The mini-budget announcement on 23 September reiterated the Government's backing of UK Freeports and brought with it the introduction of Investment Zones. The Government's Growth Plan offers some background and guidance on what Investment Zones will mean for the UK.

UK Freeports, originally announced in March 2021, are set to attract inward investment whilst also boosting exports and the positive balance of trade. They offer customs and tax benefits for businesses located at the designated Freeports and surrounding customs sites.

The mention of Investment Zones in the mini-budget and Growth Plan emphasises the Government's aim to drive growth via designated tax and development sites. The Plan also outlines the Government's approach to mirror and somewhat extend the incentives and arrangements at Freeport sites within Investment Zones, such as:

  • Lower taxes – businesses in designated sites will benefit from time-limited tax incentives (lasting for 10 years until 2032, increased from 5 years for Freeport tax sites) including:
    • Business rates relief on newly occupied business premises and certain existing businesses where they expand in English Investment Zones
    • Enhanced Capital Allowances during first year for companies’ qualifying expenditure on plant and machinery assets
    • Enhanced Structures and Building Allowance to allow businesses to reduce their taxable profits by 20% of the cost of qualifying non-residential investment per year (compared with the 10% allowance for Freeport tax sites)
    • Employer National Insurance contributions relief (with an increased cap on earnings for each employee of £50,270 per year compared with £25,000 for Freeport tax sites)
    • Stamp Duty Land Tax relief
  • Accelerated development – there will be designated development sites to deliver growth and housing. Where planning applications are already in flight, they will be streamlined and the Government will work with sites to understand what specific measures are needed to unlock growth, including disapplying legacy EU red tape where appropriate. Development sites may be co-located with, or separate to, tax sites, depending on what makes most sense for the local economy.
  • Wider support for local growth – for example, through greater control over local growth funding for areas with appropriate governance. Subject to demonstrating readiness, Mayoral Combined Authorities hosting Investment Zones will receive a single local growth settlement in the next Spending Review period.

It is worth noting that there is a lot of scope for further clarification around Investment Zones. Also, we have seen a number of reversals of the proposals under the Growth Plan and it is possible more changes may follow. There has been no mention of mirroring the customs measures available at Freeport sites.

Where could Investment Zones be located?

The process to become an Investment Zone required a rapid Expression of Interest and confirmation of local consent, the closing date for submissions being 14 October. The Growth Plan outlines that once confirmed, the Government will deliver Investment Zones in partnership with Upper Tier Local Authorities and Mayoral Combined Authorities in England, who will work in partnership with their relevant districts and/or constituent councils. The government announced it was in early discussions with 38 Mayoral Combined Authorities and Upper Tier Local Authorities who have expressed an initial interest in having a clearly designated, specific site within their locality (full list available in Annex A of the Plan). Areas were responsible for putting forward sites and demonstrating their potential impact on economic growth, including bringing more land forward and accelerating development.

The Plan also states that “Sites may be aligned with existing local growth strategies and transport plans. Sites that already have a masterplan, development order or outline permission could be considered as a potential Investment Zone, as could sites where planning consents are not yet in place. Development sites where planning simplifications apply may be co-located with, or separate to, tax sites, depending on what makes most sense for the local economy.”

Whilst many regions recognise the value that Investment Zones can have, some local authorities feel that both locally and nationally, a ‘one size fits all’ policy will not work. Those areas which do not submit an expression of interest and those which are not successful will continue to pursue their own local plans.

With the window for submitting applications having now closed, the government has indicated it will work quickly, fairly and accurately to process all applications received and will issue further information to areas at the earliest possible opportunity.

What does this mean for the Freeports initiative?

The expression of interest process for Investment Zones provided existing Freeports the opportunity to apply to convert to Investment Zones. Recognising the qualifying process that Freeport governing bodies have already gone through, Freeports who wished to apply to convert an existing Freeport tax site into an Investment Zone could complete a streamlined EOI process. In contrast the expansion of a tax site or the addition of new tax sites required a full expression of interest to be made. Freeports are expected to remain fully committed to the Freeport programme if their proposals are successful. Freeports that did not submit an EOI will not be converted to Investment Zones and will continue through delivery as currently planned.

Peter Snaith, Partner in the Global Business Team and manufacturing sector head at Womble Bond Dickinson, said:

“Extending a package of benefits similar to those at Freeport tax sites to a larger footprint of nearly 40 new Investment Zones across more parts of the country is good news and will help to unlock further growth across the UK.

"Businesses and communities in the hinterland surrounding Freeport sites may have struggled to appreciate how they will benefit from the trickledown effect of new businesses and high-quality jobs within the Freeport sites. Investment Zones will bring reliefs from stamp duty, employer national insurance contributions and capital allowances and other benefits already available inside the Freeport boundary to the surrounding area. This will enable direct access for supply chains, support services and social infrastructure developers to the benefits which can encourage and support new investment.

“Sceptics continue to flag the risk of the policy simply moving investments around, with existing businesses relocating to Investment Zones rather than creating new jobs. The investments we are beginning to see into Freeports would indicate this is, or was, unlikely to be a widespread issue. However, concerns around this will be heightened with many more areas benefitting from the package of incentives available.

“It is very positive that so many new areas across the country are now set to benefit from the package of incentives, but it is important that ports remain central to the initiative, especially when considering the combined tax and customs benefits as a full package.

“Whether policy is linked to Freeports, levelling up or some other slogan, the continued investment in supercharged enterprise zones at our hubs for cross border trade, coupled with the investment in transport and infrastructure, can serve to rebalance our national economy whilst also boosting international trade and supporting the innovation that our manufacturing sector and other sectors need to remain globally competitive."

In line with announcements around Investment Zones, extensive reference was made to the Government's commitment to Freeports. This suggests they wish to draw a distinction between the two. It's therefore likely that differences, in addition to those highlighted above, will come to light but only time will tell.

This article is for general information only and reflects the position at the date of publication. It does not constitute legal advice.