An extensive study spanning the last two decades has discovered that small companies in deprived areas that receive a grant of at least £5,000 are more likely to create new jobs than their larger counterparts.
The LSE’s Centre for Economic Performance conducted the research and claimed that large companies simply pocketed the grants and created few new opportunities for employees or contractors.
As a result of the findings, the Government is now being urged to reinstate the Grants for Business Investment scheme, which it scrapped last year. Since 2004, the scheme helped 2,361 firms in deprived areas with a total of £470 million. Official data shows the grants created 46,000 jobs and helped to fund £4.2 billion of investment in start up companies and plant and machinery.
Professor John Van Reenen said the results demonstrated that companies with less than 150 employees could be encouraged to take on unemployed people at a reasonably low cost. A grant of 10% towards the cost of a project created an additional 7% in local jobs that would not have been created if the grant had not been awarded. Each position was estimated to cost almost £5,000.
He went on to say that scrapping the scheme completely, rather than changing the focus to SMEs was counterproductive.
The regional growth fund replaces the grants available via regional development agencies, but it does not cater for companies looking for less than £1 million. Under the Grants for Business scheme, small businesses could apply for a grant for just £10,000.
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