The British government has proposed “new investment zones” as part of the disastrous “mini” Budget announced on Friday September 23.
On September 23, the UK’s chancellor of the exchequer, Kwasi Kwarteng, unveiled the Growth Plan 2022, also known as a “mini” Budget, which included a series of supply side reforms to ensure the country achieved 2.5% gross domestic product growth. The plan included the scrapping of the rise in corporation tax, cuts to income tax and the establishment of “new investment zones”.
Mr Kwarteng said in a statement that “new investment zones will bring business investment and release land for new homes in communities across the country”.
“We want businesses to invest in the UK, we want the brightest and the best to work here and we want better living standards for everyone,” he continued.
The zones are slated to “drive growth and unlock housing” thanks to tax incentives and planning liberalisation. The government is in early discussions with 38 different local government institutions which have expressed interest in having one of these such zones.
Some have welcomed the plans. Neil Rami, CEO of the West Midlands Growth Company, said in a statement that these zones “can create exciting opportunities for the UK whilst driving forward the growth of local economies, given that the majority of inward investment remains concentrated in London.
“For the West Midlands, an investment zone could help to transform brownfield land into new homes, jobs and facilities for local people.”
But Peter Holmes, emeritus reader in economics at University of Sussex Business School, expects these investment zones to have little impact on investment into the UK, as there is little planned infrastructure investment laid out and scant detail on how these zones will work.
“Like with the freeports, there isn’t any [suggestion of] infrastructure investment,” he says, adding that these zones are unlikely to add skilled jobs, but are more likely to displace economic activity than generate it.
The same introduction of investment zones risks being affected by the disastrous consequences the “mini” Budget has produced.
The UK found itself in a state of financial turmoil as a result of the market reaction to the government’s plans, which would incur a significant increase in borrowing. Between Liz Truss becoming prime minister and September 28, the UK bond and equity markets had lost $500bn, according to Bloomberg.
Even the IMF criticised the UK government’s fiscal policy.
“Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture,” a spokesperson told Reuters in its first public reaction to the situation in the UK on September 27.
“It is important that fiscal policy does not work at cross purposes to monetary policy,” they said, adding that “the nature of the UK measures will likely increase inequality”.
The Bank of England announced on September 28 that it would make temporary purchases worth £65bn of long-dated UK government bonds so as to “restore orderly market conditions”.