Coalition pins hopes on inefficient, short-term and costly enterprise zones

Enterprise zones may - yet again - prove an expensive, short-term and inefficient system of business support, writes Left Foot Forward's Kevin Meagher.

The government recently announced the latest wave of enterprise zones, designed to kickstart growth and create 30,000 new private sector jobs by 2015. Eleven new zones were announced on Wednesday (following the eleven previously approved) with ministers urging areas that missed out to “remain ambitious” and “pursue their innovative ideas to foster local enterprise”.

These 22 enterprise zones are one part of the trinity of measures (along with the regional growth fund and local enterprise partnerships) the government hopes will make amends for scrapping the eight English regional development agencies and counter the yawning gap between the best and worst performing parts of the country by bolstering the private sector.

Enterprise zones work on the basis of providing a range of incentives including a 100% business rate discount (worth up to £275,000), for businesses that move into the zones between now and 2015; a promise of superfast broadband; and a “radically simplified” approach to planning.

In addition, future business rates will be shared by the local authorities in the LEP area to “support their economic priorities”. Intuitively, the premise of enterprise zones makes sense – providing a slug of economic impetus through a raft of business-friendly micro-measures focused on a specific area.

But their limited scale risks creating a doughnut effect with an oasis of economic growth and innovation amid an outer ring of more sluggish activity. Exactly how the government will stop a migration of companies currently outside the enterprise zones relocating inside them to reap the benefits remains a moot point.

The other major problem, highlighted in a report by The Work Foundation back in February, is whether enterprise zones make a sustainable, long-term difference. The report (pdf), entitled ‘Do Enterprise Zones Work?’, concluded they did “very little to promote lasting economic prosperity”, generating a short-term boom followed by a long-term reversal.

Typically, their value lasted for just three years.

The report’s authors, Andrew Sissons and Chris Brown, also found enterprise zones – a 1980s policy retread – are an expensive way of providing employment, while analysis from previous examples shows “up to 80% of the jobs they create are taken from other places”.

The Humber Waterside Enterprise Zone will be the largest in the country covering 375 hectares and will specialise in the offshore renewables industry and its supply chain.

Visiting the site, minister for decentralisation and cities, Greg Clark, said:

“This will be a leading force in Britain, not just within the region itself.

“I think the authorities and LEPs that are neighbouring will benefit from this and one of the messages I want to send to the LEP’s leadership is they should work closely with their neighbours to ensure everyone can benefit.”

Sounds reasonable enough, but the experience of local authorities working together is parlous enough.

Expecting local enterprise partnerships and enterprise zones – which by their very definition are in competition with neighbouring areas – to work together so that “everyone can benefit” runs counter to the government’s oft-stated aim of providing greater localism in the drive to generate economic growth.

Ensuring co-operation and a balanced approach is why regions – not a patchwork quilt of localities – remain the best spatial level at which to drive growth.

Announced, co-incidentally, on the same day that disappointing unemployment figures were released, the government no doubt hopes enterprise zones with their promise of a low tax regime and reduced regulation will provide a suitably dynamic backdrop to an otherwise gloomy economic outlook.

On the basis that “any port in a storm” is welcome respite, enterprise zones will at least stimulate growth in their narrowly defined areas. But in doing so they may – yet again – prove an expensive, short-term and inefficient system of business support.

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