Enterprise Zones

By: Mike Southon

Date: 8 September 2011

The government recently announced plans to create enterprise zones, featuring 100 per cent discount on rates capped at £275,000 spread over five years and access to superfast broadband.

The first eleven zones are in Birmingham and Solihull, Leeds, Sheffield, Liverpool, London and Tees Valley. This will soon be extended to 21, mostly centred in the big conurbations.

There was criticism that those areas that had not formed Local Enterprise Partnerships (LEPs) would miss out. My view is that this provides an excellent incentive for local councils, chambers of commerce and other stakeholders to show some entrepreneurial gumption and form their own LEPs, or something very much like them. If they deliver measurable results at minimal cost as the LEPs are trying to do, then government grants will inevitably follow.

Peter Deaves is Head of Policy at the Centre for Economic and Social Inclusion, a research organisation focused on tackling disadvantage and promoting social justice. In the April edition of their journal Working Brief, he questioned the effectiveness of earlier enterprise zones, based on a study by The Work Foundation, which claimed that the cost for creating each job was £23,000 and that 80% of new jobs were displaced from somewhere else.

Deaves says that government has learnt useful lessons from the earlier enterprise zone success stories, such as Canary Wharf and Trafford Park, but argues that success should ultimately be measured by the number of new jobs that the zones creates, especially for unemployed young people.

Few could argue with this logic or the potential role of the enterprise zones in reducing the twin burdens of taxation and regulation that entrepreneurs cite as the two factors preventing them from growing their businesses.

The solution is to provide incentives rather than impose extra regulation. The key issue always identified by small business associations The Federation of Small Business, the British Chambers of Commerce and the Institute of Directors is employment law.

These organisations tell me that they want entrepreneurs to be able to be significantly incentivised when hiring unemployed people but still able to let them go easily if they do not work out or circumstances change, without the burden of costly employment tribunals.

A major concern is that lax government regulation might enable a whole new generation of Ebenezer Scrooges, but my experience of meeting entrepreneurs is that most of them are more like Titus Salt, the Bradford-based manufacturer, politician and philanthropist, who built the town of Saltaire to house his mill workers.

I feel strongly that government should give eye-watering incentives for today’s social entrepreneurs who behave in the same way. People who work with the long-term unemployed and ex-offenders tell me that a key success factor is to take disadvantaged people out of their current environment by the provision of social housing elsewhere.

This is a highly effective way of enabling social mobility, both for the first generation of a family leaving home to go to higher education and for former drug dealers leaving their old neighbourhoods where there is significant peer pressure to re-offend.

The social entrepreneurs will be rewarded by not only doing good while making money, but also by adding a property business to their business portfolio. You only have to look at the successful companies building affordable student accommodation or the next generation of care homes to find an excellent business model to follow.

If entrepreneurs are as successful as Salt and the other Victorian philanthropists, then they will get other benefits that many of them secretly crave and which a grateful government could provide at minimal cost: a public statue and a knighthood.

The Centre for Economic and Social Inclusion can be found at http://www.cesi.org.uk

Originally published in The Financial Times. Copyright ©Mike Southon 2011. All Rights Reserved. Not to be reproduced without permission in writing. Mike Southon is the co-author of The Beermat Entrepreneur and a business speaker.