Only a handful of “investment zones” based mostly around UK universities will get approval in next week’s Budget in a much more restrictive approach than that envisaged by former prime minister Liz Truss when she announced them last year.
During her shortlived tenure in Downing Street, Truss wanted to introduce as many as 200 of the low-tax, low regulation sites across the country in a demonstration of the government’s “levelling-up agenda” designed to narrow regional inequalities.
But Jeremy Hunt, the UK chancellor, has decided to scale back the plans sharply and is taking a more traditional Treasury approach by aiming to use the scheme to “catalyse” a limited number of growth clusters around research bases such as universities.
Some officials believe that, in practice, there could be as few as 10 investment zones, which are likely to get tax breaks including lower business rates, even if Hunt does not put a formal cap on their numbers.
In his Autumn Statement speech last November, the chancellor told MPs that the government would be changing its “approach to investment zones”, which would “now focus on leveraging our strengths by being centred on universities in left behind areas”.
However, the published version of the speech did not reference “left behind areas”, while the subsequent official Treasury document instead promised to “catalyse a limited number of the highest potential knowledge-intensive growth clusters”.
One senior northern official said on Monday that there was still “no clarity” about the precise nature of the scaled-back programme, but expected it to be linked to areas with a strong focus on research and development.
They also suggested investment zones could be announced for Greater Manchester and the West Midlands as part of new devolution deals that could feature in the Budget.
One reason the chancellor has sharply reduced the scope of the investment zone programme is to cut costs. These were put at £12bn annually in lost tax revenues, prompting fears in the Treasury of an “open-ended cheque book” at a time when the public finances were heavily constrained.
Officials suggest the scaled back plans will come with a much more constrained budget in “the low billions”, although this will depend on the final number of zones.
Hundreds of local authorities submitted bids for the original investment zones, only to be told weeks later that their expressions of interest “would not be taken forward”.
One government figure said the policy was taking a more Treasury-centric shape at odds with levelling-up secretary Michael Gove’s attempts to rebalance the economy.
“The Treasury will do what the Treasury does, they are more keen on projects like the Oxford-Cambridge arc, it’s classic orthodoxy to help areas which have got incredible amounts of investment already rather than shifting investment to places like Blythe Valley and Grimsby.”