Viewpoint - 29/07/2011

Enterprise Zones – The bigger picture

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With the announcement of a new generation of Enterprise Zones (EZ), now seems an opportune time to review their success and future prospects. David Smith, Head of our Scotland offices explains.

• Hamilton International Park • Eurocentral • Clydebank Business Park • Dundee Technology Park • Faulds Park

All of these developments are part of the EZ initiative in Scotland. This effectively ceased on 5 April 2011, but with a new generation of EZs on the horizon, we should take time to review their success and their future prospects.

EZs are primarily an economic development tool aimed at regeneration of specific locations through the relaxation of statutory controls and availability of fiscal benefits. Primary benefits associated with recent EZs were rates free occupation for the life of the Zone: typically 10 years, 100% first year capital allowances and reduced statutory controls, including deemed planning consent.

Capital Allowance benefit driving developments in good locations

From our knowledge of the developments outlined above, EZs have been successful in generating buildings, primarily due to the Capital Allowance benefit. They have perhaps had the most impact when allocated in potentially good locations, such as Lanarkshire, which has a large population and good transport network, but lacked good quality space.

Lessons to be learned.

There has been a development of too much speculative space. This has undoubtedly been the case in a number of zones. Given the land, at least latterly, was all in public sector ownership, this was avoidable. It should also be noted that ironically take-up in Lanarkshire in 2011 may be close to its peak, which is in part due to its high level of good quality supply, fuelled by EZ status.

EZs carry cost to the tax player as this is often measured in the Treasury foregoing income, by way of Rates foregone and Capital Allowances. However, this income would potentially not be generated without such EZ benefits, as the developments would not have taken place.

There has been a high level of displacement of jobs. This matters at a Scottish level, but less so at a regional one. Arguably, without EZs the people of Lanarkshire and Greenock would all be commuting to Glasgow or forced to relocate.

21 new Enterprise Zones have been announced

Competitions are already being held in regional England for this prize. Winners announced already include Boots plc in Nottingham, Peel Developments in Liverpool/Wirral and Manchester Airport. It is apparent that these will be different to the original EZs and unlikely to have the same impact.

Benefits of new EZ

We anticipate the primary benefit of the new generation of EZs will be the prioritisation for infrastructure expenditure in the form of Regional Growth Fund, Tax Incremental Finance and super fast broadband. In addition, there will be rates free occupation up to a maximum of £275,000 and Enhanced Capital Allowances for plant and machinery.

Due to Government spending being tight, without EZ status, it may be very difficult for the development of similar sites for office and industrial use in regional UK to be viable over the next three years. You have to ask the question: Will sites be competitive for development without EZ status?

New EZs should prioritise areas where impact will be significant

Scotland to date has not been able to respond, although we anticipate that this will change over the next few months. There is intense lobbying going on, with up to four EZ designations rumoured.

However, the Government must not spread the benefits too thinly. It has to prioritise areas where these will have the biggest impact. In the West of Scotland, Clyde Gateway is the obvious answer. Progress has been made in the neglected part of the city, but recent economic conditions mean momentum could be lost. The Commonwealth Games in 2014 need to be grasped as an opportunity to anchor this redevelopment.

EZs have fundamentally affected the office market in Glasgow over the past 20 years, particularly in Lanarkshire, with new EZs unlikely to have the same impact. However, they would be much welcome filler to the property market. The city itself perhaps deserves such status.


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