The zombie economics of investment zones

The rush to invite expressions of interest for Investment Zones in the next two weeks resurrects the zonal planning agenda of the controversial 2019 Planning White Paper. Investment Zones may not be designated everywhere but make no mistake they are designed to be the ideological avant-garde for a concept which the Government would like to apply on a much wider basis.  Boris Johnson dropped the zonal planning agenda because it was clearly about stripping out democracy and basic standards from the planning process and this reheat of the idea has already angered a broad collection of interests on nature, social housing and climate change.

If the notion of Investment Zones feels very familiar, that’s because they appear almost identical to the 38 enterprise zones designated between 1981 and 1996. Those designations were designed to deal with same issues of regional economic inequality through tax breaks and deregulation. The idea was resurrected, albeit in slightly less generous form, after 2010 although the designations were not focused on levelling up.     

The enterprise zone programme of has provided some very mixed results but in the North, they spectacularly failed to deal with structural economic inequality. If they had, then presumably we wouldn’t still be talking about levelling up 40 years after they were introduced. The Office for Budget Responsibility’s October 2021 Economic and Fiscal Outlook found that such zones had much smaller impacts than initially hoped. The OBR[1] also refers to the 2019 UN World Investment Report that found “little difference in performance between cities with zones and those without” and that factors such as existing infrastructure and transportation links were “stronger determinants of performance” in economic regeneration.

The risk is that the pursuit of investment zones is designed to prove an ideological point not to be practically useful in creating lasting change to the productivity of our economy. There are two reasons why I believe that investment zones won’t work. If you really want to affect productivity then focus investment on education and skills and in research and development. This would have a much more profound and long-term impact on our future economic prosperity. Relying on supply side deregulation to drive growth is a high-level economic gamble with obvious real-world costs. Secondly, the idea that supply side constraints are holding back our economy is false. This assumption is particularly flawed because it imagines that supply side constraints, in other words regulation, don’t play a crucial role in our economic stability. Imagine how the insurance and mortgage lenders would operate if there was no regulation on flood resilience which protected their assets. The answer is they wouldn’t. Regulation is, therefore, not a supply side constraint but a vital platform and stabiliser for economic activity. ‘Supply side constraint’ is also code for local democratic decision making and it’s a useful exercise to replace the words ‘supply side constraint’ with the word ‘democracy’ when you examine the Government’s policy approach.  The common theme of all planning deregulation in recent years has been to get the voice of those most affected by decisions out of the way. All this has achieved is to demolish public trust in the system and fuel bitter political argument. In short, the problem with wiping out regulation is that, on the whole, it’s doing a very practical job of safeguarding key interests from investor confidence to biodiversity protection and local democracy. These are real issues that cannot be wished away by ideological assumption.

There is one other real-world problem for the investment zones concept and that is the lack of evidence that planning has been a practical constraint to inward investment. All we can say about this issue is that the TCPA is intimately connected with many northern communities and our experience is the planners work incredibly hard and fast to facilitate inward investment opportunities backed by politicians desperate for development. The Britishvolt battery factory in Blyth is one example of this. The difference the planners try to make, even with a deregulated system, is to get the best design outcomes for the local community. The idea that they are deliberately holding back inward investment in the NE is frankly ridiculous.

It is not entirely clear how far investment zone deregulation will go, although we know that principal attractiveness is about tax breaks on National Insurance, business rates, stamp duty etc. These incentives will undoubtedly mean, as the enterprise zones demonstrated, a great deal of shuffling of economic activity across borders.  The government has not provided any evidence as to the extent it will generate genuinely new economic activity. As to the ‘opportunity’ for planning deregulation the government’s brief prospectus says:

‘The government has been working with local areas to identify bureaucratic requirements, processes and red tape that needlessly slow down development or make it more complex than it should be – with Investment Zones set to benefit from simplified planning rules. This includes reviewing ineffective EU requirements, lengthy consultations with statutory bodies and onerous national and local policy rules[2].’

In reality that tells us very little of precisely what rules won’t apply.  The Government has committed to considering flood risk and design although it’s not clear how or with what rigour. We know that such zones will include housing and the 38 places from Derbyshire to Hull are actively considering trying to secure a designation. To be clear local authorities will almost certainly have to bid because of the fear of their neighbours adopting a tax haven and attracting existing business away from them. But, in thinking about the detail, what ‘onerous local and national planning rules’ standards could places look to ditch? Climate change requirements on net zero? Sustainable transport requirements? Building regulations on fire safety on new homes? Contributions to affordable housing? Section 106 and Levy requirements for schools and transport? Protections and enhancements to key biodiversity and heritage assets? The voice of local people in decisions which profoundly affect their lives?

Thought must be given to the housing outcomes in these new investment zones if any of these key issues are abandoned and if the government’s response is that all these factors will be fully considered then what is the point of the exercise?

Ditching national and local policy requirements is a major mistake and will only lead to a rush to the bottom. The reputational risk of designating such zones will accrue to the local authority. And what do you end up with? Businesses who provide no medium-term increase to local taxation despite the pressure such places will generate on local services.  The real risk is such places are tax havens for branch plants whose owners’ profits are more likely to accrue in London and Beijing than Gateshead or Rotherham.

The real solution to regeneration is about investment in high quality health, education and housing based on smart regulation which drives innovation and high standards. Regeneration does not happen by leaving the door open to chaotic poor-quality development but through genuine partnership working with the public sector playing a leading role as master developer.

Deregulation of what’s left of the planning system whether in zones or more generally will not work. We have already cut the service to the bone and the outcomes in areas such as permitted development have been disastrous for people. My advice if you’re a local authority is beware the Westminster ‘two step’ where you end up with responsibility for ill-considered national policies. If you do feel, as many well, that you have no option but to bid, ensure that you retain all the necessary regulations to build healthy and sustainable places because the legacy, for better or worse, will be laid at the door of local leaders.

[1] OBR, Economic and fiscal outlook, October 2021, pg. 212

[2] Areas urged to ‘go for growth’ as Investment Zone applications open – GOV.UK (

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