Investment Zones a welcome boost for UK's countryside counties

7 November, 2022

Two weeks — that was all the time that English council areas were given to put forward an expression of interest to join the country’s new Investment Zone initiative, signing up to a plan that could reshape business interests in their area for the next decade or more.

But the strong response from regional areas in particular suggests the initiative has been well received, even if some community groups remain concerned by a lack of detail around the liberalisation of planning rules that will accompany the new regime.

What is an Investment Zone?

The UK government describes the aim of new zones as a way to “drive growth and unlock housing, with sites benefiting from tax incentives, planning liberalisation, and wider support for the local economy”.

The offer was made in the September mini-budget to any Mayoral Combined Authorities and Upper Tier Local Authorities in England that would like to nominate specific sites within their boundaries.

There are plans to eventually roll out the option for Scotland, Wales and Northern Ireland.

With just 14 days given to authorities to confirm their interest, at least 38 locations were said to be already in negotiation with the Government, many of them hoping to benefit from generous tax incentives, reduced planning complexity and employer National Insurance relief.

Yet a month on from the original announcement, there is concern that some regions might miss out as the Government seeks to temper enthusiasm with the economic reality of rolling out the initiative.

Paving the path to growth

Brendan Sharkey, Head of Construction & Real Estate at Baker Tilly network firm MHA UK, says the initiative will appeal to many communities, particularly in the north of England.

Those that have put forward a bid will be looking for an opportunity to attract employers and businesses that can create jobs, encourage a critical mass of activity and support longer-term economic improvement.

“The actual incentives are pretty good,” he says.

“Once you get industry working in a place, that creates employment and you start to get the multiplier effect, because then you’ve got schools coming, you’ve got infrastructure investment, you have more goods and trade, and you are bringing income into the area.

“My reading is that the Conservatives overstepped the mark in the sheer number they were looking to support, and I think that will be rolled back, but you will end up with a number of Investment Zones that have a defined set of rules for business.”

MHA UK Tax Partner Glen Thomas says the tax incentives offered by the Investment Zones are also generous — even by the standards already set for the UK’s planned Freeport program.

Some incentives include 100 per cent relief from business rates on newly occupied business premises, and certain existing businesses where they expand in English Investment Zone tax sites.

Companies can also take advantage of enhanced capital allowance rules, giving 100 per cent first-year allowance for qualifying expenditure on plant and machinery assets, and accelerated relief on structure and building allowances so businesses can relieve 100 per cent of their cost of investment over five years.

But the mix of business likely to be attracted to an Investment Zone over a Freeport is different, he says, with international investors more likely to lean to Freeport locations for their customs incentives and domestic investors looking to Investment Zones for expansion and relocation.

“I think Freeports are more outward-looking rather than inward-looking,” Mr Thomas says.

“The main benefit of a free port is the customs exemption, so if you are in another jurisdiction, you can set yourself up in a Freeport, maybe set up a manufacturing base, import your raw materials, process it and then export and none of that would be subject to any UK customs duty.

“But the tax breaks at a Freeport are not as generous as they are in an Investment Zone.

“In Investment Zones, for business rates you get up to 10 years relief, for Freeports, up to five years. For enhanced  structures and buildings allowances, basically you get 20 per cent relief a year in an Investment Zone, and 10 per cent relief for a Freeport.”

Expansion opportunities for growing business

Those tax incentives will have an impact on businesses looking to expand or relocate, says Mr Sharkey, who has a London-based client likely to take advantage of the initiative if an appropriate area adopts the scheme.

“It’s a small case, but he’s looking to build a $50 million factory in the north, to expand on his base in London,” he says.

“He’s moving out to expand because of the costs and price of storage and rates in London.

“If he could get a helping hand on the financing costs, or capital allowances, that’d be quite a stimulus for him.”

But while the move might support businesses who already have growth plans in train, Mr Sharkey doesn’t think it will have a distorting effect by undermining towns or regions that fall outside of Investment Zones.

As an example, Oxfordshire County Council has already announced it would decline the option of joining the Investment Zone initiative, arguing this would not reduce its success in attracting high-value investment.

“I would be surprised if somebody said we’re just going to move for tax breaks — there has to be another set of drivers,” Mr Sharkey says.

“Behind every owner-managed business, there’ll be a senior management team that will be local and who will be weighing up the decision around infrastructure, access to labour, primary and secondary schools, and their family lives. Their objective would not be to disrupt the business or their lives unnecessarily.”

Environmental concerns temper excitement

Despite the enthusiasm for Investment Zones, there has been some push-back from communities concerned with the pro-growth rhetoric of the original announcement and the prospect of weaker planning regulations.

The head of the Woodland Trust warned that ancient woodlands were found within the council areas known to have been in negotiations for Investment Zones, while the Royal Society for the Protection of Birds called the plans “an attack on nature”. 

Mr Thomas says that the original language around liberalising planning consent was already being walked back.

Levelling Up Secretary Michael Gove told Sky News he would be reviewing the program and “under no circumstances will we weaken environmental protections”.

But the message from business, he said, was the need for investment certainty.

Even if additional environmental protections were required, businesses and developers would adapt provided they knew exactly what to expect.

“It kills investment,” he says of the political chaos of the past few months, with changes in leaders and shifting positions on economic policy.

“If you don’t know what’s going to happen, people keep their money in their pocket and for the UK right now, that’s a significant problem.”

Meet the experts
Brendan Sharkey
Glen Thomas
Tax Partner

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