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Turbo charging growth: what role for Investment Zones?
The proverbial midnight oil has been burning late in civic centres across England – and in Lichfields’ offices – for the past two weeks as Mayoral Combined Authorities (MCAs) and Upper Tier Local Authorities (UTLAs) got to grips with the government’s hastily-launched Expression of Interest (EOI) process for the creation of new Investment Zones. The window for submissions closed last Friday and interest was, predictably, reported to be very high. But with the government’s Growth Plan unravelling this week, it remains to be seen what the ultimate package of incentives available within Investment Zones might be, the potential number of designated sites across the country, and the overall cost of the programme. While new chancellor Jeremy Hunt was quick to reaffirm the government’s commitment to Investment Zones[i], it’s clear that the forthcoming Medium-Term Fiscal Plan will give limited room for manoeuvre. At the end of September when the Growth Plan was delivered as part of the now infamous “mini-Budget”, the premise seemed simple enough: turbo charge growth through a sweeping programme of supply-side reforms in the quest for the holy grail of 2.5% annual GDP growth (this being around the long-term growth rate of the UK economy in the post-war period up until the 2008 global financial crisis). In this context, Investment Zones were positioned as something of an early policy response – having already been trailed in the summer by Liz Truss during the leadership campaign – that would “cut back unnecessary bureaucratic requirements and processes and red tape that slow down development, cut taxes to back business, and, as a result, attract new investment to create jobs.”[ii] Within designated sites, the government is proposing that a variety of tax, regulatory innovations and flexibilities (requiring primary legislation), and planning simplifications will come into force. This includes time-limited tax benefits, including 100% business rates relief on newly occupied and expanded premises, and a zero rate of national insurance contributions on new jobs up to earnings of £50,270. MCAs and UTLAs will be allowed to retain income from future business rates in the zones above an agreed baseline for 25 years. If this all sounds familiar, it’s because we’ve seen something similar before. There’s naturally something philosophically appealing for the government to return to what was one of the hallmarks of Conservative economic and regional policy during the 1980s when Margaret Thatcher (with Michael Heseltine) rolled out Enterprise Zones (EZs) across the UK. In total, 38 EZs were designated between 1981 and 1996, with most being designated between 1981-1984. With the passage of time there’s possibly a rose-tinted view in some circles about how effective EZs actually were. In 1995 the government published its final evaluation of the 1980s EZs.[iii] This concluded that performance of the zones had been mixed: they had generally been most successful where they had regenerated large-scale derelict urban sites (e.g. Isle of Dogs, Salford) and had supported specialist sectors to grow and new business to start-up. Overall public to private sector investment leverage was in the order of 1:2.3, but only around half of jobs created were actually net additional in overall terms.[iv] A second generation of 24 EZs followed during the 2010-2015 Coalition Government. The logic then, as now, was that they would be aimed at the “parts of Britain that have missed out in the last ten years”[v] and would help to counterbalance a severe period of national fiscal austerity – which all sounds very topical. A report by Centre for Cities in 2019 concluded that the number of jobs created in these zones over the first five years had underperformed HM Treasury estimates, with at least one-third of the jobs created having come as a result businesses moving from elsewhere rather than the creation of new jobs by new businesses.[vi] If anything, it underlined that EZs can take a long time to deliver returns – something today’s policy-makers will need to reflect upon. So what could all this mean for Investment Zones? This time around, government has clearly emphasised that it wants zones to bring forward additional development, with a focus on both commercial and residential – and more specifically “where it can be demonstrated that they will have greatest impact on growth and housing supply”, and “will particularly support regeneration of undeveloped and under-developed areas”.[vii] Amid concerns about potential deregulation leading to reduced environmental and other protections – and it is worth noting some areas have expressly not submitted EOIs for this reason[viii] – Simon Clarke, Secretary of State for Levelling Up, Housing and Communities, has reiterated: “Investment zones are not in any way about cutting away environmental protection. They are about streamlining planning and making sure that lower taxes are on offer in targeted sites. Overwhelmingly, they will benefit brownfield regeneration projects, which would otherwise take years to unlock.”[ix] In part these questions arise because there is much detail still to be confirmed about how Investment Zones will operate in practice, including in relation to streamlined planning measures. In a recent article in The Independent, I posed the question of whether Investment Zones could become early test beds that might give us hints about the government’s intentions for wider planning reform.[x] It is worth recalling that there was an intrinsic simplicity to the execution of the original EZs – in essence, the zone authority would design a development scheme and submit it to the Secretary of State for approval – and then development in accordance with the approved scheme could expect to get the green light.   But translating a 1980s policy into something workable for the 2020s would not be without its complications, whilst any paring back of certain policy protections such as Green Belt has already been expressly ruled out. Furthermore, local development orders are already possible in existing EZs and freeports, and others have noted that provisions for simplified planning zones and planning freedom schemes are already contained in existing legislation.[xi] However, these can still take considerable time and upfront work to bring forward, so will government seek to go further and faster to ensure that local areas can “go for growth”?[xii] Ultimately, there will be important work to do as part of the “delivery plans” that prospective Investment Zones will need to bring forward if they are selected. These plans will particularly need to focus on the twin tests of additionality and acceleration, with clear targets being set and timelines for implementation defined. In the interests of political expediency, and as the need for significant cost savings weighs heavily on the Medium-Term Fiscal Plan due for release on 31 October, we can expect zones to be prioritised and possibly to be announced in tranches. Before his resignation, former chancellor Kwasi Kwarteng had already suggested the total number of zones needed to be capped nationally at no more than 40 given HM Treasury concerns about the potential cost, but Liz Truss is reported to have insisted there should be an unlimited number nationally.[xiii] At this point, Investment Zones may be one of the few surviving announcements from the mini-Budget; unless, of course, Jeremy Hunt thinks differently.    [i] See HC Deb, 17 October 2022, vol 720, col 403[ii] Guidance on Investment Zones in England, 24 September 2022 – see here[iii] Final Evaluation of Enterprise Zones - see summary here.[iv] See discussion in Tyler, P. (2012) Making Enterprise Zones Work: Lessons from Previous Enterprise Zone Policy in the United Kingdom,[v] George Osborne, Speech to Conservative Spring Conference, Cardiff, 5 March 2011 – see here (£)[vi] “In the zone? Have enterprise zones delivered the jobs they promised?”, Centre for Cities, 11 July 2019 – see here.[vii] Investment Zones: expression of interest guidance, 11 October 2022 – see here.[viii] See for example statement by Oxfordshire County Council, 12 October 2022[ix] See HC Deb, 17 October 2022, vol 720, col 366[x] “Levelling Up: Investment zones could lay ground for bonfire of red tape, say planning experts”, The Independent, 5 October 2022 – see here.[xi] See discussion by Simon Ricketts, 8 October 2022,   [xii] Areas urged to 'go for growth' as Investment Zone applications open, 2 October 2022 – see here.[xiii] “Truss overrules Kwarteng on number of UK investment zones” – Financial Times, 7 October 2022, see here (£).


New season, new challenges – the 2022 Spring Statement
As Rishi Sunak presided over today’s Spring Statement, the government’s last fiscal event – the Autumn Budget and Spending Review – felt like something not just from a different season, but a different era. Much has clearly changed in the six months since last October; first, the Omicron variant prolonged the effects of the Covid-19 pandemic over the winter, and second, the war in Ukraine has created humanitarian and geo-political impacts with far-reaching economic consequences without parallel in recent times. The combined effect of these is borne out by the latest figures which show that the UK economy contracted again (briefly) in December 2021 as the Plan B restrictions weighed down on activity, and forecasts published today by the Office for Budget Responsibility (OBR) were revised down from 4.9% to 3.9% for 2022, and slowing further to 1.8% in 2023 as the post-pandemic ‘bounce back’ fades. Notwithstanding these factors, so far business confidence has generally held up well and the labour market remains buoyant. Better weather, longer days and the absence of Covid restrictions also give reasons for optimism. Consumer sentiment is, however, showing some signs of faltering in response to the squeeze on real household disposable incomes, and there’s a widespread expectation that the housing market – so often a barometer for the wider economy as a whole – will cool off as the year progresses. Inflation driven by rising prices for global energy and tradable goods (and the UK being a net importer of both) will create strong headwinds for the foreseeable future, and even the Bank of England recently conceded there is little that monetary policy can do about this in the short term at least. There’s been some relative improvement in the public finances, but civil servants at HM Treasury know that fortunes can change quickly and servicing government debt is becoming more expensive. So with things finally balanced, in recent weeks the Treasury’s official position has been that the Spring Statement would be unapologetically “policy light”. At the same time, Sunak has been busy managing expectations by reminding us that government spending alone can’t provide for all eventualities. But it was inevitable that demands would be made for the Chancellor to help cushion the impending cost of living crisis and to help bolster the economy in uncertain times – to which he responded with immediate measures announced to temporarily cut fuel duty, raise National Insurance thresholds from July, introducing zero VAT ratings for some energy efficiency measures and an increase in the Employment Allowance, amongst others. Finally, Sunak wanted to deliver on his political conviction to be seen as a tax-cutting chancellor by announcing a cut to the basic rate of income tax from 20% to 19% from April 2024. However, what savings all these measures will deliver for households in real terms remains to be seen, and the OBR has concluded that the net effect will still see an increase in taxes in the long-run. It wasn’t particularly the time or backdrop to headline any new policy decisions on planning, housing or regional growth measures. There was, however, a re-statement of the government’s priorities to promote economic growth and increase living standards. These comprise tackling some of the fundamentals that have held back productivity levels: -  Capital — cutting and reforming taxes on business investment to encourage firms to invest in productivity-enhancing assets. -  People — encouraging businesses to offer more high-quality employee training and exploring whether the current tax system – including the operation of the Apprenticeship Levy – is doing enough to incentivise businesses to invest in the right kinds of training. -  Ideas — delivering increased public investment in R&D and doing more through the tax system to encourage greater private sector investment in R&D. A broader question is where this now positions the government’s “levelling up” agenda following the White Paper published last month. With progress having been stalled by the pandemic, it is firmly set as a flagship policy across Whitehall and government wants to make a visible down payment on its promises to voters ahead of the next general election. While the Spring Statement confirmed the launch of the second round of the Levelling Up Fund (£4.8 billion for local infrastructure projects, of which £1.7 billion has already been allocated), there remains no extra spending available over and above what had already been set out in the Autumn Budget. In an interview to coincide with the conclusion of his six-month tenure as head of the government’s levelling up task force, Andy Haldane acknowledged that the impact of the rising living costs we are now seeing will fall disproportionately on those in the “left behind” areas that the policy agenda is intended to help the most. But he remained clear that while achieving the 12 levelling up “missions” will now be harder, particularly by 2030 as intended, it arguably makes the very rationale for delivering on the missions themselves even more important. These missions will soon become enshrined in legislation, holding government to account on monitoring and delivering progress in the future. So while levelling up policy is not just confined to matters of more public spending – which must work in tandem with devolution of powers to local areas and other reforms – one suspects that this is something that future budgets and spending reviews will need to return to. Image credit: @RishiSunak on Twitter