Government grants do help small businesses grow

In a time where the UK economy is desperately in need of growth and looking towards small businesses to provide it, a study shows that a scheme which has been scrapped helped with job creation.

As part of the Grants for Businesses Investment initiative businesses were given £5,000 up until last year when it was scrapped.

The Centre for Economic Performance at the London School of Economics has released its findings on a study it conducted into the impact of grants on businesses over 20 years.

It found that when the money went to large firms it simply disappeared into the general finances pot and did not make a big difference.

With small companies in deprived areas the £5,000 grants were put to better use by investing it in both the company and large numbers of new jobs.

In total 2,361 companies received the money throughout the life of the scheme with £470 million being handed out.

Since these findings were made public they are calling into question whether the government should have scrapped the initiative at a time of such economic difficulty in the UK.

Official figures suggest that 46,000 jobs were created as a direct consequence of the initiative, which isn't to be overlooked at a time when the UK has record levels of unemployment.

Further to this, £4.2 billion went into investing in new plant, machinery and start ups, allowing businesses to expand and take on more work.

Professor John Van Reenen said: "By completely scrapping it and not refocusing it on SMEs [the coalition] was absolutely throwing the baby out with the bath water."

The closest alternative is the regional growth fund put in place by the coalition, but bids start at £1 million, which is a far cry from the £5,000 offered through the previous initiative.

This study shows that smaller amounts can make bigger differences for the majority of modest businesses.

This article was provided by T I C (UK) Ltd, The Insurance Centre, 8 China Street, Lancaster, LA1 1EX Tel: 0845 88 22  806

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