It may be two years before enterprise zones get under way but the concept is already attracting serious interest from the global financial community. Several banks (British and overseas) and a consortium have already approached the Greater Birmingham & Solihull local enterprise partnership (LEP) about providing future finance streams.
It’s been suggested that big cities, especially Birmingham with its vast public sector land holdings, could issue municipal bonds to raise funds, and the banks are eager to advance funds against the value of those bonds. “The idea of bonds backed by the city council is imperative, as we all look to build a regional balance sheet to give the area more autonomy,” says Steve Hollis, the LEP’s deputy chairman. “At the moment, we are still beholden to the centralised Whitehall machine. Our role is about stewardship; to make sure the zone works correctly and to ensure the funds it generates benefit all the areas within the partnership.”
One argument is that if the enterprise zone approach is about economic renaissance, then the Birmingham zone should have been based in an area that needed regeneration, such as Longbridge, not slap bang in the city’s most desirable real estate.
“I disagree,” says Hollis. “Look at any world-class city and its rebirth started at the centre then spread out. Even Manchester’s growth in the 1990s followed the Metro lines built in the centre. I don’t see a lot of merit in trying to take land that would struggle to attract occupiers, because then you don’t generate sufficient new business rates. These zones have to pull in sufficient revenue to be sustainable. If the extra income of £70m a year is generated that will have a massive impact on other areas.”
Richard Butler, the regional CBI director, is also in favour of the concept, saying: “I like the flexibility. I was involved in the enterprise zone in Dudley in the mid-1980s and it was too prescriptive. This time, there’s a desire to get the initiative into the market and let zones find their shape. The old zones just sucked in existing businesses, so companies would move just a few miles from Oldbury to Dudley to get the benefits. This time everyone is much more aware.”
One of Butler’s concerns is the location of the zone. “I see the logic that the revenue from business rates will be higher, but the the city still has a significant manufacturing base, and where the enterprise zone is, industrial companies will probably not get much of it. I see that it’s easier to attract global office occupiers, which are probably considering several UK and European sites, to an established and high-profile city centre zone. It’s also much easier for Business Birmingham to use the location as another element of its inward investment campaign, but I would still have preferred a zone around Longbridge, or somewhere else.”
City councillor John Clancy has reservations about the location too. “The enterprise zone was always going to be in the centre of Birmingham, but why have such a prosaic zone? There are going to be 26 sites, in seven clusters, but why not have the same number of sites right across the city centre?”
Clancy dismisses the numbers touted by the zone’s promoters, saying the idea that the zone might bring forward £60m or £70m in additional business rates “is just pie in the sky”. He adds: “If you look at the money markets, and then think how much borrowing these zones are trying to leverage in, there could not have been a worse time to do it.”
He fears the zone may fail because it needs to attract major office occupiers, and they will most likely be in the professional services sector. “It could end up being a big white economic elephant, because of the collapse of the banking sector and the meltdown in the financial markets,” he says. “I think we’re heading for a recession in 2012, and the premise of the enterprise zones is that they can attract big players in just the sectors which have been so badly hit.
“The idea is that the zone will be the motor of the LEP, but what will the money be spent on? Will it be commercial property, with the kind-of ‘build it and they will come’ approach, because that is very naïve.”
Leadership is another uncertainty especially if Birmingham gets an elected mayor. Clancy asks: “Will they be expected to go along with the original concept, or will they have their own strategy? And if so, does everything have to change?”
The concept has the support of Chris White, a director and head of CBRE’s development consultancy and regeneration team in Birmingham. He’s had experience with regeneration bodies and development-led ventures over the past decade, and his standpoint reflects time spent in the public and private sectors.
“I think the zone offers a real opportunity to develop the city centre, but I there will need to be genuine financial incentives to make it happen,” he says. “It’s being said that businesses will receive up to £275,000 relief on business rates over five years, but is that really sufficient to help a business survive and grow? You could argue that the relief will help safeguard jobs, which is fine during a recession, but not exactly what the zones are supposed to be about.”
White also raises concerns about how the city council’s planning team will be able to handle and process the local development orders (LDOs) at the heart of the concept, by providing streamlined approval for schemes.
“A lot of planners have already gone, and the more successful the enterprize zone becomes, the more demands are placed on those who remain,” he says. “I think there will be internal management issues for the council, as interest begins to develop in the 26 sites. And there will be competition between developers for the sites, and between different zones.”
The Birmingham enterprize zone will need to builds its brand, and attract chunks of inward investment, but could that be to the detriment of Coventry, Solihull and the Black Country?
“Quite possibly,” says White. “If the LDO issues are resolved, and the council sorts out its incentives, there is no doubt the centre of Birmingham will be a popular potential location. The Black Country has always been on the wrong side of the M6, but now the focus has to be on making its development sites more accessible.”
Also in: February 2012
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Action stations
The image of a finance director (FD) sitting in the corner of the board room, tapping his calculator and explaining why the managing director’s latest initiative may just be a step too far has been consigned to the last century. And it’s a good thing. The last thing you need in this prolonged period of austerity is a finance director with the countenance of Ebenezer Scrooge wielding a cattle prod.
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The need for speed
The government’s announcement that the HS2 line will go ahead has brought relief and joy to the Birmingham business scene. Whereas before businesses in Birmingham and the wider West Midlands have had to tell clients they face a tiresome and slow trudge on an outdated line if they want to come to the city from London, now they can say: “I’ll see you in an hour.”