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The Parliament Brief: Investment zones need more incentives, MPs told

Academics and industry leaders say that the benefits of zones and freeports for businesses are too limited.

By Harry Clarke-Ezzidio

Welcome to the Parliament Brief, where Spotlight, the New Statesman’s policy section, digests the latest and most important committee sessions taking place in the House of Commons and House of Lords. Previous editions can be found here.

Who? The Business and Trade Committee hosted an evidence session as part of its inquiry into the performance of investment zones and freeports in England. It was the committee’s second meeting since electing its new chair, the Labour MP Liam Byrne. The change came after the committee’s previous chair, Darren Jones, took up a position on Keir Starmer’s front bench following Labour’s recent reshuffle. The committee invited a range of political and policy academics, as well as business and trade leaders to give evidence in parliament.

When? 10:15am, Tuesday 24 October.

What was discussed? The government’s plans to launch a “refocused” investment zones programme, alongside the eight freeports that are already in operation across England. Investment zones and freeports offer incentives, such as lower tax and the relaxation of customs duties, to attract businesses to areas with the aim of driving economic growth and job creation. 

In the session, the committee focused on what academics, business and trade leaders thought about the progress that has been made so far on both investment zones and freeports. The committee’s main focus as part of its inquiry is to determine “how England can make the most of these policies now and in the future”.

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Why did this come up? Because there are many questions around how the new version of the Conservatives’ plans for investment zones, unveiled in March, differ from those first proposed by Liz Truss during her short tenure as prime minister last autumn.

There is not just a desire to ascertain the difference between the present policy and the “unlimited” number of investment zones Truss had envisioned, but how the new plans are different to “previous [cross-government] announcements, including enterprise zones/areas, local economic partnerships, city deals, combined authorities and power houses”, as Jones said when the inquiry was announced in June.

[See also: Equality, diversity and inclusion are no luxury for the NHS]

So what did they say? The first thing that Byrne, as committee chair, wanted was an “explanation, in plain English” of the difference between investment zones and freeports.

“There’s not a lot of difference between investment zones and freeports,” said Steve Fothergill, a professor at Sheffield Hallam University. The financial incentives offered by both are basically “identical”, he added, with the only “distinguishing factor between the two [being] that freeports have various exemptions from custom duties”.

Current proposals for investment zones are nevertheless “very different” to the ones offered up by Truss last year, Fothergill said. But the overall concept – having designated areas where financial incentives are used to entice investment – dates back as far as the 1980s, when the Conservative stalwart Michael Heseltine tried to introduce “enterprise zones” during Margaret Thatcher’s premiership. Freeports are a slight “variation on the theme”, Fothergill added. That said, “the actual investment incentives created by freeports are really rather small”, Peter Holmes, a fellow of the UK Trade Policy Observatory, told the committee.

In its announcement of the revived policy in March, the government said that spending on investment zones, alongside existing freeports infrastructure, would create “a small number of high-potential clusters in areas in need of levelling up to boost productivity and growth”. Investment zone areas will be offered total funding of £80m over five years, while each freeport is granted up to £25m in seed capital funding for infrastructure costs. But the academics questioned how likely it was the government would achieve its aim of boosting regional economies and creating new jobs.

“In the context of things, is this programme really going to make a difference?” asked the Conservative MP Mark Pawsey, who compared the pledged funding on investment zones and freeports with the combined £1bn the government will invest in steelmaking and car battery industrial projects. “No – these are not big amounts of money,” answered Fothergill. “If we want to make a success of the investment zones… you’ve got to look seriously at beefing up the package of incentives.” The most effective action would be to extend the incentives available to investment zones, such as stamp duty land tax and business rates relief, from five years to a longer period, he said.

Not all the jobs created by investment zones and freeports will be “net-new jobs”, Fothergill predicted. He explained that firms may have decided to be based in areas primed for such zones anyway, and that it would be “difficult” to calculate how many more jobs affected areas would get by being used as freeports or investment zones. Similarly, the displacement of other potential drivers of “economic activity” that would have otherwise been based on such sites means that it will be “hard to pin down” the specific effects the policy intervention will have on local economies.

Previous research on the old enterprise zones, however, found that there was a “net addition to employment” in affected areas, Fothergill added.

Anything else? The government aims to provide “sector-specific tailored support” for small and medium-sized enterprises (SMEs) to take advantage of investment zones. But there is a risk that they may be left behind, according to James Brougham, a senior economist at Make UK, an industry body representing manufacturers. According to recent polling from Make UK, only “63 per cent of the [manufacturing] sector are aware of what investment zones are… and of that 37 per cent that don’t know, you’re going to find a significant amount of SMEs”, said Brougham.

He added: “With any scheme related to business investment…  you’re going to find that the larger corporations will benefit more given the [additional] admin capacity and the ability to maximise those government schemes.”

What next? The committee has stopped accepting evidence for its inquiry into freeports and investment zones, and no more sessions are scheduled. In the meantime, the general public and small business owners may continue to scratch their heads over the differences between investment zones and freeports.

[See also: Greening the grid]

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