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Last Updated: Tuesday, 11 July 2006, 15:09 GMT 16:09 UK
Foreign firms 'not boosting UK PLC'
Cargo ship
Grants, tax breaks and honours are available to foreign firms
The UK government believes foreign investors are good for the economy.

A range of incentives, including grants, tax breaks and even honours, are available to overseas businesses choosing UK PLC.

But File on 4 has seen government research which casts the whole policy into doubt.

The programme considers the tonnage tax - the centrepiece of the government's shipping policy - designed to encourage foreign shipping companies to invest in Britain.

Instead of paying corporation tax on their profits, they can pay a flat rate fee on their tonnage - saving them significant amounts of money.

It is meant to attract foreign shipping companies here and to create jobs for British seafarers and particularly for trainees.

The tax-break has brought new business to Britain - there were more than 800 ships under the scheme at the last count.

My view is that the balance between trade promotion and investment was skewed too much in favour of inward investment
Graham Hand
British Consultants and Construction Bureau

But it has not generated the number of jobs expected. Just a third of the seafarers on these vessels are British - and the proportion is dropping fast.

Ministers are currently reviewing the tax - and the unions are demanding it should be linked to jobs for British seafarers.

Andrew Cahn, chief executive of UK Trade and Investment, the government department promoting and supporting foreign investment, says the policy is working.

"I believe we do get a return from inward investment," he says.

"What we get is new knowledge, new ways of working, new competitive approaches to doing work, British companies learning from the foreign company."

Flawed policy

But such is the current emphasis on inward investment that some British firms are beginning to feel abandoned.

Keith Negal, a former steel producer, says he got very little real support from the government when he needed help abroad.

Car plant
Critics say overseas investors are of scant benefit to the UK economy

A few years ago, Mr Negal took over a defunct steel company in Milford Haven, in Wales.

Before long he had a thriving small business with 20 staff, making and selling steel bar for the US market.

But then the business was hit by a 125% export tariff by the US government responding to pressure from the American steel industry.

"We closed the business down," he says. "We had no choice. By the 20th of March we had made everyone redundant and closed the business."

Graham Hand, chief executive of the British Consultants and Construction Bureau and a former British ambassador, says the government has got it wrong.

"My view is that the balance between trade promotion and investment was skewed too much in favour of inward investment," he says.

File on 4 has had access to research to measure whether it is better to spend money on promoting trade or attracting foreign investment.

Details of the study by Reading Business School suggests that the government has got it wrong.

The researchers pointed out profits made by British companies in the UK went into the UK economy - while profits made by foreign firms in the UK went abroad.

The rewards for companies choosing to invest in Britain do not only consist of grants, tax-breaks and high-level support.

Honours inducement

It has emerged that a number of foreign business figures have been honoured by the government for their contributions to the UK economy.

Norman Baker, MP for Lewes, said: "Honours are being given out to business people in the vain hope that this will somehow tie them in to the country and somehow lead to inward investment, and really whatever policies they want to pursue we seem to be happy to support."

But Mr Cahn denies that honours are ever given as inducements to firms to come to the UK, though he does say they can play a useful role.

More and more people, including the government's own policy advisors, are beginning to point out foreign business is not always best for Britain.

But so far it's not clear to what extent the government is listening.

Will next week's big policy announcement signal a change of direction?

File on 4: BBC Radio 4, Tuesday 11 July at 2000 BST, and repeated on Sunday 16 July at 1700 BST. Or listen online - see links on the right hand side of this page.

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