Government attempts to boost business activity in the North East have had disappointing results, according to a new report from the Centre for Cities at the ippr published today (Monday). It says instead of trying to boost enterprise in every deprived area, future business-led regeneration programmes should focus on “business-deprived” areas which can sustain new enterprises – like Sunderland.

The report looks at deprived areas with very low levels of business activity. It says that the five most business-deprived areas are in the North East – Easington, Wansbeck, Redcar and Cleveland, South Tyneside and Derwentside.

The report argues that areas like Sunderland could sustain more jobs and businesses, because the city is well located, but it needs to overcome problems like the availability of business premises. The report says areas like Easington have much wider problems caused by de-industrialisation and need to be reconnected to their regional economies rather than helped to encourage business start-ups.

Dermot Finch, Director of the Centre for Cities said:

“The Government needs a smarter approach to enterprise in deprived areas. There are currently too many different enterprise programmes in too many deprived areas, which are focused too much on creating new start-ups.

“Our analysis shows that start-ups are not the answer for Easington, Wansbeck and Redcar and Cleveland. Business-deprived areas need more jobs rather than more start-ups. This report will help the Government target its cash on the business-deprived areas like Sunderland that can support new businesses and boost jobs over the long-term.”

Business-deprived areas can be grouped into three types:

a. Areas with low business activity, due to specific and reversible market failures: areas in this type include Sunderland, Doncaster and St Helens. They 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.

b. Areas facing fundamental problems, not just a lack of business activity: areas in this type include Easington, Wansbeck and Redcar and Cleveland. They 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.

c. Places with low business activity, but where residents travel to work outside the area: areas in this type include Greenwich and Lewisham. They 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 improving transport links and skills.

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

1. 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.

2. 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.

3. 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.

4. 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 two per cent of the businesses we surveyed in 2005 had used the benefits on offer.

5. 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 per year, should be targeted at businesses themselves – perhaps through a voucher system.

6. Incentivise private sector investment. New incentives are needed to revive the property markets in business-deprived areas.

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

Current government policy measures targeted at urban enterprise:

• Small Firm Loan Guarantee Scheme
• Support for Community Development Finance Institutions
• Community Investment Tax Relief
• Bridges Community Development Venture Fund
• Contaminated land tax credit
• Higher feasibility grants from the Business Incubation Fund in the 20 per cent most disadvantaged areas of England
• Business Broker programme
• British Volunteer Mentoring Association
• Enterprise Advisers for schools
• Increased limits for Enterprise Investment Scheme & Venture Capital Trusts
• Business Premises Renovation Allowance
• Business Planning Zones
• Tax incentive to encourage business donations for Urban Regeneration Companies
• HM Revenue & Customs support for businesses in deprived areas
• New Entrepreneur Scholarships, run by the Learning & Skills Council

The Treasury said in the Budget: "The business support landscape is too complex with a plethora of schemes and providers, which make the system hard to use."

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.