Investment Zones and UK regional economic policy: a place-focussed, but exclusionary solution

Geography matters or to be more precise – place matters. Economic activity is place-based with each location having a different bundle of place-based assets. These assets include local, national, and international infrastructure that enable flows of people, resources, products, and money between places.

Each place is the outcome of millions of decisions made by individuals, companies, and governments. A national economy is enabled by national wider framework conditions that provide the structure within which economic activity occurs. These conditions include taxation, environmental legislation, spatial planning, and employment law. There is meant to be a level playing field for all areas, but governments can intervene to shape an alternative place-based future based on a form of government-imposed and regulated geographic inequality.

In the Spring 2023 Budget, the UK Government set out a programme designating 12 geographic areas with special tax and regulatory rules intended to enable localised economic growth - Investment Zones or regional development zones. These Investment Zones are intended to form knowledge-intensive growth clusters configured around inputs from local research institutions, for example universities. The plan is to develop eight Investment Zones in England and at least one each in Scotland, Wales, and Northern Ireland.

South Yorkshire was named as the first UK Investment Zone with its communities estimated to benefit from £1.2 billion of private sector investment by 2030 - resulting in thousands of new advanced manufacturing jobs in places like Sheffield, Rotherham, Doncaster, and Barnsley. England’s second Investment Zone was identified for Liverpool with a focus on life sciences - unlocking £320 million of private investment to create 4,000 jobs across Liverpool, Runcorn, St Helens, Maghull and Prescot over the next five years.

These Investment Zones become special places configured around ‘policy offers’ including fiscal incentives and interventions intended to encourage research and development. There will also be specialist sectoral-focussed skills programmes, local infrastructure enhancements and sector-specific business support.

There is a predictability to the proposed locations for Investment Zones. The list for England is based on identifying eight functional economic areas as having significant economic potential. These areas include the usual suspects – the Greater Manchester Mayoral Combined Authority and the West Midlands Mayoral Combined Authority. The surprising aspect of this list is that it contains no surprises.

This type of place-based policy intervention resonates with the approach to regenerating economies set out by the University of Birmingham as a guide to further the work of the then newly-established Greater Birmingham and Solihull Local Enterprise Partnership in June 2011. This guide highlighted the need to focus on developing wider framework conditions supporting regional economic development and enabling responsible inclusive prosperity.

The University of Birmingham’s approach is based on understanding the functioning economic geography of an area, but there is a complication. Economic activity works across administrative boundaries and the proposed Investment Zones are too bounded by historic boundaries that cut across the functioning of the economy.

Investment Zones can distort economic outcomes by over-concentrating economic activity in one place. There are two concerns here. Firstly, that Investment Zones must demonstrate real additionality rather than outcomes from encouraging firms to relocate activities to these zones. Secondly, there is a real danger that success results in overheating to the local housing and labour market - resulting in increased localised air pollution spilling into other areas, as difficulties in hiring labour would result in increased commuting.

Every Combined Authorities should have an Investment Zone - particularly regions like the West Midlands and Greater Manchester. An Investment Zone comes with an increase in highly focussed place-based investment to create new jobs, resulting in economic multipliers spilling over beyond the Investment Zone. There is a major policy challenge in ensuring that each Combined Authority area does not over-focus its activities on its Investment Zone. These Zones become special places, but the primary policy focus or challenge must remain on the complete region rather than on the Zone.

For Whitehall, there is another policy challenge in ensuring that all places across the UK have effective, enabling, supportive and sustainable wider framework conditions to support inclusive economic activity. This requires an integrated and long-term approach to laying the foundations for responsible inclusive prosperity. No UK political party has yet to appreciate the scale and complexity of this challenge. Some core elements of this approach to enabling sustainable futures for everyone living in the UK would require cross-party agreement.

The UK’s approach to levelling up must be an educational policy combined with an approach to spatial planning, economic development, infrastructure investment, adaptation, and mitigation to climate change - framed within a longer-term appreciation of investments required to support research and development. It is far too easy to designate places as special Investment Zones, but this will not produce the type of levelling up outcomes that are required to produce better outcomes for all living in the UK.