Treasury takes axe to Convergence

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Charted accountant Winter Rule is warning that the Treasury’s moratorium on further spending by the European Convergence programme in Cornwall will hit growth businesses hard, starve them of investment and cost hundreds jobs.

The freeze – which prevents any ERDF (European Regional Development Fund) Convergence investment in projects that extend beyond March 2011 – turns off the tap for businesses in Cornwall hoping to access grant funding in order to grow.

This includes a £140 million pot that gap-funds new workspace and the Grant for Business Investment (GBI) scheme, which has an £8 million pot of money to invest in growth businesses in Cornwall. Both these schemes are 100% funded by ERDF Convergence and administered by the South West RDA.

“At a time when the Government is claiming that it wants a strong Britain to emerge from recession, this knee-jerk decision beggars belief and we are lobbying MPs to have it overturned.”

GBI can fund up to 50% of the costs of a project, with the remainder coming from the business itself or other funders like banks or investors (ie, private funds), while the workspace fund provides between 30% and 50% of the costs on average.

David Bullen, corporate finance manager at Winter Rule in Truro, said: “We have expertise in helping Cornish businesses and potential inward investors apply for grant funding and in the current climate these schemes are key sources of growth finance with the potential to create hundreds of jobs.

“The Treasury’s directive has turned off the tap overnight. We have five business clients with whom we are progressing GBI applications, for example, and now they’ve been left in total limbo.

“If none of those projects go ahead then we calculate that £8 million of total investment and 650 potential jobs will have been lost from the Cornish economy from our clients alone.

“At a time when the Government is claiming that it wants a strong Britain to emerge from recession, this knee-jerk decision beggars belief and we are lobbying MPs to have it overturned.”

In a statement, the South West RDA said: “We have been provisionally told that we can no longer make investment grants from ERDF. We are seeking urgent clarification from HM Treasury, the Department of Communities and Local Government and our sponsor department of Business Innovation and Skills on this issue.

“If ERDF does not continue, it would have a serious impact on hundreds of businesses across the region and damage the growth prospects of the South West economy. The types of projects affected would include next generation broadband, business premises, transport schemes and investment in innovation and science based initiatives.”

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4 COMMENTS

  1. At a time when cash is in desperately short supply and loans are hard to come by, the Convergence program can make a huge difference to new businesses. It seems obvious to me that the fastest way to economic recovery and growth can only come through investment in business, not through cuts. This is a short-sighted decision by the Conservatives.

  2. Yes, seems strange. I would have thought it was Brussel’s ultimate decision whether Cornwall receives convergence funding. Considering the amount of money that goes to Europe from UK taxpayers, it doesn’t seem to make sense to say that we don’t want at least some of this back/reinvested through convergence! Maybe there’s more to this than meets the eye…

    I do think, though, that Cornwall rather over-relies on public funding, convergence or otherwise. Even now, there is so much money (pivate capital) sloshing around London from all over the world, looking for places to invest. I’ve worked on deals where companies in all sorts of obscure corners of the globe are financed from the City, but Cornwall and other parts of the UK are left pretty much off the radar. I think a lot of this is to do with people not being aware or proactive to network in the right circles and attempt to attract private sector equity financing.

    However, one of the big problems with the exisiting traditional private equity and venture capital organisations is that they only look to invest in established companies of a certain size with a track record. I think the government should do more to encourage small scale private sector investment in young and start up companies and there does seem to be a growing trend of ‘angel investors’ (wealthy individuals) choosing to invest in businesses directly rather than just putting their cash in property or handing it to large fund managers. I think the internet could have a big hand to play in this and recently I have become aware, particularly in California, of a revolutionary way to fundraise, called ‘crowdfunding’, making it so much easier for young companies to raise money from a variety of individuals and sources. The Mashable blog/website has a good post on crowdfunding which makes interesting reading….

  3. The UK pay billions into Europe. Convergence is an opportunity for part of the UK to get back hundreds of millions of pounds. It requires a small amount of match funding to deliver £100Ms back to us. The government’s actions here are WASTING these £100Ms.

    I thought the Conservative agenda was to reduce waste, not increase it?

  4. This is hardly going to come as a surprise is it? We appear to have caught some new disease called “itsnotgoingtohappenheritis”. We cannot have cuts in public spending without them falling somewhere, and in this case a lot of somewhere are going to get hit big time. Lets move on and start the process of doing without, thinking for ourselves, helping ourselves, and getting on with self funded and developed growth without hand outs from central (i.e. Brussels!) Government.

    We managed before and we will manage again- after all – there isn’t any other option. We have nouse- lets invest it!

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