Prime Minister would have been better served yesterday had he acknowledged to the people of Sheffield that he got it wrong and they got it right. If he had shown some humility and apologised for the grave errors that his Government made more than a year ago, perhaps the political point that he was making would have carried a lot further.

One of the issues at the heart of the chaos and confusion surrounding the regional growth fund is the bureaucracy at the heart of the process. For instance, the rules for the fund state that payments will only be forthcoming on successful delivery of outputs. That means that private companies are being asked to invest up front, with the risk that, if they do not make the said outputs in two or three years, they will not receive the moneys promised. That means that the promise to Forgemasters is exactly that: only a promise. That, I am told, is not only putting off many smaller companies from applying, but is making the writing-up of contracts difficult for the successful companies due to the risks involved. In that context, the comments made to me yesterday by the Institute of Chartered Accountants are damning. The institute has been working with BIS officials to make the process simpler and more cost-effective, but it says:

“However, following discussions with our members, BIS officials and firms, we fear that a convoluted approach to the due diligence process for the RGF is resulting in delay, additional bureaucracy and cost for businesses and the government, and undermining the growth goals that the RGF money intends to achieve.”

Those are not my words, but those of the Institute of Chartered Accountants—a damning indictment of the Government’s approach to regional investment.

To make matters worse, the minimum bid for an application to the fund is £l million, with typical leverages of eight to nine being demanded. That means that the fund is out of reach to the average small or medium-sized enterprise—the sectors that the Government say they want to help the most. The Federation of Small Businesses said to me yesterday:

“From our point of view, the minimum amount for bids of £l million has always been far too large for the majority of small businesses. We did encourage collective bids to be made on behalf of SMEs, however this is not ideal.”