24/03/2011

By Max Clarke

Overview

Announced by Chancellor George Osborne at a speech in Cardiff at the end of February earlier this year, Enterprise Zones have been formally introduced in the 2011 Budget.

The zones, each covering a targeted area of below average employment and economic activity, will actively foster an environment of enterprise through various perks and incentives offered by government, acting as a catalyst for the economic development of the areas within the zones, an in turn for the surrounding region.

The proposals have variously been hailed by some as a much needed injection of capital into depressed areas in order to stimulate much needed business and economic growth, and by others as a criminal waste of money and an unnecessary revisit of a Thatcherite policy that has been shown to be ineffectual.

Championing the assault on the scheme is William Chase, entrepreneur and founder of Chase Vodka and Tyrrels’ crisps:
Said Chase: “The Thatcher Government wasted huge amounts of cash on Enterprise Zones in the 80’s. They didn’t work then and I don’t see any reason why they should work now.”

Furthermore, each job created by the enterprise zones could cost £50,000, calculated the Work Foundation, and that jobs ‘created’ within the zones will simply be displaced from nearby areas.

Perhaps the greatest success story for Thatcher’s enterprise zones lies in the transformation of Canary Wharf in Tower Hamlets, London. In the early 1980s the wharf was derelict and jobs non-existent; but following it’s granting of Enterprise Zone status in 1982, the area was catapulted into the global economy and within a decade had become home to towering glass skyscrapers filled with leading financiers, while the once derelict warehouses lining it’s waters became million-pound waterfront residences.

The undeniable successes of Canary Wharf have, some argue, little to do with enterprise zones. According to the Work Foundation there were only 7,000 people employed in Canary Wharf at the time the enterprise zone expired — compared with 90,000 today. The key to success, it says, was investment in infrastructure, notably the Docklands Light Railway, and not the enterprise zone.

The scheme has also been praised[/u], with pudding mogul and Gu desserts founder, James Averdieck, saying “Continued growth in the economy is the only way Britain will emerge unscathed from the recession and I, for one, applaud the Chancellor’s initiative.”

David Frost, Director General of the British Chambers of Commerce also voiced strong support for Enterprise Zones, by saying: “The announcement of 21 low-tax, low-regulation areas across England in the form of Enterprise Zones will boost our regional economies. The role of Local Enterprise Partnerships in designating and running Enterprise Zones will ensure that local business leaders are at the heart of the new policy. Beyond upfront incentives, the reinvestment of business rates locally is critical to boosting regional growth.”

Where are the Enterprise Zones?

So far, 12 have been announced: in Birmingham and Solihull; Leeds City Region; Sheffield City Region; Liverpool City Region; Greater Manchester; West of England; Tees Valley; North Eastern; the Black Country; and Derby, Derbyshire, Nottingham and Nottinghamshire.

Another will be within Greater London, though Mayor Boris Johnson will be able to decide the exact location of the enterprise zone.

Two more for the North West were announced on March 24th, in Liverpool Waters and Manchester Airport.

The remaining 8 will be unveiled in the coming weeks.


What benefits will they offer to enterprise?

Perks include a 100% reduction of business rates (fees paid to local authorities by non-residential properties) for the duration of the government’s term- worth up to £275,000.

All business rates growth within the zone for a period of at least 25 years will be retained and shared by the local authorities in the LEP area to support their economic priorities;

Government and local authority help to develop radically simplified planning approaches in the zone; and

Government support to ensure superfast broadband is rolled out in the zone. This will be achieved through guaranteeing the most supportive planning environment and, if necessary, public funding.

Other benefits are to include relaxed planning controls and superfast broadband.


Summary.

“So, with some mixed success in the past, it is to be hoped that capital allowance breaks will encourage businesses to accelerate their capital spending programmes and create jobs, as the government will need to watch that jobs don't simply move from one part of the UK to another, with no job creation”. Said Stuart Long, Partner and Head of Tax at Howard Kennedy Solicitors.


“For individual investors, in the past, Enterprise Zones have often relied on syndicates to enable the investing of personal moneys into development projects - taking advantage of personal tax breaks on entry and exit (although rental income was taxable in the usual way). This has usually been supported by banks lending substantial sums to the investors, often on a non/limited recourse basis to enable development to take place. It is assumed that the Government will need to ensure that investors are attracted to the new Enterprise Zones and, in a still difficult climate, banks encouraged to lend - perhaps with tax incentivised financing”, continued Long.

“This is an interesting and potentially exciting proposal, and it is to be hoped that with the right incentives, packaged in an appealing fashion, areas in need of additional support will be helped to flourish in the future."