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Why not turn the whole of the UK into an Enterprise Zone?

Authors: Andrew Sissons Andrew Sissons

21 March 2011

There’s a new twist in the Enterprise Zones saga - the Chancellor is reportedly increasing the number of zones from 10 to 20. With the £100 million in funding now apparently spread over four years and 20 zones, each Enterprise Zone will be funded to the tune of just £1.25 million per year. That might sound like a rather paltry sum in the context of the government’s austerity programme, but it’s actually the best thing that could happen to the Enterprise Zones policy, short of them being scrapped altogether.

Enterprise Zones are an incoherent policy lever, that can be attacked from both left and right of the political divide. On the one hand, Enterprise Zones deliberately distort a free market, bribing businesses to move into one location over others. The government has rejected the notion of “picking winners” among firms, and yet Enterprise Zones do exactly this, only with small parcels of land instead of companies.

At the same time, Enterprise Zones are often ineffective at promoting lasting growth within towns and cities – temporary subsidies do very little to make places more attractive to businesses in the long term. In fact, they may end up weakening the places that they are supposed to benefit, by moving productive resources out of strong business locations, and into less competitive locations.

Once you add the fact that Enterprise Zones are incredibly expensive (we estimated they cost £50,000 per job at today’s prices in the 1980s), the case against them becomes hard to refute.

Fortunately, all of these problems are entirely avoidable, because they are all caused by tax breaks. Enterprise Zones don’t need to be about subsidies and tax breaks – instead, they can focus on creating the right environment for businesses to thrive. And with government funding apparently spread so thinly across the 20 zones, it looks unlikely that the tax breaks seen in the 1980s will return.

So how can Enterprise Zones stimulate growth, and help to share it more evenly around the country? First and foremost, they can act as a focal point for everything that our towns and cities do well. If they can get councils, universities, businesses and Local Enterprise Partnerships coming together to promote growth, Enterprise Zones can help to drive the economy at limited cost to the Exchequer.

Second, the new Enterprise Zones must not be fixated on property development – this is a broken economic model that led us into recession. The re-birth of the UK economy must be based on businesses being more productive, and coming up with new ideas. The new Enterprise Zones must give businesses the things they need to be successful, not just shiny new offices.

But most important of all, Enterprise Zones must help to remove the barriers businesses face. This means offering a more flexible and responsive planning system, offering a clear point of contact that businesses can go to for advice and support, and linking businesses with apprenticeship schemes. The truth is, the whole UK should be an Enterprise Zone – a place where good businesses can grow and prosper. Doubling the number of zones helps us to move towards this ideal, but it is no substitute for a proper UK-wide growth strategy.