Nick Clegg's announcement that 37,000 new jobs will be created by using £1bn from the regional growth fund may be over-optimistic, a leading economist tells Channel 4 News.
Professor Henry Overman, from the London School of Economics, said the government's figures suggested each new job would cost just £4,700, which seemed low.
He was referring to Deputy Prime Minister Nick Clegg's announcement that nearly £1bn of public money from the regional growth fund (RGF) will be used to create 37,000 jobs, with a further 164,000 following in the supply chain. He said that for every £1 the government spent, the private sector would invest at least £5.
Prof Overman told Channel 4 News: "The crucial thing is trying to figure out whether or not these are genuinely additional jobs - jobs that would not have existed in the absence of this money."
In his blog, Prof Overman said with the details released by the government, "it is impossible to provide any analysis of whether it will achieve this on the basis of the list of schemes agreed".
Cost per job
He said if the plan created as many additional jobs as the government claimed, the cost per job would be £4,700. "The crude way of looking at this is people tend to work out the cost per job. That number looks low relative to some studies," he told Channel 4 News.
There are a number of reasons to think that these figures may be optimistic. Professor Henry Overman, LSE
Prof Overman added in his blog: "There are a number of reasons to think that these figures may be optimistic. First, with incomplete monitoring, it is highly likely some of the 'leveraged' private sector funds ('£5 for every £1 of public money') would have been spent anyhow. "To the extent that monitoring is imperfect, the RGF will only create additional jobs if it is being given to organsations that are credit constrained."
Prof Overman said research he and colleagues had carried out "suggests that this may only be true for smaller firms". This was likely to be because "larger firms are better able to game the system (so monitoring is not as good) and are less likely to be genuinely credit constrained".
'Reasons to be cautious'
Prof Overman said there were " further reasons to be cautious" on growth. While government money appeared to increase employment and investment, it did not boost productivity - and companies receiving taxpayer support were less productive than other firms. He warned that "increasing the employment share of less productive firms may not be a good long-run strategy for driving growth".
Speaking in Rotherham, Mr Clegg said: "I am delighted to be able to announce this boost to business, which will jump-start growth and create jobs that last in the places that really need it. This targeted support for businesses across the country allows them to expand and create jobs."
I passionately believe that the global economy is presenting us with opportunities, not threats. Prime Minister David Cameron
Prime Minister David Cameron promised an "all-out mission" to support infrastructure projects. He said he had given the go-ahead for two power plants in the north of England - at Ferrybridge in West Yorkshire and Thorpe Marsh in South Yorkshire - which will create 1,000 construction jobs. He also welcomed news that BT will complete its roll-out of superfast broadband by 2014, generating work for 500 more engineers.
Writing in the Financial Times, Mr Cameron said the eurozone crisis was having a "chilling effect" on global growth. But he argued that pessimism and fear "can become self-fulfilling prophecies".
Mr Cameron said: "In spite of the difficulties, I am confident that we can both resolve the crises at hand and come through them with an economy that is stronger and fundamentally fairer. I passionately believe that the global economy is presenting us with opportunities, not threats - and we must seize them."
Among the projects supported by the regional growth fund are: research by Crewe-based Bentley into new engines and the development of new kilns by Staffordshire-based Ceram Research Ltd for use in the ceramics industry.