Financial incentives for foreign investors fail to help local firms

The Government’s claim that financial incentives to lure foreign multinationals to the UK have a knock-on effect on local industries has been dashed by University of Nottingham economists. A report by the the Centre for Research on Globalisation and Labour Markets found that foreign-owned manufacturers drawn to the UK by financial incentives are not passing […]

The Government’s claim that financial incentives to lure foreign multinationals to the UK have a knock-on effect on local industries has been dashed by University of Nottingham economists.

A report by the the Centre for Research on Globalisation and Labour Markets found that foreign-owned manufacturers drawn to the UK by financial incentives are not passing on their superior efficiency and productivity to local industries.

This raises doubts over the logic of offering multinationals substantial tax and financial assistance, such as the $30,000 (£18,450) per employee to attract the South Korean firm Samsung to invest and the equivalent of $50,000 (£30,760) per employee to attract Siemens, both in the north east.

The study found that there is no higher wage or productivity spillover from multinationals into the surrounding economy, and that local firms do not bridge technology gaps with their new neighbours.

Foreign-owned firms paid their employees better wages than local firms – the greatest pay and productivity disparity is with US firms and the least with Japanese.

A spokesman for north-east regional development agency OneNorthEast said the 250 foreign companies in the area, which had a combined turnover of over £3bn, were at the heart of the region’s prosperity.

He said: `Nissan’s decision to spearhead its European operations in the region must be seen as a landmark in the north east’s industrial revival.’

* See leader comment, p10