By Claire West

With the announcement of a new generation of Enterprise Zones widely expected in the Budget, a report published this week by The Work Foundation warns that such schemes are likely to be ineffective at stimulating sustained growth in depressed areas.

The paper also raises major concerns about the cost of such policies, with analysis of previous Enterprise Zones suggesting this amounted to at least £23,000 for each new job created — equivalent to £50,000 in today’s money.

Do Enterprise Zones work? warns that while Enterprise Zones, tax breaks and other localised incentives may stimulate rapid investment in the short-term, this typically lasts no more than three years before the area begins a long-term reversal back into depression. Prior schemes also indicate that up to 80% of jobs created are displaced from other areas.

Andrew Sissons, researcher and lead author of the report said, “Looking at Enterprise Zones created in the 1980s, there are serious doubts about the wisdom of bringing the policy back. Most of the areas that had such zones are still struggling today — places like Middlesbrough, Speke, Hartlepool and Swansea. Any attempt to redesign the Enterprise Zones for the 21st century is likely to be equally ineffective.

“The key issue is that Enterprise Zones don’t tackle the real problems that local areas face. Providing artificial incentives to businesses in the short-term will have little lasting effect without action to tackle the underlying drivers of competitiveness.”

In addition, Enterprise Zones are generally designed to favour physical investment over investment in innovation. There is therefore the risk that they will not promote the productive, knowledge-intensive growth that the UK depends on, but instead promote an outdated model of British enterprise.

Beyond the UK, comparable schemes in the US provide a similar picture of minimal growth or ineffectual policies. California, for example, is now re-evaluating its Enterprise Zones, which have been costing up to $300m a year.

The paper goes on to argue that if the government is to go ahead with Enterprise Zones, it should consider making them larger in order to avoid displacing jobs from the same towns. Further safeguards might include making targeted investments in skills and infrastructure to ensure zones lead to lasting improvements in competitiveness; and ensuring that zones are supported by local communities and not governed in a way that is incompatible with localism.