SPEECH BY DERMOT FINCH

Regeneration Renewal conference, London, 13 April 2005

The business perspective: Why we invest in deprived areas

  • Good morning. Great to be here.
  • I’m Director of the Centre for Cities at ippr – the Institute for Public Policy Research – and have just spent the last 10 years in the Treasury, including 4 years at the British Embassy in WashingtonDC.
  • During my time in the Treasury, I was part of Sir Ronald Cohen’s Social Investment Task Force, which reported to the Chancellor just under 5 years ago.
  • The Task Force led directly to a string of current policy tools aimed at attracting investment in deprived areas – such as the Community Investment Tax Relief, Bridges Venture Fund, Community Development Finance Association, Inner City 100 and City Growth initiative. All of these were inspired by best practice in the United States.
  • So I’d like to share with you this morning my insights on business investment in regeneration from my Treasury days, with some observations from the United States andsome conclusions from the Centre for Cities.

The Treasury

  • I think everyone would agree that the Treasury under Gordon Brown has played a critical role in promoting business-led regeneration – with a range of new fiscal incentives to attract business investment and enterprise in deprived areas.
  • Ten years ago, it would have been unthinkable to imagine the Government taking a close interest in underserved markets, community development finance and social enterprise.
  • And yet today, we have the Phoenix Fund, Enterprise Areas and proposals for a new Local Enterprise Growth Initiative. These initiatives combine traditional grant programmes with loans, venture capital and tax incentives – a much more diverse suite of economic instruments than ever before.
  • And we have seen the Treasury, ODPM and DTI all working closely with nef’s Inner City 100, Bernie Morgan’s Community Development Finance Association and Bill Boler’s Underserved Markets Project at BitC.
  • So far so good. But there are some unresolved questions. Look at the readout from last year’s Inner City 100 – which shows thatthe take-up and impact of fiscal incentives such as Community Investment Tax Relief has so far been disappointing.
  • Why is this? And what wider lessons can we learn?

-First, the current range of fiscal instruments is not well known or understood, especially by SMEs.People understand grants – but tax incentives are often too complex.We all need to do more to raise awareness of these new tools.

-Second,financial capacity and expertise on the ground is improving but is still behind the curve.As the Inner City 100 showed, business support services are not meeting the needs of inner-city businesses – Business Link and others need to engage more effectively.

-Third, a more fundamental policy point. The low take-up may mean that tax incentives such as CITR are not as suitable as we first thought. In the US, the New Markets Tax Credit is also very small. Hence the emergence of the Local Enterprise Growth Initiative – which marks a switch to long-term, grant-based funding.

-Fourth, we shouldn’t forget that deprived areas are still deprived – where businesses face major barriers such as relatively high crime, low skills, lack of available workspace. Fiscal incentives will only address cost issues. They cannot overcome all the other barriers too. So let’s not place too much emphasis on them. Other levers such as planning have a much bigger impact.

  • Which brings me to our main question. Why do businesses choose to invest in deprived areas? Are they really attracted by the latest tax incentive? I doubt it. Fiscal incentives can help, but they aren’t a panacea. Sometimes I think Government can overplay these micro measures, and overlook the bigger picture.
  • We need to get real. Businesses care about the basics such as transport and skills. Business investment decisions are based on self-interest rather than altruism or philanthropy. And businesses go for areas with real assets and potential.
  • Deprived areas do have assets – they are often situated in central city locations, near transport hubs and universities, with access to nearby markets. And they can often offer untapped potential. But they also have major weaknesses – and these need to be addressed before businesses will invest.

United States

  • I’ve spent the last 6 years exchanging best practice on regeneration with the US. First from the Treasury, and then from Washington. Several things stand out.
  • US cities are in much worse shape than ours. Bruce Katz, one of the leading US urban experts – from the Brookings Institution – says that they have a lot to learn from the UK. US cities suffer from much more acute social and economic problems. Segregation, exclusion, sprawl. Basically, their deprived areas are more deprived than ours.
  • But the US does do some things better than us:

-Their city leaders are more powerful, and can get things done. Mayor Daley in Chicago can use a range of city-level tools to build affordable housing, improve business districts and finance job creation.

-Their community finance sector is more mature. Look at LISC – the Local Initiatives Support Corporation, the National Community Capital Association and community banks such as City First in WashingtonDC.

-And their business sector is more engaged. The US Chamber of Commerce is a stronger model than ours. And on the ground, US businesses are better than ours at working with the non-profit sector.

Centre for Cities

  • Finally, a few words on the Centre for Cities – which we launched just before Easter. The Centre is looking at the economic drivers behind regeneration – employment, skills, investment. Unlike most other regeneration researchers, our main focus is on enterprise and economics.
  • We believe that business has a bigger role to play in devising regeneration policy. The Centre will help bridge the gap between public policy and business thinking. We will work with a number of UK cities to find out what’s really going on in deprived areas – from a business and enterprise perspective.
  • Over the coming year, we will publish reports on City People, City Markets and City Leadership:

-City People will find out why people have started moving back into city centres such as Manchester. Who they are, what they do and why they are there. And the catalyst effect they could have on wider regeneration.

-City Markets will explain business location and investment decisions in inner cities. The impact of big economic drivers and effectiveness of government policy initiatives.

-City Leadership will examine the current toolkit for economic development in our cities. And the economic case for devolving more spending, borrowing and revenue-raising powers to the city level.

  • In closing, let me leave you with a few issues for discussion:

-How effective have recent policy interventions been in promoting investment in deprived areas?

-How much – and what sort of – financial autonomy should cities have to increase investment in deprived areas?

-What more should deprived areas themselves be doing to attract investment?

  • Thank you for listening.

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