Spending on support for industry will be cut by up to £80 million in the West Midlands next year.
Ministers have ordered Advantage West Midlands, the Regional Development Agency, to draw up plans to reduce spending by anything between 20 per cent and 50 per cent in the 2011-2012 financial year.
It means the agency could lose up to half its £160 million budget, which is used to provide training, reclaim unused brownfield land and attract inward investment.
AWM is due to be scrapped and replaced by a series of Local Enterprise Partnerships, led by councils and business organisations, but these will not be operational until April 2012. The existing agency will continue to be responsible for supporting industry until then – but with a dramatically reduced budget.
Ministers will reveal how exactly how much is to be cut following the comprehensive spending review on October 22.
It comes on top of a budget reduction of £40 million which was imposed in the current financial year.
AWM has already called a halt on funding for new projects and is dedicating its resources instead to trying to meet commitments it has already made.
Giving evidence to the Commons Business, Innovation and Skills Committee, Sir Roy McNulty, the agency’s chairman, said: “We are almost completely out of doing any new projects. We have quite a wide range of commitments that need to be met. Projects that need to be completed. But we are out of the development game.”
MP Robert Flello (Lab Stoke South) said businesses were already feeling the effects.
He told the House of Commons: “I was approached by a company that wanted to establish a mug-making business. That company was promised a grant of £250,000 from AWM, but that grant has now been cut. The project is now in jeopardy; the nine-month order book that the company had already managed to accumulate is now in jeopardy, as are the 50-plus jobs planned.”
A Department for Business spokesperson said: “Regional Development Agencies were asked to make savings earlier this year in their budget for 2010-11. All RDAs have been planning their spend on that basis. RDA budgets for future years will be decided in the spending review.”
Labour MP Jack Dromey (Erdington) said: “The Midlands now faces two years of chaos at he worst possible time for the regional economy. World-class expertise is being lost and huge cuts will be made.
“There will be no more help for businesses starting up, expanding or indeed struggling to survive.”