You might think Mansfield in Nottinghamshire is just the sort of place George Osborne should nominate as one of his new enterprise zones — the chancellor’s £100m flagship policy to boost economic growth.
Joblessness in the former mining town doubled during the recession and today remains at nearly twice the national average.
So, here’s the grim irony. Mansfield was home to one of the original enterprise zones a generation ago and there is little evidence that the policy transformed it into a hotbed of business creation. In fact, about a quarter of Mansfield’s workers remain employed in the public sector.
A recent study by Experian, the financial analyst, found that the coalition’s austerity cuts will hit the Midlands town the second hardest of any local authority area in the country. Only Middlesbrough was more vulnerable, the research found.
Back in the 1980s and 1990s, 38 areas across Britain were awarded this status, which encouraged business investment in depressed urban areas by offering a blend of tax breaks, lighter regulation and faster planning decisions.
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There were successes. The old docks on the Isle of Dogs in east London were transformed into one of the world’s leading financial centres. The area’s status as an enterprise zone has been credited with sparking the Canary Wharf building boom that created the tower blocks that now house many of the world’s most powerful investment banks.
There was no such boom in Mansfield. The initial enterprise zone was created by building an industrial estate on the site of the Crown Farm colliery. Today the estate is home to about two dozen businesses, including Foxdale Engineering, which specialises in fabricating sheet metal.
“The tax breaks encouraged a lot of building but a lot of the sites remained empty for a long time after they were built,” said Mick Bird, director of Foxdale.
A large part of the site remains undeveloped and a recent report by the local council admits sadly: “Crown Farm has taken a long time to see significant take-up despite enterprise zone status in the early years.”
Sceptics even cast doubt on how much of a helping hand enterprise zone status gave the Isle of Dogs. By the time this status expired in 1993, about 7,000 people worked around Canary Wharf. Today the figure is 90,000.
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More important to the Isle of Dogs’ metamorphosis was the building of the £90m Docklands Light Railway, which provided a quick connection to the City.
There are plenty of reasons to doubt the success of the initial enterprise zones and whether a second generation can work.First, does this policy create jobs or simply shift workers and investment from other areas?
The Work Foundation, the independent, not-for-profit organisation, has calculated that of the 63,000 jobs created in the first wave of enterprise zones, only 13,000 were essentially new. About 86% of the companies that set up in these areas moved from the same county and 25% of the jobs that moved into these sites came from elsewhere in the same town.
Second, the first generation of enterprise zones created employment at a heavy price.Centre for Cities, a think tank, estimates that the average cost per additional job created in an enterprise zone was £17,000 in 1994-95 prices — or £26,000 in today’s money.
The think tank also calculates that the exchequer waived about £1 billion (£1.3 billion at today’s prices) in business rates and capital allowance under the scheme between 1981 and 2003.
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Such numbers put into context the chancellor’s plan to spend just £100m across 10 new enterprise zones.
Third, these areas may provide a short-term boom but, when their status expires, growth can stall. The number of jobs in Newcastle’s enterprise zone expanded by about 1% between 1984 and 1991, but fell by 6.5% between 1998 and 2008.
However, there are reasons to suggest that this 1980s revival will deliver more for the economic recovery than a Chas and Dave comeback tour.
Alexandra Jones, chief executive of Centre for Cities, maintains that it is vital that the second generation of enterprise zones offer a mcuh more diverse range of incentives.
Those introduced under the Thatcher and Major governments offered relief on local business rates, capital expenditure subsidies and a reduction in corporation tax and national insurance rates.
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Other perks included tax credits or capital gains allowances on investment in capital assets and premises, plus a fast-track planning system.
“We would prefer to see local growth zones — larger areas where local councils can pick from a menu of incentives that would most help them create jobs in their area,” said Jones.
Such options could include national insurance rebates for additional jobs created and free patent advice. Local authorities could also be allowed to share some of the windfall from rising corporation tax if an area attracted new businesses.
To improve the skills of workers, Jones suggests enterprise zones could offer tax rebates of 75% on the cost of training new staff and 50% for existing staff.
“For enterprise zones to be an effective part of the coalition’s agenda to deliver growth, reduce the budget deficit and improve opportunities of people living in distressed urban areas, the 1980s approach should be radically updated,” Jones said.
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“New policies should focus on increasing employment, supporting firms to grow, filling skills gaps and reducing planning restrictions — all at a lower cost than the expensive initial enterprise zones.”
Enterprise zones may be the centrepiece of the government’s plan to help the economy grow, but a range of other policies will be unveiled in the budget and a growth review published alongside it on March 23. The two main planks of the review will be an overhaul of the planning system in England and Wales and a series of measures to lighten business regulations.
Separately, The Sunday Times understands that the national insurance contributions (Nics) holiday for start-ups introduced last September is set to be expanded as part of the growth review.
At present, new businesses set up outside London, southeast and east England do not have to pay employers’ Nics of up to £5,000 on the first 10 employees they hire in their first year of trading — a potential saving of up to £50,000.
The Treasury has so far been disappointed with the uptake and is looking at ways to widen it.
Another policy designed to boost growth in urban areas, and new to Britain, will allow councils to borrow money to build roads, rail routes and other business-friendly infrastructure.
Already common in America, tax increment financing schemes allow local authorities to borrow money to build such projects on the assumption that they will attract new companies and thereby increase the council’s income from business rates.
The policy is not without its critics in America, but dozens of councils including Newcastle, Birmingham, Leeds and Sheffield are ready to launch these projects once the chancellor gives the go-ahead.
Job creation at a price
The Isle of Dogs, one of the most prominent of Margaret Thatcher’s enterprise zones, was reborn in the late 1980s and early 1990s — but at a heavy cost to the taxpayer.
In 1982, when 200 hectares of the docklands area in east London was designated an enterprise zone, unemployment was at 50%. Public transport for the population of 15,500 was limited to a single bus route and 95% of the housing was rented.
A little over a decade later, an area plagued by abandoned quays and derelict warehouses had become a mecca for investment bankers, complete with London’s answer to Wall Street’s skyscrapers. The total amount of public money poured into the site has been estimated at £3.9 billion.
Centre for Cities estimates that every £1m of public sector investment created just 23 jobs, 8,500 sq ft of office space and 7.8 units of housing. However, the cost to the taxpayer was dwarfed by private sector investment — estimated at about £8.7 billion.
Job creation in the area continued to expand once enterprise zone status had expired, picking up from 29.8% between 1984 and 1991 to 65.6% between 1998 and 2008.