Levelling up, or dumbing down? Rishi Sunak and the UK Investment Zones

On 23 September 2022, UK chancellor Kwasi Kwarteng announced a plan for growth and ‘levelling up' in the UK, which was to become a cornerstone of financial policymaking in the all too brief Liz Truss era. The idea was that more attractive tax and regulatory rules could be granted to some geographic regions in the UK, encouraging the creation of jobs and boosting economic growth. These areas were to be known as Investment Zones.

Local businesses were encouraged by the plans, seeing the opportunity for investment in projects all over the UK. The prospect of a meaningful levelling up, bringing the North towards the same economic level as the South, was real – and many bids were made to local councils.

Who would benefit and how?

If the new rules were fully approved, they would have focused on research institutions such as universities by driving growth in the UK's tech hubs, the creative industries, life sciences, advanced manufacturing, and the environmental sector.

The benefits would include lower taxes, including a 100% relief from business rates on newly occupied business premises and certain existing businesses. In addition, employment taxes would be cut, and stamp duty scrapped.

What happened then?

The Liz Truss administration introduced the plan, but with the political environment moving at breakneck speed, it was not long before Kwasi Kwarteng was deposed as Chancellor, and the agenda changed. With Jeremy Hunt installed in the job, he soon told the House of Commons that while he supported the benefits Investment Zones can bring, he proposed the government implement the policy by shifting the focus to research and development in universities.

The plan would also involve reduced regulation for businesses in these regions, described by the government as “disapplying legacy EU red tape”.

Addressing the Commons during a speech to announce the autumn statement – https://bit.ly/41BEIMU [source: The National UK] – the Chancellor said: “To spur competition, I have listened to requests from businesses, and I'm removing import tariffs on over 100 goods used by UK businesses in their production processes, from car seat parts to bicycle frames. I will also change our approach to Investment Zones, now focusing on leveraging our research strengths to help build clusters for our new growth industries.”

Under Rishi Sunak, however, the government is scaling back. Now hundreds of bids by councils to be granted tax exemptions and liberalised planning rules under the “Investment Zones” scheme have been removed as the government dismantles the projects. Sources report that ministers were trying to scale down the scheme while restoring some key aspects to appease the previous minister and her allies.

Last year, it came to light that approximately 80 local authorities submitted bids to be designated as Investment Zones. Organising these bids presented a burden for councils already facing financial constraints. The Local Government Association estimated that the expense of assembling each competitive funding bid would amount to around £30,000.

Although the Investment Zone project was never fully finalised, there was a flicker of cautious optimism from regional tech figures across Britain who hoped it could support the levelling up agenda – https://bit.ly/3HAPvPx [source: UKTech.news).

In recent years, the tech industry in the North of England has experienced rapid growth as it seeks to challenge London's dominance. Statistics indicate that funding for tech startups in regions such as South Yorkshire has substantially increased over the past half-decade. This growth has been partially driven by regionally focused investment firms like Northern Gritstone and Praetura Ventures, which target startups in underrepresented parts of the country.

Yiannis Maos, CEO of Birmingham Tech, had muted that he was “generally positive about the investment zones”, adding that Investment Zones “offered a good opportunity for levelling up tech across the West Midlands” with the expectation that this would “encourage and incentivise more organisations to embark on ambitious technology projects”.

He was also optimistic that a West Midlands Investment Zone could work alongside existing tech growth drivers in the area, such as the Innovation Accelerator – https://bit.ly/3HrkZan [source – West Midlands Combined Authority]. But with the common concern from the regional tech community that the lack of detail is evident, there needed to be a clear picture of what this would look like in practice.

“The new Investment Zones announced in the mini-budget offer a real opportunity for growth if they can help boost local digital capital by accelerating the deployment of digital infrastructure, building digital skills, and giving local businesses and investors across the UK the incentives and access to finance they need,” said Neil Ross, associate director for policy at TechUK.

“However, the detail is not there yet – government should work with industry to provide more clarity for businesses looking to invest in the country and support the growth of the economy.”

Achieving a balanced growth of the UK tech sector still has a considerable distance to cover, as evidenced by data from KPMG published in August – https://bit.ly/41SGmcY. The report revealed that London secured 81% of all British venture capital investment, highlighting the ongoing disparity in regional investment.

What happens now?

The streamlined scheme now looks set to create fewer than 20 zones in the UK, focusing primarily on universities. A replacement scheme was planned for rollout, but it was called off at the last minute after reported disagreements between the Treasury and Levelling Up departments. Lee Rowley, Levelling Up minister, gave the reason as a refocus on “productivity, improving growth and job creation”, admitting that “the previous expression of interest process will not be taken forward”.

The government are committed to working closely with local authorities. Still, the benefits are less clear, with some ministers wanting to ensure the time and money spent by councils on their applications was not for nothing.

Which areas will be designated as Investment Zones?

• Greater Manchester
• Liverpool City Region
• South Yorkshire
• Tees Valley
• West Midlands
• West Yorkshire
• East Midlands (proposed MCA)
• North East (proposed MCA)

Time for a rebrand?

Moving forward under Rishi Sunak, the term' Investment Zone' will unlikely last. ‘Development', ‘innovation' and ‘academic' are all words that have been touted for the slimmed-down approach. Still, Labour is deeply sceptical in response, criticising ‘sticking plaster policies' and reaffirming the party's commitment to ‘the biggest ever transfer of power out of Westminster'.

Is there a future for Investment Zones?

The million-dollar question – a government spokesman stated that the information gathered from councils was invaluable and would ‘inform the new Investment Zones programme'. A covering statement for now as we seek guidance on how local authorities and councils can secure better prospects for their businesses in the coming months and years.

Other links for reference:

Northern Gritstone:

https://northern-gritstone.com/

Praetura Ventures:

https://www.praeturaventures.com/about/