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The British public will never reach a consensus about the legacy of Baroness Thatcher’s economic policies, but one thing we can do is learn from the successes and failures of her time at Number 10.
Just two days before Lady Thatcher’s funeral, the Financial Times reported that the recently-established Enterprise Zones (EZs) are failing to create jobs. Whilst the current incarnation of EZs only began in 2011, they largely mimic the original version of the policy introduced by the Thatcher government in 1980.
So should we be surprised that the current EZs are failing to create jobs? Not really. As our report ‘What would Maggie do?’ published in 2011 showed, the 1980’s versions didn’t deliver a high number of additional new jobs either. The first two rounds of the EZs created 58,000 additional jobs (directly and indirectly), but over 40 per cent of those jobs were created by businesses that had relocated to enjoy the tax cuts. This means the total net employment benefits of the EZs were relatively small, and they were expensive as well. On average, one additional job in the EZs cost the public purse £26,000 (in 2010-11 prices), which was significantly more expensive than other policies of the time.
In the report we suggested that the reasons for the relatively poor employment generation within the Zones included mismatch between this target and the incentives that focused on boosting capital investment. Locations of the Zones were also a factor – a number were established in areas with poor economic potential.
Are the modern EZs any better than their predecessors? Some of the lessons from the old EZs were taken on board by the Coalition Government. For example, most of the new EZs (but not all) are located in urban areas with reasonable growth potential. But capital allowances have only been provided in Zones with explicit manufacturing focus; and the benefits only apply to businesses that expand into the Zone, which should reduce the number of relocations.
So far, many of the new EZs don’t have much to brag about. Some Zones are starting to attract investors, but some have hardly changed since getting EZ status. However, it would be naïve to expect that areas, some of which are derelict and empty while others are run-down city neighbourhoods, would be economically transformed within a year.
As the chart below shows, the 1980s EZs demonstrated that employment creation tends to peak several years later, after the incentives kick in. New EZs require investment in infrastructure and premises before they can accommodate business growth, which takes time. It is simply too early to judge the effectiveness of the new EZs.
In the FT article a spokesman for the Leeds LEP expresses a concern that the new EZs “could fail to replicate the success of those of the 1980s”. For the current EZs to be classed as a success they’ll have to do considerably more than replicate the ‘successes’ of the 1980s EZs. Only time will tell.
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