UK govt signals end to generous grants for foreign investors

Written by Ray Clancy

Friday, 23 July 2010 08:24

Britain can no longer afford to offer generous grants to attract foreign companies to invest in the UK because its priority is to cut a record peacetime budget deficit, Business Secretary Vince Cable has confirmed.

While foreign investment will form an important part of Britain’s recovery from the worst recession in decades, Cable said the coalition government favoured pro-business policies over subsidies.

‘Having very substantial amounts of money which we are splaying out in grants and subsidies to companies, we cannot do that. There is a budgetary problem which we inherited. The second reason is that it is actually very bad policy,’ he declared.

Ministers will instead focus on setting competitive business tax rates, cutting regulation, training workers and looking after the broader British economy, he added.

Britain has in the past offered large grants to support sectors such as the car industry, which relies heavily on foreign owned manufacturers investing in British factories.

A government spokesman was unable to give an immediate estimate of the total annual value of subsidies given to foreign companies to invest in Britain.

British public spending faces its tightest squeeze for years. The government unveiled a package of spending cuts and tax rises in June designed to cut the deficit to almost nothing in five years.

Chancellor George Osborne has ordered many government departments to cut spending by at least 25% to help reduce the deficit, running at 11% of GDP.

Although large subsidies may be on the way out, Prime Minister David Cameron said the government wanted a ‘big step change’ in its diplomatic relations to try to encourage trade.

‘We are coming out of a very deep and difficult recession, growth is fragile, and it is absolutely vital for our country that we attract the maximum amount of inward investment,’ he told a London investment conference. UK Trade and Investment, the government trade and export body, said the last year had been difficult.

However, Britain still attracted a record 850 new investment projects, creating 53,000 new jobs and safeguarding 43,000 more.

The United States remained the top investor, with software and advanced engineering the biggest sectors in terms of numbers of projects.