United Kingdom

England’s mayors cautiously welcome Kwarteng’s low-tax investment zones

The Truss government’s low-tax investment zones were cautiously welcomed by England’s directly elected mayors on Friday, but experts warned that the plans would require further devolution and planning reforms to be truly effective.

Details of the investment zones, announced by chancellor Kwasi Kwarteng in his fiscal package, have not been finalised. Ministers are in discussion with 38 local authorities in England about taking advantage of the new facilities, with 24 sites earmarked.

Local authorities in talks about becoming a zone include Blackpool, Cornwall, Derbyshire, Essex, Hull, Norfolk, North of Tyne, Somerset, Suffolk, South Yorkshire and the West Midlands.

Tax breaks under consideration for the zones include 100 per cent relief from business rates on newly occupied business premises, with local councils able to keep all additional long-term business rate growth.

Companies that invest will be able to offset 100 per cent of spending on new plant and machinery in the first year. There will also be tax breaks to be set against the cost of business premises in the zones, spread over five years.

The investment zones were designed by levelling-up secretary Simon Clarke and are loosely based on the freeport scheme led by former chancellor Rishi Sunak. The existing areas designated as freeports will be able to convert to investment zones.

Ben Houchen, Conservative Tees Valley mayor, said the zones would “send a message” about investment and help existing areas become more competitive “locally, nationally and internationally”.

“Investment zones go further than the recent freeport regime,” he added. “As well as greater tax incentives to attract businesses . . . they also reduce the bureaucracy and protracted planning process which often stops investments from happening all together.”

Tracy Brabin, Labour mayor of West Yorkshire, also cautiously welcomed the plans, saying she was “keen to work with the government and understand what is on the table”. But she added: “The devil is always in the detail.”

Others expressed scepticism. Seamus Nevin, chief economist at Make UK, the manufacturers’ organisation, warned that the new zones risked shifting existing economic activity rather than creating new business, while distorting competition.

Meanwhile Shevaun Haviland, director-general of the British Chambers of Commerce, said investment zones would deliver on the government’s vow to tackle regional inequality only if the scheme was truly UK-wide.

“The lessons must be learned from the past, otherwise they can simply displace growth and investment from one area to another without creating new economic activity,” she said.

The government said the new cross-country zones would provide “time-limited tax reliefs” and relaxed planning rules “to support employment, investment, and home ownership”.

Whitehall insiders said a more detailed policy document would appear in the coming weeks, but they added that failure to include planning reforms in the investment zones package would limit their overall impact.

Initial plans discussed by Truss’s policy team envisaged the revival of programmes such as the 2017 Oxford-Cambridge Arc, which envisaged building 1mn extra homes as part of plans to capitalise on the boom in life sciences.

The project, which sought to rebuild the “varsity” railway between Oxford and Cambridge universities, was shelved under Boris Johnson because of local objections to housebuilding and a decision to focus on the “levelling up” agenda in the north.

Whitehall insiders said the radical nature of the investment zones had been “overhyped” in terms of the scale of ambition. “We’ve gone from the OxCam Arc to an industrial estate in Cornwall,” said one.

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