Forgemasters: “symptomatic of the difference between the government and Labour”

Rachel Reeves

Sheffield ForgemastersBy Rachel Reeves MP / @_RachelReeves_

Last week Vince Cable appeared before the Business Innovation and Skills (BIS) select committee to answer questions about the government’s decision to axe the £80m loan to Sheffield Forgemasters. The following day Ed Miliband visited Sheffield Forgemasters, signalling Labour’s support for this successful and innovative company. At the heart of Labour’s economic strategy is a plan for growth. Very distinct from the coalition’s vision to shrink the state without any thought as to the impact of cuts on the economic recovery.

The loan to Forgemasters is symptomatic of the difference between the government and Labour. The loan, signed off by BIS and Treasury civil servants, was the product of two years of negotiations. It was not some political gimmick or give-away, but a way of supporting British businesses and jobs. Before the election Nick Clegg described the loan as ‘just the sort of thing we should be doing’, and Mr. Cable confirmed that he recognised the project as offering value for money and that external funding in the current economic and financial environment was unlikely.

Moreover, at £80m, the loan is a tiny proportion of government spending, especially as £32bn of the £34billion worth of projects looked at by the incoming government are going ahead. The almost singling out of Forgemasters as a ‘show of strength’ by the government is a poor investment decision and a drop in the ocean in terms of deficit reduction.

The coalition’s economic policies have emphasised the potential of private sector growth to stimulate the economy and provide the jobs that have and will be lost as a result of the economic crisis. Yet the recent PWC report suggests 500,000 private sector jobs are likely to be lost because of cuts to the public sector, on top of the 500,000 jobs they expect to be shed in the public sector. The reality is, with a declining housing market, weakness in the global economy and confidence stuttering, cutting too fast too soon risks further economic hardship for the UK economy.

The Forgemasters loan decision reflects a worrying gamble by the government. It betrays a lack of any strategy for industrial investment, and a lack of understanding of the limits of markets alone to rebalance the economy and build the jobs of the future.

In the case of Sheffield Forgemasters, the investment the firm was seeking to secure would have created 400 jobs directly and hundreds more in the supply chain. The jobs are high skill, high tech, in a low carbon manufacturing industry of the future, and would have added greatly to Britain’s export capability.

In a region historically reliant on manufacturing, which has seen private investment leave in recent decades and in an area particularly susceptible to cuts in public services, the wider benefits of a major project speak for themselves. This is a point not entirely lost on the secretary of state who confirmed that the return to the tax-payer on the loan estimated was between 17 and 32%.

But, there seems to be no strategy for growth from this government – making it harder to rebalance the economy and to reduce the deficit. As Alan Johnson has said, ‘a bigger dole queue means a bigger welfare bill. And less tax coming in’.

The private sector will not ensure the economic recovery alone. Government must offer strategic support where the benefits are clear.

I agree with Nick – the Forgemasters project is just the sort of thing we should be doing. It is a sad fact that now in power the Lib-Dems have lost so much economic credibility and common-sense, and are now scrapping, not supporting investments that will both support a rebalanced economy and bring down the deficit.

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