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Dr Neil Lee
Head of the socio-economic centre
T 020 7976 3611
Dr Neil Lee

Rebalancing sectorally, but not spatially

Authors: Dr Neil Lee Neil Lee

23 March 2011


This was supposed to be about rebalancing – moving the economy from services to manufacturing, away from reliance on London and the South East and from the public to private sector. And in terms of enterprise, there were a raft of measures – supporting science, Research and Development and removing regulation.


All of this should be beneficial at the national level – but there was relatively little in the Budget for the regions. The chancellor set out a statistic – which we highlighted in a report last year – that the West Midlands actually lost private sector jobs in the decade to 2008.  The Chancellor may have grasped the problem, but he offered precious little to solve it. He rightly emphasised that the UK needs to move beyond the City, and become a global leader in Advanced Manufacturing, Life Science, the Creative Industries and so on, but he failed how this could benefit all parts of the UK in practice.


The flagship policy – Enterprise Zones – was announced as expected. Rather than 10 zones, we will have 21. Firms will get a 100% discount on business rates (or at least ‘up to’), superfast broadband, capital allowances and radically reduced planning.


The problem, as we set out in our report Do enterprise zones work? is that they rarely do. Zones like that are good at shuffling jobs around, we estimate that around 80% of jobs move into the zones from elsewhere. This means that the net job creation is very expensive. And capital allowances are the big problem – it’s these which cause the displacement effect, as they can be straight subsidies for new developments to be built nearby.


There’s a question about their location, as well. The chancellor announced they would be created in places where there is great need but potential to grow. The problem is that these two are generally mutually exclusive. So they’ll focus on either/or, but probably not both.


The second area is transport investments. These will be a good thing, although we haven’t seen the costs. One of the key problems in many Northern conurbations is the lack of transport connections, which mean they work functionally less well than the Greater South East.


The third is the planning system. This has – as academics such as Tim Leunig have been persuasively arguing – been a barrier on growth. Recalibrating the planning system in favour of economic growth will help in areas where there is growth to be accommodated, but its not going to create growth in itself. And the move to keep the green belts in place seems to run against the grain of the proposed planning reforms anyway.


So while we welcome what the Chancellor had to offer on enterprise, science and R&D, it all tended to be Southern focused; Much of the science funding will go to places like Oxford and Cambridge, rather than Sunderland and Stoke. The Budget has a lot in it to support sectoral rebalancing – much of which we welcome -  but don’t expect it to make much of a dent in regional disparities.