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Final evaluation of Enterprise Zones

Although this report was commissioned by the Office, the findings and recommendations are those of the authors and do not necessarily represent the views of the Office of the Deputy Prime Minister.

Urban Research Summary No. 4 1995
FINAL EVALUATION OF ENTERPRISE ZONES

This note summarises the main findings from research evaluating the effectiveness of Enterprise Zones (EZs). The evaluation covers 22 of the 25 Zones designated in two rounds between 1981 and 1984. The first round Zones considered were Clydebank, Corby, Dudley, Hartlepool, Salford/Trafford, Speke, Swansea, Tyneside, and Wakefield, and the second round Zones considered were Allerdale, Delyn, Glanford, Invergordon, Middlesborough, Milford Haven, North East Lancashire, North West Kent, Rotherham, Scunthorpe, Tayside, Telford, and Wellingborough. Those excluded were Belfast, Londonderry and Isle of Dogs 1 . For the purposes of the evaluation the Zones were classified into three groups: those in inner cities - "urban" (6 Zones); those outside urban centres but easily accessible from major population centres - "accessible" (13 Zones); and those in remote areas -"remote" (3 Zones).

Main Findings

  • There were over 5,000 companies on the 22 Zones by 1990, employing nearly 126,000 people. Of the jobs, 59,700 were in the urban Zones, 59,200 in the accessible Zones and 6,800 in the remote Zones. After allowing for deadweight and displacement, and including short term multiplier effects, it is estimated that about 58,000 jobs were additional to those which would otherwise have been created in the local areas. Such 'additionally'was highest amongst manufacturing industry and lowest for retailing and distribution activity.
  • Cost per job year at 1994/95 prices is estimated to have been in the region of £1,700 per year (on the standard assumption of a ten year job life, this would amount to a total of £17,000 per job). If expenditure on rates relief and capital allowances is discounted back to the year of take up (at 6% per year), the estimated cost rises to £2,100 per year.
  • Because the 100% rates relief tended to lead to higher rents, the effective proportion of net rates relief received by occupiers (excluding retail and retail warehousing) was from around 10% to 55% in urban Zones, 30 % to 50 % in accessible Zones and -25% to +45% in remote Zones.
  • Of the private sector investment attracted by the capital allowances, much was indirect as a result of units in a property trust being acquired by investors. Towards the end of the life of most Zones, 75% (£150m) of the £200m annual EZ investment market was coming through EZ trusts, of which 90% was invested by individuals.
  • Between 1981/82 and 1992/93 the total public sector cost of the 22 Zones is estimated to have been between £798-£968 million (depending on the methodology adopted to discount the public costs incurred). About 57% of the total cost was incurred in the 6 urban Zones, 39% in the 13 accessible Zones and 4% in the 3 remote Zones. Rates relief accounted for some 46% of the total cost, enhanced capital allowances for 45 % and infrastructure and land acquisition for 9%.
  • The most important benefit in attracting firms to locate on Zones was the availability of rates relief, with the enhanced capital allowances, the relaxation of statutory planning requirements and the availability of premises also being important factors.
  • By 1990 about 2,700 hectares (6,700 acres) of land had been developed and about 6,000,000 square metres (60,000,000 sq. ft.) of floorspace built, with about 80% of the available land developed over the Zones' lifetimes.
  • More than £2 billion (1994/95 prices) of private capital was invested in property on the twenty two Zones between 1981/82 and 1992/93. This represents a public to private leverage ratio of about 1:2.3. The bulk of the property investment has been in the urban Zones and a relatively small proportion in the remote Zones.
  • There has been considerable environmental improvement on the Zones through the removal of dereliction and this has had an influence on companies' decisions to move to the Zones.
  • Following de-designation and the restoration of business rates, 82 % of the firms who responded said there would be no effect on their current employment levels, although 18% felt that there would be a decrease in employment. Amongst these latter firms the mean expected decrease in numbers of employees was 22%, giving an anticipated total reduction in jobs amongst existing companies on Zones of about 4% .

Background

In 1981/82 the Government designated 11 Enterprise Zones as an experiment to see how far industrial and commercial activity could be encouraged by the removal of certain fiscal and administrative burdens, and in 1983/84 a further 14 Zones were designated. This report is based on the performance of 22 of these Zones, and the results are taken from research commissioned by the Department of the Environment and undertaken by P A Cambridge Economic Consultants in association with Richard Ellis and Gillespies.

Research Objectives

The research objectives were:

  • to assess the extent to which Zones have maintained and/or generated additional economic activity and employment;
  • to assess the extent to which Zones have contributed to the physical regeneration of their local areas through the provision of infrastructure, environmental improvement and the stimulation of the property market; and
  • to measure the main public costs associated with the Zones and their cost effectiveness.

Methodology

The evaluation included:

a) analysis of data: annual monitoring data provided by the DOE was combined with data collected by the consultants to quantify the additional economic activity generated by Zones in their local areas. The main factors analysed were employment characteristics, the number of firms established, industrial composition of the firms on Zones, environmental improvements, and the impact on local property markets.

b) company surveys: telephone, face to face and postal surveys were combined to yield a database of over 1,000 companies (23% of the total). The surveys provided information about matters such as companies' perceptions of the importance of the various EZ benefits.

c) thematic studies: in depth studies were undertaken to investigate the effects of the EZ policy on local property markets, the creation of new economic activity and the impact on the physical environment.

Further Information

  • The contractor's report is published by HMSO under the title Final Evaluation of Enterprise Zones ISBN 0 11 753127-8 at £35 net. A report entitled Interim Evaluation of Enterprise Zones based on the results of the first round EZs was published by HMSO earlier in 1995, ISBN 011 753112-X at £20 net.

1 A separate evaluation has been completed of the Northern Ireland Zones, whilst a study covering the Isle of Dogs and a wider area administered by the London Docklands Development Corporation is currently being carried out.

 

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