Reinventing the wheel: a practical take on the UK’s new Investment Zones
Eighty-eight years after the Special Areas Act (1934) and 35 years after Margaret Thatcher took her iconic walk around the industrial wasteland of Thornaby in Middlesbrough, the UK is once again embracing the idea of Investment Zones (IZs) – priority areas benefitting from fiscal breaks, speedier planning and other priority funding.
Much ink has and will be spilt on the rights and wrongs of this policy. Our commentary is based on our long-standing involvement in regeneration, placemaking and local economic development across the UK, as well an appreciation of the international examples cited by the Chancellor.
Firstly, some political context. Announced in last Friday’s mini-budget, Investment Zones are positioned by the Government as a tool to drive growth and unlock housing by lowering taxes and liberalising planning to stimulate development and business investment. The extent to which they will work depends on whether you consider taxation and planning as the primary barriers to growth, but also on how IZs sit alongside existing place-based growth initiatives and governance frameworks.
The most successful Investment Zones will be those where local authorities and leaders understand their local economies and existing barriers to growth and can develop a vision and measures that will attract new capital and activity. Proactively engaging with developers and businesses and understanding how local Government and the new measures can influence perceptions of place. As a result, IZs offer a significant advantage to those already closely engaged with industry, and able to get to the bottom of viability, infrastructure, and skills problems. The latter is particularly important for the attraction and retention of high-productivity businesses.
We need to focus on embedding new activity in our local economies and society, ensuring further growth and long-term competitiveness rather than displacing economic development from one region of the UK to another. Otherwise, without a joined-up local approach, what will keep businesses in the area once initial incentives fall away? For example, in the 1990s the Dearne Valley Enterprise Zone saw businesses coming for the tax breaks and then leaving – a trend repeated in multiple EZ locations.
Canary Wharf can now be viewed as a huge success, but it has taken years, a well-publicised bankruptcy and initial hostility from the City of London. We need to get the land assembly and the market interface right if these zones are to be transformative enough to genuinely move the dial on growth.
There are some areas where the fiscal freedoms afforded by the new policy could be a boon for regional centres. Places like Plymouth or Belfast have struggled to address market viability concerns in both the residential and commercial arenas and may well benefit from the tools provided by IZs to incentivise investment. However, success in most areas will depend on working in partnership with different interests – this may be in formal structures (PPPs) or through active stakeholder bodies. Experience suggests that the best results will be achieved by active stewardship rather than the public sector simply getting out of the way. For some, a proactive public sector partner also provides a counterpoint to the market forces that IZs may unleash, ensuring that environmental impact, social value, design quality and economic wellbeing are not jeopardised in the pursuit of growth at any cost – albeit that such concerns are also important to an increasing number of private sector participants.
We also know that whatever the freedoms granted, unlocking growth potential often requires significant government support for infrastructure. The institutional challenge will be twofold: following through on the commitment to shift power away from the centre and ensuring Treasury agreement to significant funding. That is a shift that successive regeneration funding rounds have found hard to achieve. Robust, well-evidenced business cases may become more rather than less important in securing freedoms and funding.
Do local authorities, Mayoral Combined Authorities and others have the capacity to undertake the detailed analysis and modelling that the fiscal devolution will call for? Unlike in the United States, which has a long history of economic incentives at local and regional levels, UK local government has had limited autonomy in this area. Have the local authorities that need it most got the experience and understanding to pull the right levers? How will IZs sit alongside existing initiatives like Freeports? These are all areas to explore and unpack over the coming weeks.
