Insights
We’ve recently published a rapid evidence review of enterprise zones, updating our original review published back in 2016. A revisit seemed timely given enterprise zones and similar policies remain popular with politicians, with the previous UK government launching freeports and investment zones, and the current government confirming funding for them over the longer term.
Based on the 2016 review, we’ve been sceptical about the value of these programmes at the national level. Key issues include deadweight, displacement, substitution, and leakage. Despite these concerns, if central government chooses to use these approaches, it makes sense for local areas to bid, as they bring resources into an area and minimise the risk of displacement adversely affecting them (for example, if a neighbouring area secures an enterprise zone site).
Newly published studies give us an opportunity to re-examine our position – hence the updated review.
What did we find?
Many of the findings are broadly unchanged. For example, in both reviews, around half of studies looking at business outcomes (i.e. the number of businesses or number of new businesses) find a positive effect. Where there are differences, they tend to be on the downside – for example, a smaller proportion of studies finding a positive effect on employment or wages and incomes than in the original review. In addition, the new review confirms that displacement (of both businesses and employment) can be an issue, and that local residents don’t always benefit.
This reinforces our belief that governments considering these policies should think carefully about whether they are the best way to achieve their goals, especially when public resources are severely constrained.
There is some evidence that government may have recognised the constraints of these policies, with tax incentives only a small and optional part of the investment zone programme. Investment zone funding can also be used to invest in skills, infrastructure, and business support services, and we are glad to see that many areas have decided to tilt their programme towards these approaches rather than tax sites.
What does the review tell us about evaluation?
Our review identified 16 new studies (and updates of two existing studies). Whilst this widening of the evidence base is extremely welcome, it’s disappointing that there hasn’t also been a deepening of the evidence over the last decade.
All of the evaluations explore whether or not there has been an impact on one or more economic outcome (such as employment, wages, poverty or property prices). Very few explore more nuanced questions such as which levers (for example, tax incentives, infrastructure investment or business support) are responsible for outcomes observed, which combinations of levers are most effective or whether enterprise zones are more effective in depressed or growing areas. Given continued political interest in enterprise zones, having evidence on these questions would allow policies to be designed to maximise impact.
One reason this evidence isn’t available is that the set-up of many of the zones makes it difficult to consider these effects. Building evaluation in from the start of a policy creates more options for evaluations. For example, if you want to compare different combinations of levers this will generally need to be built into programme design.
As the rapid evidence review demonstrates, we increasingly know whether or not a policy works, with additional studies confirming previous findings, but we don’t have answers to more specific policy design questions. Policymakers need to make sure that they are building evaluation into policy design if they are to maximise the impact of their spend.
