Have enterprise zones delivered the growth that was promised?

Enterprise Zones were hailed as a way to spur growth in economically starved areas.

by Stephen Jones
Last Updated: 25 Nov 2019

On 23 March 2011, the then chancellor George Osborne took to his feet in the House of Commons and announced: "Britain has a plan." That plan, which came in the form of the annual spring budget, included proposals to abolish more than 40 different tax reliefs, consult on merging the operation of national insurance and income tax and, in a throwback to a Thatcher-era scheme to encourage economic growth, fund more than 20 new Enterprise Zones (EZs).

The logic for EZs was that giving businesses in a specified area access to superfast broadband, less rigid planning regulations and up to 100 per cent tax breaks, as well as allowing the local enterprise partnership to borrow against prospective business rates, would encourage development and spur growth in economically starved areas.

At the time, the Treasury predicted the scheme, which saw 24 zones launched in 2012 (with 24 more in 2016 and 2017), would create as many as 54,000 private-sector jobs by 2015. Research by think-tank Centre for Cities, however, suggests this is wide of the mark.

Government figures reveal that between April 2012 and December 2016, the EZ programme "attracted" 38,000 jobs. However, Centre for Cities puts the figure for the original 24 zones at a much more sober 13,500 between 2012 and 2017.

 Management Today spoke to Paul Swinney, director of policy and research at Centre for Cities, to find out whether he believes the EZ policy is achieving its aims.

Why do you think EZs have failed to offer the jobs they promised?

"It’s not dissimilar to the results we saw from the first wave of EZs under Margaret Thatcher. Even though jobs are created, we tend to see a lot of job displacement going on.

"With regard to tax breaks, another issue is the types of businesses that are attracted to EZs. Generally, high-skill businesses are willing to pay a premium to access the network and talent that a certain location offers. Companies that are worried about squeezing their costs tend to offer low-skilled jobs and will, therefore, look for the cheapest place in which to operate."

Have all EZs underperformed as far as job generation is concerned?

"City-centre EZs tend to do better than those elsewhere. Perhaps the locations chosen for some zones weren’t ideal – maybe they were driven by political reasons rather than what private-sector businesses were looking for. And the rate of job growth in city-centre zones is exactly the same as it is in city centres generally so it might have happened anyway."

Is there a problem with the policy in general? 

"We look at jobs as the measure because that’s how the Treasury defined success when it announced the policy. There are elements that bring broader benefits, however, particularly the ability to use tax-increment financing, which allows areas to borrow against future growth to invest today.

"However, if the challenge of EZs is to bring new economic activity into areas that are struggling, then, as a policy, it isn’t really shifting the structure of the economy. If you have an area with a weak economy, it’s because that location has lots of low-paid and low-skilled jobs.

"The EZ policy reinforces that and we continue to see low wages, low levels of career progression and high levels of benefit dependency in those areas.

What does this mean for any similar initiatives?

"I think the EZ experience offers quite a strong warning for other tax-incentive policies, for example, free ports. They are likely to work in exactly the same way by offering a tax break. 

"This means they will attract low-skill businesses, which are not going to improve the types of opportunities available.

"This is something we see in all sorts of economic development policies. There’s a huge incentive to put forward big figures in terms of jobs created because that helps to sell a policy – but nobody ever goes back to check."

What alternatives would you propose?

"The first is a greater focus on skills. That isn’t an area-based initiative but one that focuses more on how we can improve levels of education in lower-ranking places and improve the performance of schools. 

"The second is to look at the performance of city centres, identifying where they are not performing well and why they’re not attracting highly paid jobs. Increasingly, companies that offer high-paying jobs want to locate in city centres, so how can we intervene to make such places more attractive for business overall?

"To do that, we would ask the government to create a City Centres Investment Fund of around £5bn. That money could come from the National Productivity Infrastructure Fund. Given that some city centres are playing a larger role in the national economy, we should be focusing on them rather than something gimmicky like an EZ or a free port."

Image credit: Dan Kitwood / Staff

 

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