GOVERNMENT pins its hopes on policy which even its own agency says is an abject failure, writes Bill Jamieson
Abject failure: no two words better describe a central pillar of the Scottish Government’s economic policy in recent years.
A damning report this week finds that the much-trumpeted creation of Enterprise Areas (EAs) – cited at almost every opportunity as an example of government assistance to the business sector – has fallen flat on its face.
The report, by Highlands and Islands Enterprise – one of the government’s own agencies – finds that they have had hardly any impact in attracting new enterprise and creating employment since 2012.
Enterprise Areas were a key element of the Scottish Government’s 2011 economic strategy. Fourteen areas were chosen in 2012 and a 15th in 2013. In life sciences, these included sites in Edinburgh, Midlothian, Forres, Inverness and Irvine.
In renewable energy, the areas were specific sites in Lewis, Orkney, Easter Ross and Caithness, as well as the ports of Dundee and Leith. In growth sectors of manufacturing, the policy drew in part of Glasgow and Prestwick, with Broxburn and Livingston in West Lothian.
Only last September First Minister Nicola Sturgeon declared that “enterprise areas in Scotland at sites like Irvine and Edinburgh’s Bioquarter are already doing a terrific job creating new economic opportunities, new partnerships with education and – most importantly – new jobs across the country”.
But the report delivers a damning verdict on the government’s enterprise support claims and begs the most searching questions of a key area of Scottish public policy.
It finds that “to date there are no new employers in nine of the 15 EAs, whilst a number that have taken up occupancy since April 2012 had planned to do so prior to designation or would have done without the EA incentives.
“In practice, identifiable additional employment generation in local areas due to EA status has been small and, in Scotland as a whole, once displacement of activity is taken into account, minimal to-date.”
Moreover, there was “no evidence to date of the EA status itself having had an impact in attracting inward investment to Scotland”.
HIE’s report concluded: “There is a general impression that the financial incentives are lightweight, and would not be significant in larger companies’ location decision.”
It highlights “the slower than expected progress in supply chain activity associated with offshore wind, wave, and tidal installations. This has limited the demand for space by businesses that might become involved in these renewable energy sub-sectors, which means that the EA incentives associated with the low carbon/renewables north and east sites have in the main yet to become relevant.”
So much for Scotland becoming “the Saudi Arabia of renewables”.
It finds that just 18 companies together saved only about £100,000 a year from their business rates bills as a result of the policy – a “windfall” for some of them rather than an aid to investment. There was one example of a capital allowance being claimed – for just £90,000.
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Skills Development Scotland, another Scottish Government agency, should have helped with training and recruitment. But the review found no evidence of that happening, and some participating companies were unaware that it was meant to.
Now there are mitigating circumstances and not all of the blame can be heaped on the Enterprise Area policy alone. The period covered by the HIE analysis was one in which businesses across the UK were battling in the aftermath of a severe recession. Confidence was at a markedly low ebb and business investment overall was depressed. At the same time bank lending to business had fallen off sharply. Even for an established and successful business, getting a loan for expansion was no easy matter.
Then there are European Union constraints – a point about which we are unlikely to hear much from the staunchly pro-EU SNP administration. “It is important to acknowledge,” says the report, “that EU state aid rules introduced since the Enterprise Zone era significantly limit the extent to which member states can offer incentives to businesses to attract investment to a particular area or support business growth.”
Yet the driving rationale behind more devolution, and indeed independence, was to enable greater determination of resources within Scotland and by Scots.
Finally, it is fair to bear in mind that questions on the efficacy of enterprise areas are far from confined to Scotland.
The HIE analysis surveyed extensive and in-depth literature on the programme of evaluation of Enterprise Zone (EZ)designations across the UK, specifically of those established and operational in the early 1980s. These evaluations found that:
a Up to 80 per cent of the jobs created in EZs would otherwise have existed in other places;
b EZs do very little to promote lasting economic prosperity. Most EZs create a short-term boom, which can be followed by a reversal back into depression;
c Evidence from the 1980s suggests that EZs cost at least £23,000 per new job they create.
The main advantage of EZs is that they worked to stimulate rapid investment from businesses in the short term, and created a burst of momentum that normally lasts up to three years. “The relaxation of planning regulations offered by EZs,” HIE found, “is considered much more cost effective than tax breaks.”
Given that much of this extensive research was available prior to the Scottish Government’s gung-ho promotion of enterprise areas, it would surely have made more sense for a review of available evidence to have been done before proceeding full tilt and adopting lessons to help ensure future policy was more effective.
Now Mr Swinney is left to retreat as best he can behind the smokescreen of such phrases this week that it was “a mid-term evaluation”, showing how Enterprise Area status “complements wider support” and that the policy “continued to evolve”.
Scottish Conservative economy spokesman Murdo Fraser put it more bluntly: “SNP ministers must be left red-faced after this frankly embarrassing report into their Enterprise Areas initiative, which demonstrates very little benefit from this scheme.
“There is a long tradition of successful Enterprise Zones in the UK, and the government down south decided to continue with this. But Scotland had to be different, with the SNP opting for an alternative approach – and one which has dismally failed.”
For government agencies, seeking to replicate the variable alchemy of enterprise creation is no easy matter. A staffed-up government office might attract no takers. But a renovated café bar can draw a small business, then a popular farm shop that becomes a destination stop, then a local knitwear business, then an IT office.
In such cases a simplified planning system, as the HIE report found, is seen by business as a big benefit. Infrastructure helps. But clearing the ground for businesses to start up and/or expand is an essential first step.
Let’s not berate the Scottish Government for trying. But we can encourage it to make useful changes to its approach. Listening to what businesses and entrepreneurs have to suggest would be an excellent starting point. And a drive for clarity, simplification, ease of access and listening to everyday business applied nationwide would arguably do more than any number of hyped-up “enterprise areas”.