UK business owners have been on a bit of a rollercoaster the past few years. There’s been Brexit, a global pandemic, the tragic, ongoing war in Ukraine – and not to forget the rolodex of leadership and policy changes in Government, making planning potentially perilous for those looking to start up a new business.
But perhaps there is good news on the horizon for the UK’s innovators and entrepreneurs, who would have watched with bated breath as Jeremy Hunt announced the Spring Budget. The extensive economic plan includes a reintroduction of lower-tax ‘investment zones’ across the UK.
Where are the UK investment zones?
Companies within twelve separate investment zones across England, Scotland, Wales & Northern Ireland are set to benefit from a package of tax cuts, accelerated development, and investment from the state in their local area.
So far, we know the investment zones will be in:
- West Midlands
- The North East
- South Yorkshire
- West Yorkshire
- East Midlands
Plus at least one each in Scotland, Wales and Northern Ireland. This has evolved since Kwasi Kwarteng and Liz Truss originally announced similar plans during their doomed premiership, when it was suggested that local councils would compete to host the zones. Hunt firmly disposed of this caveat of the plans during his Budget speech – instead confirming the locations of the twelve new UK Investment Zones.
Which tax cuts are involved and could this policy help drive UK growth? We spoke to Senior Investment Manager, Louis Coke, to learn more about the proposed Investment Zones.
Louis, you work directly with many local business owners – what’s the response to the Investment Zones been like?
General response is positive. People are acknowledging that the UK needs to do more, in terms of investment, certainly in the knowledge intensive industries: creative, financial services, legal etc. It’s slightly toned down from the Liz Truss equivalent – but the general idea is very good. It now just needs to turn into an action.
Which tax cuts will apply?
The Investment Zones will each receive £80m over five years and certain tax reliefs from the Government including:
- Stamp Duty Land Tax (SDLT) relief
- Enhanced capital allowance relief for plant and machinery
- Accelerated structures and buildings allowance relief of 20% per year
- Secondary Class 1 National Insurance contributions (NICs) relief for eligible employers on the earnings of eligible employees up to £25,000 per annum
It’s also said the zones will be nearby a local university and will be focused on a specific sector – whether that’s tech, creative or green energy.
Could the Investment Zones have been taken further?
A lot of the tax cuts are for businesses, which is great. But what we haven’t seen is the incentive for people to invest in those businesses like with EIS (Enterprise Investment Scheme). The UK could really expand that and get creative with the personal tax policy in several ways. For example, increasing the amount of money people can invest through the EIS scheme or making it easier for people to do so. The tax incentives will help local businesses for sure, but there’s a lot more you could do in the funding side.
Do you think the policy goes some way towards levelling up the UK?
I think it does - it will encourage the broadening of prosperity, really. If local authorities get on board with it, there’s a multiplier effect. It means more business is coming to your area, more people can buy properties close to where they live, and it gets the local economy going so it can feed itself. All of that can help generate new towns and more prosperity.
How do Hunt’s Investment Zones differ from Liz Truss’s original plan? Is the policy better this time around for UK growth?
I think it’s a more disciplined one. For all the wrongs of the Liz Truss ‘mini-budget’, I actually quite like the investment zones. Having a cap on the number of zones is useful as it helps you quantify and focus in on a certain number of areas.
But I also like original idea of leaving it to local councils make their pitch and then it’s essentially competition. The downside of this, is that you may end up where a lot of the zones happen to be in one particular area, which would harm the Levelling-Up strategy. These tax breaks are expensive. By limiting the number of investment zones, you are containing how much it would cost. So, on balance it’s a more sensible version – but personally, I would like to just go for it!
The UK has a productivity issue and a growth issue. While we’re good at setting up industry in various areas, like legal or creative, we’re not very good at things like low-cost manufacturing. So, we need to be exceptionally good in the other areas to ‘grow our way out’. We also have an expensive state to run which is fine, but you need an awful lot of tax receipts to keep that state running well. So, business prosperity, one of the central aims of the investment zones, can be a very good way to increase tax receipts.
In the UK, we’re sometimes criticised for having a complicated tax system. One could argue the tax incentives are just giving small business-owners more paperwork, causing some to miss out. Do you think this is off-putting for SMEs?
Good question! Yes, it is complicated – but one of the good things about the UK is we have an excellent professional services industry, accountants, tax advisers etc who basically sort this out for you. It’s also in the local authority’s interest to make this clear and to encourage businesses. If the local authority has a vested interest, then there should be less red tape to get the job done.
It’s tricky (the tax system) as the only way to really get around it is to start from scratch and invent a new one… which would take forever! So, I don’t think the guidance has to be off-putting - the local authorities and Government need to work together to make it clear, simple, and effective, so business owners can have the clarity they need.
Thanks Louis – you travel all around the UK in your role as Senior Investment Manager at Charles Stanley. Are you excited about any upcoming projects?
Absolutely, there’s a lot happening in the high-net-worth space. Businesses forming, exiting, we have a massive wealth transfer that is happening in the UK where money is passing from the older generation to the younger generation. We also have a lot things to be worried about economically, which is good in a way for investment teams because people need advice and you can use the benefit of your skills to help people.
So, there’s lots of that going on; financial planning, wealth management, lots of investment opportunities going on. We’re in a volatile period of history, which doesn’t necessarily mean lower returns, it just means it’s complicated, so people need high quality advice, which we’re in the business of delivering at Charles Stanley.
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