This paper examines some of the key interrelationships between policies of urban renewal and processes of local economic development in Britain. The paper considers a crucial, yet curiously neglected, area of study, the direct distributive costs of urban regeneration strategies. We develop the argument that contemporary urban policy not only fails to address many of the strategic issues connected to the distributive consequences of policy, but is implicated in creating and extending socio-economic divisions in British cities. We illustrate, and develop, these themes by presenting a case study of urban regeneration in Cardiff, South Wales. In particular, we focus on how the regeneration plans of Cardiff Bay Development Corporation are altering the operational environment and conditions of small businesses in Cardiff's most important manufacturing area. The research supports an emerging literature which suggests that the development and delivery of urban policy is partial, divisive, and often insensitive to the needs of a range of local community groups.