December 7, 2022

Kwasi Kwarteng announces ‘investment zones’ with huge tax cuts for businesses | Mini-budget 2022

3 min read
Kwasi Kwarteng announces ‘investment zones’ with huge tax cuts for businesses | Mini-budget 2022

Businesses will receive big tax cuts and relaxed planning restrictions in new “investment zones” across the country, the chancellor, Kwasi Kwarteng, has announced.

Stamp duty will be abolished, employment taxes will be slashed, planning rules will be swept aside and companies will be able to completely write off investments in plant and machinery in the zones as part of the plans, Kwarteng announced in a mini-budget on Friday, as part of a major package of tax cuts.

The controversial announcement has already drawn fire from tax campaigners, who described it as triggering a “race to the bottom”. The shadow chancellor, Rachel Reeves, said the plans would result in “moving growth around the country, not creating growth”.

Planning changes under consideration are thought to include removing restrictions on height limits and potentially ditching requirements for affordable housing alongside developments, as well as other regulations such as environmental rules.

In a sign of the breakneck pace at which sweeping new measures are being introduced, the Treasury said it was unable to provide details of how much they would cost because “full details on implementation are yet to be determined”.

investment zones graphic

The government is talking to 38 local authorities in England about the plans, with 24 sites already earmarked as prospects.

Those included sites at Coventry and Somerset that are hoping to attract investments in “gigafactories” to make car batteries, industrial areas around existing car plants in Ellesmere Port and Sunderland, airports at Teesside and Newquay, and urban centres ranging from Blackpool and Plymouth to Workington.

Scotland, Wales and Northern Ireland will also “benefit if they are willing to do so”, Kwarteng said.

“That is an unprecedented set of tax incentives for businesses to invest, to build and to create jobs right across the country,” Kwarteng said. “If we really want to level up, we need to unleash the power of the private sector.”

The Treasury said applications would be “open to everyone”. However, areas will only qualify – with the associated planning liberalisation – “after local consent is confirmed”, suggesting the policy is unlikely to herald a broader overhaul of the UK’s planning system.

Tax cuts will be central to the plans to attract companies. Businesses will receive “accelerated” tax reliefs for 10 years for structures and buildings, and 100% tax relief on investment in plant, machinery and new buildings.

There will be no stamp duty on purchases of land and buildings for business or residential development in those zones – but house purchases within the zones will still be subject to the tax. Businesses will not pay business rates on newly occupied or expanded premises.

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Employers will also pay no national insurance contributions on the first £50,000 of workers’ salaries – but only if they are based on site for 60% of the time.

Kwarteng’s policy leaves a question mark over the freeports championed by Rishi Sunak when he was chancellor. The Treasury on Friday said it “remains committed” to eight freeports already announced, which were to have many of the same tax and planning perks, but that it would examine how they will work with investment zones.

Paul Monaghan, the chief executive of campaign group the Fair Tax Foundation said the government was setting up “another race to the bottom”.

“They’re now setting up towns and cities across the country to beggar-thy-neighbour at a local level,” he said. “Businesses relocate just over the line, so there’s an area of depressed economic activity around it.”

The investment zones policy was warmly welcomed by the Adam Smith Institute, a libertarian thinktank whose former staffers have influential roles in Liz Truss’s government.

Morgan Schondelmeier, the Institute’s director of operations, said the plans would “turbocharge growth”, even as she also acknowledged “risks associated with government picking winners – situating the zones in politically convenient places”. The zones would allow the government to test deregulatory policies that could then be tried at a national level, she said.

https://www.theguardian.com/uk-news/2022/sep/23/kwasi-kwarteng-mini-budget-announces-investment-zones-with-huge-tax-cuts-for-businesses

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