Budget 2011 reaction: Enterprise zones

The Government have confirmed that that 10 new Enterprise Zones will be created principally in the Midlands and the North to stimulate regional growth. Local enterprise partnerships will be able to bid for a further 11 zones. The related Business Premises Renovation Allowances will also be extended beyond its original April 2012 life.

Richard Steer, Gleeds

New Enterprise zones are to be welcomed but are only helpful if you can borrow to invest and we are still not seeing a change in attitude by risk averse banks.

Ian Hyde, Property Tax partner at solicitors Pinsent Masons LLP

The Chancellor today has confirmed his previous announcement made in his speech at the Conservative party conference earlier in the year, that the Government will be reviving the Enterprise Zones which were a key part of urban regeneration in the 1980s and 90s.

Like the original EZ regime, the key drivers for growth will be enhanced capital allowances on new buildings, relaxations in the planning regime and  business rate relief of up to 275,000 over 5 years. Local authorities will also be able to keep rates generated by the new zones.

Interestingly the Government has not listened to criticism of the original regime and moved to income tax and national insurance reliefs rather than 100% capital allowances on new buildings. However, it appears the Government will be treating these reliefs as a menu and the actual reliefs available in each Zone may be different. Most importantly the capital allowance relief will be limited to areas where there is a strong focus on high value manufacturing.

With income tax rates still at 50%, the new EZ proposals are certain to attract High Net Worth Individuals. However, in order to deliver real and sustained growth the Government will need to deliver EZ regimes that will not just shift jobs from other areas or prove to be short term tax subsidised booms that drift away once the tax relief disappears.

Simon Rubinsohn, RICS chief economist

“It is not clear how effective new enterprise zones will be in stimulating long term sustainable development beyond an initial boost. While the tax breaks and changes to planning restrictions may draw short term investment into an area they also have a number of downsides.

“The total cost to Government can be expensive and there often needs to be other public investment in areas such as transport infrastructure.

“Enterprise zones also draw development from other nearby areas that do not receive benefits, in some cases simply shifting local economic problems from one area to another. While they may have helped some areas in the 1980s, enterprise zones are unlikely to have the same impact now.”