Osborne hopes to kick-start economy with enterprise zones

Chancellor George Osborne is hoping to kick-start the economy and create businesses and more jobs with a series of new "enterprise zones", announced yesterday.

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The enterprise zones will offer tax breaks, relaxed planning regulations and high-speed broadband in an effort to attract start-up companies, and have been described by Mr Osborne as a "critical part" of the government's growth strategy.

But many have questioned the effectiveness of the policy, pursued by both Margaret Thatcher and John Major throughout the 80s and 90s, arguing that jobs created are simply displaced from other areas, and that the cost of setting up the zones outweighs the economic benefits.

Months before an official announcement of the enterprise zones, two think tanks urged the government to reconsider the policy.

A report by Centre for Cities released in February called for "a new approach to area-based growth," suggesting that the scheme used in the 1980s by Thatcher was ineffective.

"The enterprise zones of the 80s did not create enough jobs and were too costly for the public purse to be effective today," the report said.

It added: "The incentives used to encourage business growth and relocation – business rate relief or capital-based spending and allowances – also weighed heavily on public finances."

Supporters of Mr Osborne's strategy point to the success of the Isle of Dogs in the London Docklands – now Canary Wharf – which itself began as an enterprise zone. But another think tank says this example is misleading.

A report from the Work Foundation, also released in February, said that when the Docklands enterprise zone expired there were just 7,000 people working in Canary Wharf, compared with 90,000 today.

Andrew Sissons, a researcher at the foundation, told the Today programme that the zones were merely an "expensive way of moving jobs around the country."

The foundation's report claimed that the zones typically provided only a three-year boost to an area before it slipped back into depression, and that four out of five jobs created were displaced jobs from areas outside the enterprise zone.

This was the case in Dudley, according to John Rider, chairman of the Institute of Directors in the West Midlands, when it became one of the first waves of enterprise zones under Margaret Thatcher in the early 1980s.

A former steelworks site was transformed into a huge retail park with the help of the scheme, but not without a cost.

"I think the concept is reasonable but the reality was that they displaced people's jobs over the boundaries into the enterprise zones," Mr Rider said.

An Eighties revival

The original urban enterprise zones were the work of town planner Professor Peter Hall in the 1970s. He proposed setting up small sectors that allowed for "shamelessly free enterprise" as a "last-ditch solution" to turn around disadvantaged areas, and the first zones were established in 1981 under Margaret Thatcher.

Over the next 15 years, 38 were created across the country, with the most famous being London's Docklands. There, the success of turning what had been derelict wasteland into a modern financial hub might be considered to form the perfect inspiration for one of the nearby Royal Docks, which has been designated as one of the new zones.

While some would argue it would have been hard to encourage such a massive redevelopment without tax incentives, a report from the Work Foundation think tank has downplayed the impact of the project in encouraging investment in the Docklands, saying that when the zone expired, only 7,000 people were working there, as opposed to the 90,000 today when no such relief exists.

Another of the old zones was set up in Dudley in the West Midlands, leading to the creation of the Merry Hill shopping centre. There, however, some people argue that it merely led to jobs moving into the zone from other places, rather than creating new jobs.

Rob Hastings