Government attempts to boost business activity in deprived areas have had disappointing results, according to a new report from the Centre for Cities at the ippr published today (Monday). Instead of trying to boost enterprise in all deprived areas, future business-led regeneration programmes should focus on “business-deprived” areas.

The report looks at deprived areas in England with very low levels of business activity. The most business-deprived areas are in the North-East, in places like Easington and South Tyneside. There are also business-deprived areas in the North-West, Yorkshire & Humber, East Midlands and London.

These business-deprived areas need more than just start-ups. In many cases, they need more businesses and local jobs. Enterprise programmes should focus on business-deprived areas that can sustain more jobs and businesses – places like Doncaster, St. Helens and Barnsley.

Dermot Finch, Director of the Centre for Cities said:

“The Government needs a smarter approach to enterprise in deprived areas. There are currently far too many different, small-scale enterprise programmes. And they are focused too much on start-ups.

Start-ups are not the answer for all deprived areas. Business-deprived areas need jobs rather than start-ups. This report will help the Government target its cash on the business-deprived areas that can support new businesses and jobs over the long-term.”

The Centre for Cities sets out six principles for interventions in business-deprived areas:

• Intervene only where market failures exist. Interventions should be proportionate to the degree of market failure and tailored to local labour markets. Promoting new business start-ups is not the answer for all areas.
• Improve local market intelligence. Business-deprived areas need to identify and understand their own markets, before any attempt to boost business activity. The City Growth initiative, run by the Small Business Service, is a good model of information gathering. It operated in places such as Derby, St. Helens and Park Royal during 2002-05.
• Focus less on start-ups, more on employment. Start-ups are a key part of many vibrant economies, but they do not generate many jobs. Business-deprived areas need bigger interventions to stimulate business activity and jobs.
• Intervene at the right level. Business-deprived areas do not operate in isolation, but are part of wider economic areas. Ward-level Enterprise Areas should be shut down. They are far too small and have very low take-up. Only 2 per cent of the businesses we surveyed in 2005 had used the benefits on offer.
• Rationalise business support and make it more demand-led. There are currently too many publicly-funded business support providers and schemes. Business support, which costs around £500m p.a., should be targeted at businesses themselves – perhaps through a voucher system.
• Incentivise private sector investment. New incentives are needed to revive the property markets in business-deprived areas. We will explore this in more detail with the British Property Federation.

Business-deprived areas can be grouped into three types:

• Areas with low business activity, due to specific and reversible market failures: These areas are business-deprived for a particular local reason – for example, limited access to business finance or limited supply of suitable business premises. Boosting business activity will be more promising here than in other business-deprived areas. Areas in this type likely include Barnsley, Doncaster, St Helens and Sunderland.
• Areas facing fundamental problems, not just a lack of business activity: These areas are still dealing with the after-effects of deindustrialisation, are losing population and are often poorly connected to wider economies. Promoting enterprise here can be risky. Interventions should focus on structural changes to local economies, as part of wider regional economies. Areas in this type include Derwentside, Easington and Wansbeck, in the North-East.
• Places with low business activity, but where residents travel to work outside the area: These areas have low levels of business activity, but are part of wider labour markets and travel-to-work areas. Their residents generally out-commute, and are able to find work in neighbouring areas. This is not a major market failure, so there is less pressing need for new business activity here. Interventions should focus on improve transport links and skills. Areas in this type include Greenwich and Lewisham.

Notes to Editors:

City Markets compares levels of business activity in England's most deprived areas - the original 88 Neighbourhood Renewal Fund (NRF) districts - using four indicators:

• New VAT registrations
• Stock of VAT registered companies
• Stock of companies according to Annual Business Inquiry (ABI)
• Number of local jobs

City Markets will be launched on Wednesday 21 June by Professor Michael E. Porter, of Harvard Business School. Professor Porter founded the Initiative for a Competitive Inner City, which devised City Growth and the Inner City 100. He will hold a private roundtable with business leaders on 21 June, and give the keynote address at the report launch. The launch event will take place at the Chartered Accountants' Hall, Moorgate, London, at 10:30-11:30am.