Vince Cable’s plan to reintroduce eighties-style Enterprise Zones as part of the government’s growth review is unlikely to be effective in stimulating economic growth, two separate reports have said.
The reports by thinktanks Centre for Cities and the Work Foundation both conclude that the Enterprise Zone measures mooted by the business secretary are unlikely to be effective in stimulating growth in depressed areas of the country.
The Work Foundation report says that Enterprise Zones, through tax breaks and other localised incentives, may stimulate rapid investment in the short-term, this “typically lasts no more than three years before the area begins a long-term reversal back into depression”.
The report also says that around 80% of the jobs created in the Enterprise Zones are displaced from elsewhere.
Andrew Sissons, Work Foundation researcher, said areas that had Enterprise Zones in the eighties, such as Middlesbrough, Speke, Hartlepool, and Swansea, were still struggling today.
“Looking at Enterprise Zones created in the 1980s, thee are serious doubts about the wisdom of bringing the policy back. Any attempt to redesign the Enterprise Zones for the 21st century is likely to be equally ineffective,” he said.
The Centre for Cities report also argues that the incentives used to encourage business growth and relocation in Enterprise Zones, such as business rate relief or capital-based spending and allowances, were too costly for the public purse, with the cost per additional job created equivalent to £26,000 in today’s terms.
Alexandra Jones, Centre for Cities chief executive, said the Enterprise Zones also tended to stimulate physical regeneration in derelict areas, when what is needed now is private sector jobs growth.
“It’s vital that the coalition learns the lesson of the eighties. Our evidence shows that 1980s-style Enterprise Zones did not deliver jobs or skills development on the scale that is needed today. A new approach to area growth is required,” she said.
Ms Jones said the government should instead develop local growth zones, which would provide a “menu” of employment growth incentives.
She said these measures could include National Insurance Contribution rebates for additional jobs created; tax incentives for skills support; priority processing or the government’s Business Growth Fund; access for local areas to corporation tax uplift; and the creation of rapid planning zones to ensure the planning system prioritises growth.
She said local zones recognised that “delivering real economic growth through jobs and skills creation cannot be achieved using a centralised approach”. “What is right for one local economy will not work for another,” she said.
LGC understands that Mr Cable is still committed to the idea of including Enterprise Zones within the growth review, with there likely to be several pilots announced in next month’s budget. As revealed last week, Mr Cable is pushing for these measures to be included alongside plans for ‘land auctions’.
However, the latter is being opposed by communties secretary Eric Pickles, who sees it as a form of “nationalising land”.