The UK government has recently announced the plan to establish several “investment-incentive” zones across the country. According to https://lordslibrary.parliament.uk the plan is to cut taxation rates for businesses and entrepreneurs in order to make them more willing to move their headquarters or local assets to these investment zones, thus making firms invest into local infrastructure and develop local economies.
What exactly is the UK government’s plan and what are the differences in taxation rates?
Investment zones are the government’s new proposal to set up dedicated geographic areas with specific tax and regulatory rules intended to drive economic growth. The precise rules within investment zones have not yet been confirmed, but they are set to include:
- Time-limited tax incentives for 10 years. For example, the zones are expected to provide:
- Lower employer National Insurance Contributions when employing new workers inside the zone.
- Lower business rates for new buildings, with the relevant local authority receiving all additional business rates income above an agreed baseline for 25 years.
- More generous capital allowances (deductions from corporation tax for investment) to encourage private investment.
- Lower Stamp Duty Land Tax for commercial property.
- Looser planning rules. It will be easier to build houses in investment zones, although exactly what this means in terms of regulation has not yet been set out.
- Greater control of local growth funds. Designated investment zones with
“appropriate governance” (meaning mayoral combined authorities) will receive a single “local growth settlement” at the next spending review, combining the various different pots of money that Whitehall provides to local government to drive different aspects of local growth (such as transport).
The growth plan raised the possibility that not all investment zones would have all of these benefits, with only mayoral combined authorities receiving consolidated funding, tax incentives only applying in England (because many of the relevant taxes are devolved in Scotland and Wales), and the government saying that “development sites may be co-located with, or separate to, tax sites, depending on what makes most sense for the local economy”.
In theory the UK government’s plan should work on paper, but there is a very high chance that bigger businesses will not make a move due to lack of subsidisation to cover the “move-costs” of the company. Moreover, the move would create huge decrease in profits for smaller companies due to a change in geographical position and newly-created transportation costs, so the most likely outcome would be that it is unlikely that the creation of investment zones will bring a massive change into UK economy.
This is an interesting take on the UK government’s plan to establish investment-incentive zones. I agree that there may be some challenges in attracting big businesses due to the costs involved in moving and there may be a decrease in profits for smaller companies with the changes in location and transportation. However, I think it’s important to give the plan a chance and see how it plays out in the long term. It will be interesting to see how the government addresses these concerns and if they are successful in driving economic growth.