Enterprise zones: Will an 80s revival really work?

George Osborne The Chancellor described his next Budget as "unashamedly pro-growth".

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Chancellor George Osborne has announced the government will create new "enterprise zones", during a speech in Cardiff.

But two think tanks argue the zones can be expensive and ineffective. And the chancellor's Welsh opponents say he does not have the power to set them up on his own outside England.

The idea behind enterprise zones is simple: cut taxes and strip back planning rules in small areas to attract new businesses and create new jobs.

The Westminster government is promising to invest at least £100 million in them before the next election, targeted largely at poorer areas in the Midlands and the north of England.

Councils will be allowed to keep all of the business rates they raise in the zones. Up to 10 zones will be established in England.

Regeneration

Too much growth was centred in the south-east of England under Labour, the government says, and this measure will help improve on that.

Margaret Thatcher and John Major had similar ideas. Thirty-eight zones were established between 1981 and 1996.

The most famous was the Isle of Dogs in London's Docklands - now Canary Wharf. The gleaming towers and thousands of highly paid workers there seem to make the case for the zones.

Canary Wharf The towers of Canary Wharf seem to tell a success story

But a report from the Work Foundation think tank says that is misleading.

When the Docklands enterprise zone expired, there were just 7,000 people working in Canary Wharf, it says, compared with 90,000 today.

The zone may have helped, but the think tank says the success of the area is down to investment in regeneration and infrastructure, such as the Docklands Light Railway, not the government scheme.

The report's other conclusions are off-putting: 80% of jobs created in enterprise zones are displaced from other places; the prosperity the areas bring is short-lived; and each job created costs £23,000 to create.

Another think tank - the Centre for Cities - warns the model of the 1980s will not work today.

Both of these reports were written before Saturday's announcement, and the government argues that this time things will be different.

The new zones will be focused on areas of high growth potential, not just physical decline, and will be tailored to the individual needs of an area, it says. Simpler planning and discounted business rates will drive growth.

Those arguments may not matter outside England if politicians from the other nations are not as keen as the Westminster government.

The deputy leader of Plaid Cymru, Helen Mary Jones, says no plan like this could go ahead without the consent of the Welsh Assembly Government and the assembly itself, and she hints their approval might require money.

She says: "Because we're under funded to the tune of £300m a year, any variation in business rates would need to be made up by the Westminster government."

'Weird'

She suspects this is an England-only policy being announced in Wales.

Labour's shadow Welsh secretary Peter Hain agrees: "This is a weird proposal that doesn't apply in Wales where he's announcing it."

A Treasury source said ministers would work with the devolved administrations to develop their own zones.

Mt Osborne does not believe this announcement will get the economy growing on its own - there will be much else aimed at achieving that in the Budget.

But he knows he will ultimately be judged on the growth of the economy, inside enterprise zones and beyond.

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