The incentives to capital in the UK Enterprise Zones

This paper provides a systematic assessment of the incentives to capital investment in UK enterprise zones. It compares different investment projects between industrial sectors, types of asset, sources of finance and type of investor using the ‘costs of capital’ methodology. In addition micro-economic and macro-economic effects are compared, as are EZs in round 1 and round 2, and the relative importance of capital allowances and property tax relief is considered. The paper demonstrates that capital allowances are the more important incentive, particularly in round 2 EZs. The greatest incentives are to building assets, for commerce, financed by debt and tax exempt institution. The greatest benefits offer an increase of between 7.6 and 8.7% in real rates of return on investments.