FT Hunt set to Axe ‘Tax Giveaway’ Investment Zones


Liz Truss’s plans for low-tax investment zones to boost UK economic growth are due to be axed by chancellor Jeremy Hunt in next week’s Autumn Statement.

Two Whitehall insiders said levelling-up secretary Michael Gove had lobbied hard for the zones to be ditched in favour of a revamped urban regeneration policy.

Although no final decisions have been made, and the zones might alternatively be scaled back dramatically by Hunt, government officials said the chancellor was expected to kill off what was a pet Truss project. The former prime minister wanted as many as 200 investment zones as part of her promise to turbocharge growth by incentivising companies to set up operations in the low-tax areas. The proposed zones would involve tax breaks including holidays on business rates and employers’ national insurance contributions for new workers earning less than £50,000 a year. During Truss’s premiership, the Treasury calculated the zones could cost “up to £12bn” in lost tax revenues each year — if a strict cap was not placed on the number — because they would subsidise economic activity that would happen anyway.

The zones would also involve streamlined planning consents and reduced environmental audits, which provoked strong opposition from conservation groups. As chancellor, Rishi Sunak had pursued a programme of low-tax “freeports” to help “level up” left-behind areas and narrow regional inequalities, and these had similarities to Truss’s investment zones. Officials said Hunt has put the investment zone programme under review ahead of the Autumn Statement on November 17.

Local authorities last month made initial bids to host the zones, having been set deadlines at short notice. “Everyone is just so knackered,” said one consultant who has been advising local authorities bidding for the government’s levelling-up funds. “They were led up the hill on something they didn’t want to do and didn’t believe in.”

Gove, the longstanding architect of Boris Johnson’s levelling-up agenda brought back into government by the current prime minister, told the BBC last month that Truss’s investment zones had “caused some concern”.  “One thing is we’ll look at them, we will review them, but there is no way we are undermining our environmental protections,” he said.

Whitehall insiders said Gove had told Downing Street that Truss’s investment zones should be “shelved” and that officials in the levelling-up department had “downed tools” on the policy. They added that in place of the zones, Gove was pushing plans for a series of “transformational” housing-led urban regeneration projects across the country. A government insider with knowledge of Gove’s thinking said he favoured an interventionist approach — whereby housing agency Homes England would be given a “more activist” role to kick-start regeneration by purchasing and clearing land for development. Such a move might be combined with mayoral development corporations that serve as regeneration bodies in some areas.

The Treasury declined to comment. The levelling-up department said: “All spending decisions will be considered in the round at the Autumn Statement.” Andrew Carter, head of the Centre for Cities think-tank, said he expected the Treasury would look to rebalance investment zones away from tax incentives and towards planning relaxations. “The Treasury is keen on planning reform as a means of delivering growth, but not remotely keen on tax giveaways,” he added.

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