Liz Truss is preparing to go ahead with an unlimited number of “investment zones” despite a government row that it could hand over an unfunded blank check of tax breaks to companies.
The Treasury is said to have raised concerns about “carpet bombing across the country” involving investment zones, with the government about to announce a call for areas to apply within days – as conservatives prepare for their annual conference in Birmingham.
However, Whitehall officials, including at the Treasury, are deeply concerned about the potential liability of not limiting the number of areas allowed to receive favorable tax and planning treatment. There is also concern that some of the tax breaks under consideration will last 10 years.
The additional unfunded spending comes after a week of market turmoil and a Bank of England bailout of pension funds thanks to the government’s mini-budget that promised £45bn in tax cuts paid for by loans.
Within the new investment zones, companies will receive significant tax cuts, including abolishing stamp duties, lowering labor taxes, setting aside planning rules and completely writing off investments in machinery and equipment for companies.
An ongoing row is raging in Westminster with some officials from the Treasury and the Department of Housing, Leveling Up and Communities worrying about the potential implications of providing unlimited tax breaks to businesses. In last week’s mini-budget, the chancellor Kwasi Kwarteng did not put a cost tag on the policy.
A government source said there had been a discussion about limiting the numbers, but Truss’s team had pushed back despite officials raising concerns. The Treasury Department is one of the departments that has objected, but a source said Kwarteng would supply anything Truss wants.
Another Whitehall source said some in government have pushed for a cohort of several dozen, but No. 10 repeatedly demanded more.
After 38 areas have been approached and asked to consider becoming investment zones so that they can be announced by Kwarteng in its mini-budget, the offer to make a formal expression of interest will be made to all local authorities. The announcement has reportedly been pushed back several times due to the row between departments.
There was no costing for investment zones in Kwarteng’s growth plan document, which stated: “It should be noted that for some policies, e.g. investment zones, full details of implementation are yet to be determined, meaning it is not possible to provide a costing to publish. in this stadium. Such policies will be included in public finances in a future OBR forecast, as soon as there is sufficient certainty about their implementation.”
The controversial announcement has already drawn fire from tax activists, who described it as causing a “race to the bottom”. Shadow Chancellor Rachel Reeves said last week the plans would result in “growth across the country, not growth creation”.
Planning changes under consideration include removing restrictions on height limits and possibly emergency landing for affordable housing alongside developments, as well as other regulations such as environmental regulations.
Shadow Leveling Secretary Lisa Nandy said: “More unfunded loans in unplanned investment zones will only add to the market chaos caused by the Tories.
“These investment zones will do nothing to level up. Removing measures, destroying the environment and demolishing affordable housing is reckless and offers no prospect of sustainable growth.”
Not all Conservative MPs are impressed either, though the policy is less unpopular than scrapping the 45p tax rate and abolishing the bonus cap for bankers. A Tory MP said: “You either have investment zones or an investment country – if you want the latter, what’s the point?”