Opportunity knocks for the new breed of enterprise zones

While doubt remains over the new zones' effectiveness, lessons seem to have been learned from the 1980s versions, argues Paul Greenhalgh.

East London's Royal Docks: Designated an enterprise zone
East London's Royal Docks: Designated an enterprise zone

Enterprise zones were first introduced in the UK in 1980 and their influence, and the distortion they create in local property markets, is well recognised and has been long lived. There is a wealth of literature both from the UK and US about their strengths, such as encouraging capital investment in locations that might otherwise receive little attention, and weaknesses, for example displacing existing occupiers and offering poor value for money.

Scrutinising the Enterprise Zone Prospectus, published by the Department for Communities and Local Government shortly after the chancellor announced the Government's intention to introduce up to 21 new versions of these zones in England, it is evident that policy-makers are aware of the flaws and side effects of the old model.

The drivers for reintroducing the zones are the Government's desire to be seen to be reducing barriers to business, such as with planning reform, and the pro-growth agenda being promoted by the chancellor. The Government claims to be interested in "creating growth conditions" by backing areas with "real potential" and "genuine economic opportunity".

On the planning front, the Government appears keen to encourage the use of local development orders to simplify and fast-track certain types of development within the zones. This move is similar to the simplified planning zones of the 1980s, a status that was incorporated into the old enterprise zone model.

Planning authorities are also being encouraged to extend the simplified planning framework beyond the boundaries of the new enterprise zones. These fuzzy frontiers may diminish some of the boundary issues associated with the old zones, although it is unlikely to prevent firms "boundary hopping" as only those within the zones will benefit from any business rate exemption.

The new breed of zones will be led by the local enterprise partnerships (LEPs), with the exact locations of four of the 11 "vanguard" zones already having been designated.

LEPs are expected to define and agree the "sectoral focus" for each zone, although quite how they will identify and enforce these is unclear. The potential to use planning use classes and restrictive covenants to control the type of development and occupation would also seem to contradict the Government's wish for red-tape-free planning.

One lesson from the old zones is that those with poor infrastructure tended to underperform. But where will the capital funding to boost infrastructure come from during this period of austerity? The Government would like to see the use of Tax Increment Financing, which allows borrowing against expected future tax revenue, in enterprise zones. New zones could also be aligned or overlapped with Regional Growth Fund projects and European Regional Development Fund qualifying areas to fund infrastructure.

The big question about the new breed of enterprise zone is whether the package of incentives will be enough to make a difference. Some in the business community believe that the offer is decidedly modest and may make little difference to most firms. The proposed new zones are certainly a "lite" version of their forebears, with half their lifespan, reduced availability of capital funding for infrastructure and no significant capital allowances. This may not necessarily be a bad thing as there were manifest problems with the old style of zones.

A few commentators have suggested that new enterprise zone status may be worth only around £2 million over a zone's lifetime. But if a zone succeeds in attracting investment and occupiers, then the value of extra business rates revenue over 25 years will be considerable.

However, uncertainty will surround the new zones for some time, not least because some of the legislation required to make them happen still has to pass through Parliament.

Dr Paul Greenhalgh is reader in property economics at the school of the built and natural environment at Northumbria University and a member of the Royal Town Planning Institute's regeneration network. A fuller version of this article can be found on the new "enterprise" topic page available via www.rtpi.org.uk/networks.

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