Budget: Tax incentivised UK Investment Zones to be established
Funding of £80 million each to provide support with spending and access to tax incentives for refocussed Investment Zones.
£80 million each for Investment Zones
A refocused Investment Zones programme has been launched, with the goals of growing priority sectors and addressing economic disparities between regions. The proposal is to provide targeted support to five priority sectors through access to a flexible package of support for businesses located in the planned 12 Investment Zones. For the eight zones in England, each Investment Zone is expected to benefit from Government interventions (including tax reliefs and grant funding) worth up to £80 million over a five-year period. Legislation to give access to tax reliefs equivalent to those for Freeports will be included in Finance Bill 2023 and the Government anticipates funding will commence in 2024/25.
The Government expects to establish 12 Investment Zone across the UK. Eight Investment Zones will be located in England. The potential locations in England have already been identified (the Mayoral Combined Authorities of East Midlands, Greater Manchester, Liverpool City Region, the North East, South Yorkshire, Tees Valley, West Midlands, and West Yorkshire) and reflect the Government’s ‘levelling up’ agenda by targeting areas which it believes have underperformed economically. Most of the published detail regarding possible incentives relates to these zones.
The remaining four Investment Zones will be located across Scotland, Wales and Northern Ireland (with at least one zone in each nation) and details of the incentives for these are to be agreed in conjunction with the relevant Devolved Administrations. For each of the areas in England identified as a possible location, the Government intends to work with the relevant Mayoral Combined Authority or Upper Tier Local Authority and other local stakeholders to develop tailored proposals for the Investment Zone.
Each Investment Zone is expected to focus on growing clusters of businesses aligned with one or more priority sectors: Digital and Tech, Green Industries, Life Sciences, Advanced Manufacturing and Creative Industries. Subject to the overall funding limit of £80 million for each zone, the plans envisage allowing considerable flexibility over the precise incentives offered to support these clusters.
This flexibility extends to any tax incentives. The incentives which could be offered correspond to those currently offered to Freeports, which includes:
- Full stamp duty land tax relief for commercial property;
- Full business rates relief for newly occupied and some other business premises;
- Enhanced capital allowances offering a full deduction for certain qualifying expenditure on plant and machinery;
- Enhanced structures and buildings allowance, broadly allowing relief for 10 percent of the cost of relevant structures and buildings each year; and
- Relief against the cost of Employer’s National Insurance contributions for new employees.
Among the key design decisions for each Investment Zone will be whether to offer the full package of tax incentives and the size of the site(s) in which these will be available. In some cases, the proposals for individual Investment Zones may opt for an approach which does not maximise the potential use of tax measures so as to preserve a larger proportion of the overall £80 million funding envelope for other interventions (for example, grants, training, infrastructure and support services).
Where the full package of tax incentives is provided across Investment Zones and the sites are the maximum permitted size (600 hectares), then the Government estimates the value of these tax measures over five years at £45 million per Investment Zone, although clearly the value for each business located in an Investment Zone will be rather less than this.
With the approach to be adopted in each case being influenced by local stakeholders, the flexibility in how incentives are provided and resulting likelihood of different Investment Zones taking different positions raises the prospect of an interesting economic experiment, comparing the relative attraction of tax and non-tax measures in encouraging investment and growth.