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BUDGET 2011:  Enterprise Zones to boost infrastructure

Government plans to fund 21 new Enterprise Zones will help stimulate investment in infrastructure but risk boosting some areas at the expense of others, according to industry experts.

In his budget speech today Mr Osborne said the government would extend the 10 zones previously announced and instead provide funding for 21.

He said:  “Businesses will get up to 100 per cent discount on rates, new superfast broadband and the potential to use enhanced capital allowances in zones where there is a strong focus on manufacturing.

“In return for radically reduced planning restrictions, we will let local authorities keep all business rate growth in their zone for a period of at least 25 years to spend on development priorities.

“The first ten Enterprise Zones will be in urban areas of highest need but also potential.

The first ten zones will be in:

  • Birmingham and Solihull
  • Leeds
  • Liverpool
  • Greater Manchester
  • The Tees Valley
  • Tyneside
  • The Bristol area
  • The Black Country
  • Derbyshire and Nottinghamshire
  • And Sheffield

He added: “Tomorrow, the Prime Minister and Deputy Prime Minister will announce some of the specific locations of these new Enterprise Zones.”

The Chancellor also confirmed a further zone would be created in London where the Mayor will choose a suitable site.

And a further 10 zones will be announced in the summer.

“I want Local Enterprise Partnerships all over the country to come forward with proposals,” he said.

He also pledged to work with the devolved administrations on the issue.

But industry bodies warned the plans failed to provide for long term growth.

Royal Institute of Chartered Surveyors chief economist Simon Rubinsohn said: “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.”

Head of strategic research at EC Harris Simon Rawlinson said the developments were “encouraging”.

He said clear support for tax increment finance style investment in infrastructure through the retention of business rates should “accelerate investment in basic business infrastructure”.

And legal experts criticised the government’s failure to learn from the past.

Pinsent Masons property tax partner Ian Hyde said:  “Interestingly the Government has not listened to criticism of the original regime and moved to income tax and national insurance reliefs rather than 100 per cent 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 per cent, 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.”

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