Andrew Carter: Lessons from 1980s on zones

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THE Chancellor’s Budget will shed more light on the coalition Government’s agenda for growth – and the 10 new enterprise zones that he intends to create. What can we learn from the 80s experience? And will they create the jobs and skills that cities need?

Earlier this month, Centre for Cities published a report on enterprise zones, What would Maggie do? Our research concluded that the zones of the 80s are not the right policy for today because they were too expensive – every job created cost the public purse the equivalent of £26,000 in today’s money over a 10-year period. They delivered relatively few new jobs. Part of the reason was that the past policy relocated many employees working in nearby areas because companies were attracted by the low business rates, but they did not create new jobs at the levels anticipated. Once the incentives were removed, companies left.

The Wakefield experience (for example the Langthwaite Business Park) shows that capital-based incentives triggered short-term private sector investment, but in the longer term, when the incentives stopped, the area suffered decline. In the 12 months to 2005, eight companies left Langthwaite and 400 jobs were lost.

The design of the zones also favoured development over jobs growth. We face a different challenge today as dereliction is less of an issue. We need more jobs and a targeted approach to up-skilling our workforce.

A tailored approach is needed – every zone should be able to select from a menu of policy options. What is right for Leeds will not necessarily work for Hull.

George Osborne has explained that his zones will be very different and will be established in areas of growth, not just decline. Firms will benefit from simpler planning rules which will make it easier for them to start up. The Government has allocated a budget of £100m, which will help to keep costs under control. In comparison, the overall cost of the zones in the 80s was £1bn.

The Chancellor’s announcement reflects the fact that he is not proposing a “cut and paste” approach. There is, however, further to go if the policy is to prove effective for today’s economy.

There is still a focus on property-based incentives such as business rate relocation, but we know that one of the major barriers to growth is lack of skills and low levels of enterprise. Osborne’s policy needs to support firms to grow and reward them for the jobs they create.

It is also important that planning changes in the zones will relax development controls sufficiently enough to really support growth in the areas that need it. Planning was simplified in the 80s zones, but it didn’t go far enough to kickstart growth by encouraging firms to start up.

There are also some practical measures that should be introduced. We recommended a single point of contact should be set up in every zone, responsible for the strategic management. This person would share information efficiently and effectively, and cut through red tape.

How can the experience of the 80s inform where these zones are likely to work best? If the Government wants to maximise jobs creation it may be better to locate the zones in more successful areas such as Leeds. In the 10 years from 1998, Leeds created over 25,000 new private sector jobs, so the city is well placed to take advantage.

Enterprise zones should be seen in the wider context of the Government’s growth agenda. We should not expect them to reinvent local economic fortunes because it is unlikely that they will.

However, with a tailored approach to policy, a focus on skills development and jobs creation, they can make a positive contribution to the cities they are based in.

Andrew Carter is director of policy and research at Centre for Cities.