Public Funding Should Mean Public Accountability

by Alan Simpson MP and Nicholas Hildyard

first published 2 February 1999


This "soapbox" written for Green Futures argues that companies seeking public money in the form of grants or subsidies should put forward proposals which can be subject to public scrutiny and accountability.


Consider this: if I wish to put a skylight in the roof of my house or (a little more ambitious) develop an industrial site on some land I've bought, I must first submit my proposals to public scrutiny by applying for planning permission. If enough people object to my plans, a public enquiry may be called and the plans widely discussed. I may win the enquiry outright - or I may be required to abide by certain restrictions or to submit a detailed environmental impact assessment for further discussion. What I cannot do, however, is to go ahead without first justifying the development to the public.

But if I seek - and receive - a grant from a public body, such as a Regional Development Board, to expand my factory or relocate it to another part of the country, I do not need to submit my proposals to the public at all. Once the grant has been approved - in a process that takes place well away from the public eye - there is no procedure that might allow the public to raise any questions about the grant before it is released. There is not even a legal requirement for the government or its agencies to reveal the amount of the subsidy awarded. To this day, no one knows for certain how much John Major's government doled out to Siemens, the German electronics giant, in development grants, infrastructure subsidies and the like for its semi-conductor plant on North Tyneside which the company closed in July 1998 - although a sum of £200 million would appear close to the mark.

This is not to argue that the UK's system of planning enquiries is without fault: far from it. It is to argue, however, that the system for awarding public subsidies to industry should be as open and accountable as the system for approving skylights in peoples' roofs. At the very least, there is surely a strong case for developers who receive public funds being required to submit "socio-economic impact assessments" which would be open to public challenge in the same way as environmental impact assessments and planning submissions are. There is also a case for building "stakeholder obligations" into any subsidy: if public money is invested, why should this not give the public a stakeholding?

Such assessments might go a long way to ensuring that public money is used for the genuine long-term benefit of local communities rather than for meeting the strategic needs of fly-by-night industries or fuelling speculative investment. Siemens's semi-conductor plant, for example, was supposed to bring 2,000 new jobs to the North-West. Its closure, following the collapse of the worldwide semi-conductor market, means that the £200 million, which might otherwise have been spent on creating or securing other jobs in the region, has effectively gone down the tube. Many now believe that the company grossly miscalculated the viability of its product in the world semi-conductor market. Had a socio-economic impact assessment been required, enabling critical voices to cross-examine the company's projected business plans, such flaws might well have been revealed - and public money saved rather than squandered.

Were companies and grant-making bodies required to consider alternative uses to which proposed subsidies might be put, the public might be better placed to assess the relative security of any new jobs to be created and to press for investment in jobs that best suit the local economy. Under the last Conservative government, for example, the Welsh Office spent £247 million - or £40,000 per job - attracting South Korea's computer components company Lucky Goldstar to the valleys. There is little doubt that the same money could have been used to create far more jobs if it had been spent on less capital intensive employment. Moreover, unlike the jobs at Lucky Goldstar (which is now considering the closure of its factory), they might well have been more secure and better paid. A socio-economic impact assessment would allow proper public debate of such alternatives.

Opening up publicly-funded investment to tighter public scrutiny and accountability might also help put an end to the "beggar-my-neighbour" competition amongst Regional Development Boards to attract inward investment. Cases abound of one regional authority diverting jobs from other regions by offering higher subsidies. According to one estimate, some 10,000 jobs have been lured away from the North-East by the Welsh and Scottish authorities offering higher grants to investing companies. Making the "bidding" process more public would not only make it more difficult for companies to play one authority off against another: it would also reveal the extent of a company's commitment to a given region. A company whose preferred location simply reflects the amount of subsidy on offer may well be prove less acceptable to the public than a company that chooses its location first and foremost because it has roots in a given area or because it wants to establish such roots.

Finally, a more open and accountable process would allow the public greater input in attaching conditions to publicly-funded investment. At present, few such conditions exist, particularly for inward foreign investment. Indeed, as the Siemens saga reveals, Britain is as "easy to exit as it is to enter". Requiring public authorities to disclose the conditions on which grants are awarded - and to provide for public comment - would provide the public with the possibility (at present denied) of pressing for conditions that would enhance the accountability of companies to local people - for instance, paying back subsidies if the company pulls out within a certain period of time.

Companies may argue that submitting their proposal to such public scrutiny would add to their costs and reveal too much to their competitors. But is it really acceptable for the public to have less say over the handling of millions of pounds of its money than over the placing of a skylight in a neighbours roof?