In the zone? Have enterprise zones delivered the jobs they promised?

This briefing examines the limited economic benefit that enterprise zones have had. five years on from their establishment

Briefing published on 11 July 2019 by Paul Swinney

Introduction

The 2011 Budget delivered a blast from the past, with the then Chancellor George Osborne announcing a new round of enterprise zones to follow the use of the policy by the Thatcher and Major governments in the 1980s and 1990s. In total, 24 new zones were announced, and they subsequently became operational in 2012.

The context for the creation of this new round of zones differed to that for their predecessors. In the first round, the areas chosen tended to be sites of economic weakness and physical decay. The aim was to both revitalise these derelict areas and encourage economic growth. The difference this time was that the focus was on reducing the burdens on the private sector so that it could deliver economic growth and job creation in response to the impact of the global financial crisis.

There are two ways in which the zones aim to improve the economic outlook of an area.

  • Direct tax incentives such as business rate discounts and capital allowances as well as easier planning permissions are designed to make an area more attractive to business investment.
  • The option for Local Enterprise Partnerships (LEPs) to borrow against future business rate growth allows them to invest in infrastructure to bring about the redevelopment of an area.

This paper establishes how well the current round of enterprise zones has performed five years after their inception.

Jobs change in enterprise zones, by selected sectors, 2012-2017

Findings

As with the original round of enterprise zones, the number of jobs created in the first
five years of the existing round of zones has underperformed expectations:
• By 2017, the total new jobs were only around one-quarter of the estimates
produced by the Treasury in 2011.
• At least one-third of the jobs created have come as a result of the move of
businesses from elsewhere, rather than the creation of new posts in new
businesses.
• The nature of the jobs created has also been overwhelmingly low skilled,
meaning that the zones have done little to attract in higher-skilled
economic activity that would help to change the economic make-up of the
economies into which they have been placed.

Even if the goal had been to redistribute jobs, rather than grow the total number of
them, then the zones have struggled on this measure.

On a more positive note, the more flexible planning rules within zones, and the
opportunity to use TIF, allowing local government to borrow against the future increase
in business rates as a result of investment today, does seem to have brought benefit,
particularly in Birmingham city centre’s ongoing redevelopment.

Breakdown of ‘new’ jobs in enterprise zones in 2017 by origin of business

Conclusion

These findings should lead to greater caution over the creation of enterprise zones
or any other area-based initiative, such as the free ports that have been suggested
after the UK leaves the EU. Zones offering tax incentives or tariff reductions to
relocate are likely to move activity around the locality or in from elsewhere in the
country, rather than create a new activity. And they are unlikely to attract in higher-skilled
jobs that would change the fortunes of an economy.

Instead, those places that have struggled to attract higher-skilled businesses
into their economies should address the barriers as to why this is the case. The
availability of skilled workers is likely to be a key reason. A high-skilled business is
going to invest in a place where it can employ the workers it needs, and areas that
can not offer this benefit should focus primarily on improving skills.

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