The Chancellor’s Autumn Statement saw the confirmation of five new investment zones across the UK – two of which stand to benefit Wales – one in Cardiff and Newport and the other covering Wrexham and Flintshire.
Designed to embed innovation and support the growth of priority sectors, leveraging existing strengths, the new investment zones in Wales target, amongst other sectors, advanced manufacturing in North East Wales and the compound semiconductor cluster in South East Wales.
Interestingly, both will be delivered by the nascent corporate joint committees (CJCs) which have the same geographies as the North Wales Growth Deal, known as Ambition North Wales, and the Cardiff Capital Region City Deal.
Within the same announcement, it was confirmed that the duration of investment zones and freeports will be extended from five to ten years, and the creation of a £150m Investment Opportunity Fund to support both secure business investment over the next five years. This represents a great opportunity to embed innovation in local and regional economies, boosting productivity.
Investment zones are similar to Welsh Government’s previous enterprise zones policy, but with two additional elements. The first is a pot of flexible grant expenditure to link anchor knowledge institutions – primarily universities – to the targeted growth sectors.
The other element is the availability of Business Rates Retention for the CJC to invest upfront in public infrastructure to stimulate, encourage, and de-risk private sector investments.
It is interesting to note that the five new investment zones target core or secondary cities in the UK - areas where the private sector is open to investment but need a little encouragement. In contrast the old enterprise Zznes were located in areas of high deprivation in the main, where tax incentives alone were never enough to persuade the private sector to invest at the levels needed.
The total package is potentially attractive enough to influence the location and possible scale of growth.
The measure to allow specific investment zones sites to benefit from 100% retention of business rates growth over an agreed baseline for 25 years, is the one that could generate the most significant investment sums on larger commercial schemes. In principle this could be capitalised and the local authority could use prudential borrowing to pay for significant infrastructure investment to unlock development.
However, the devil will be in the detail, with the sharing of development risks and guarantees of future rates income being a critical factor affecting success and value to the tax payer.
Clarity of policy direction will be just as crucial. Whilst there needs to be an assessment of displacement and some appropriate adjustment, it is vital remaining business rates are retained for investment by the CJC.
Our experience indicates that there are strong advantages in tapping into private sector proposals and work although this can lead to complexities over public sector requirements to demonstrate they are not unduly favouring specific organisations.
Questions will inevitably arise on whether this new and innovative approach is simply displacing investment from elsewhere and/or whether that would have happened regardless. This is something that needs to be assessed.
Whether investment zones genuinely create new growth and activity will depend on the degree to which local markets are constrained by demand or supply, and the extent to which market failure and viability gaps are addressed.
If handled well, investment zones represent significant incentives to productive investment and development – incentives which our economy so badly needs. The policy should align with the Welsh Government’s new economic mission, with four punchy priorities that seek to strengthen the regions and close the productivity gap.
To realise a regional reward, risk must be
managed and shared strategically to deliver real value at both local and national level.
- Nick Bennett is economics director Wales Savills
