Enterprise Zones are designated areas created to stimulate local economic growth. They provide tax and regulatory reductions to businesses that locate within them.

Initially introduced under the Thatcher Government, the Coalition Government in 2011 announced 21 Enterprise Zones in England (later expanded to 48). These Zones offered up to 100% business rate relief for five years, enhanced capital allowances on machinery and equipment, and simplified planning regulations. Local authorities were able to keep 100% of any subsequent business rate growth for 25 years after the Enterprise Zone began operations.

More recently, freeports and investment zones have been introduced, drawing on many of the same policy levers. The Government is proposing bringing the three models closer together as part of the modern Industrial Strategy, with shared delivery mechanisms and stronger support from both central government and the metro mayors.

Evidence on the effectiveness of Enterprise Zones is mixed. Only half of all high-quality studies on Enterprise Zones and similar area-based initiatives find positive effects on business outcomes and only a third do on labour market outcomes. Most of the studies that find positive impact focus specifically on France’s Zones Franches Urbaines (ZFU) program. 

One reason that assessments of Enterprise Zones tend to be uncertain is that tax credits and other incentives generally result in small percentage changes in business costs and therefore may not affect decision-making. Another is that Enterprise Zones and similar policies may lead to displacement of existing jobs from other locations rather than creating new jobs, with the exception of Enterprise Zones in city centres, which have a more positive record on job creation.

Further reading

This entry was written by Xuanru Lin. Xuanru is a Researcher at the Centre for Cities.