Investment Zones 2.0

Investment Zones are being refocused to “catalyse a limited number of the highest potential knowledge-intensive growth clusters".

I thought the original IZ plans, while imperfect, were unfairly maligned. As I said at the time, with such an acute shortage of modern office, manufacturing & lab space in many parts of the UK, & when we need to accelerate growth, IZs can play a valuable role. In the context of some criticisms of previous IZ proposals, it is worth noting that the idea isn’t new. The late Prof Sir Peter Hall (hardly a right winger) advocated Enterprise Zones in 1977. Idea adopted in various forms (EZs, UDCs, MDCs) by successive Conservative & Labour governments.

I also said back in September 2022 that there was an opportunity to focus IZs around innovation and innovation districts:

"Investment zones have the potential not only to accelerate growth but also to increase productivity. There is scope to create investment zones that are?innovation districts, science parks and areas of city centre expansion which can be home to highly productive, research-intensive businesses, aligned with spending on R&D and innovation hubs."?

It is really positive to now see this happening, particularly in the context of the agenda across the political spectrum to make the UK a science superpower. With growing momentum and ambitions plans around innovation districts in UK cities, the refocused approach to IZs could have great potential. I suggest six calls to action to maximise their success.

First, we need greater public sector R&D investment to crowd-in business investment. Some progress here, but as Neil Lee says in an excellent article, our competitors are way ahead. The US in particular is raising its game on place-based R&D through the CHIPS & Science Act, and the Inflation Reduction Act. We also need greater local influence / control of R&D investment. The innovation accelerators, currently proposed for the West Midlands, Greater Manchester, and Glasgow, should be rolled out more widely.

Second, it is essential to get the fiscal incentives right. I am not convinced business rates relief is right answer. It would be better to allow councils to retain business rates in IZs for 30 years to create income stream to borrow against to reinvest in IZ infrastructure. Enhanced Capital Allowances can be a powerful incentive, particularly for manufacturing investment.

Third, introduce faster planning, not less planning. By setting out a clear and flexible spatial framework, places can provide clear signals to investors, and help ensure the right quality of development with good public realm & green infrastructure. Robust design codes can also provide clarity and certainty and send the right signals to the market on the nature of ambition, the economically productive uses, and quality of development being targeted.?

Fourth, councils, Combined Authorities, Homes England and the National Wealth Fund should work together to develop right mechanisms for sharing risk & reward with private sector to get more office, innovation / lab, & manufacturing space built, which as Centre for Cities have rightly said, is really needed.

Fifth, there is an opportunity to link innovation assets in major city centres with those in surrpounding areas. It is a good to see an economic growth initiative focused on the centres of major cities (the problem with the UK economy is not that our 2nd cities are too strong at the expens eof towns, it is because they are not strong enough). But we do need to look at opportunies and sectors outside city centres. For example Atom Valley will link Manchester City Centre with a growth corridor through Oldham, and Rochdale. North of Tyne Combined Authority are linking the hugely impressive Helix Inovation District in Newcastle with the supply chains, manufacturing corridor and Tyne green superport to realise the potential of the renewable and marine sector. In the Humber there is a potential to link assets, sites and a mission focused on energy & industrial decarbonisation. In West Yorkshire, there is scope to link Leeds city centre with assets in South Leeds, Bradford Southern Gateway, Huddersfield town centre, and Rutland Mills and Production Park in Wakefield.

Finally, we need to think beyond bricks & mortar. There should be a focus on building the softer ecosystem to commercialise innovation. MIT through their MIT REAP - Regional Entrepreneurship Acceleration Program framework have identified the main actors that need to work together to be more than the sum of their parts: universities and other knowledge producers; entrepreneurs; corporates; investors of risk capital; and government . In short we need to do the D not just the R. We can align innovation / universities / IZs with inward investment. Midlands Innovation are doing some great work here led by Alex Favier , as are Invest Newcastle . We can create a network of testbeds in IZs to enable innovators and entrepreneurs to test their solutions and their use cases in real-world conditions. Smart regulation can have a role to play here, where innovations require relevant regulatory change to develop and thrive.?

Focusing Investment Zones 2.0 on innovation and universities is really positive. To maximise their potential we need to position them as part of wider strategies for growth, a plan-led approach and greater investment (with more local influence) in R&D. We await the announcement in next week's Budget with great interest.