Eight of the UK’s 12 Investment Zones are set to be established in the English regions.

The shortlisted areas and authorities are expected to start soon to engage a coalition of partners through their existing networks of research institutions, businesses and other local stakeholders, including MPs, in alignment with their existing local strategies. These groups will develop Investment Zone proposals around the priority sectors,

In addition to the eight in England, the UK government is also engaging with the devolved governments in Scotland, Wales and Northern Ireland to discuss how and where at least one new Investment Zone could be delivered in each of them.

Fiscal Incentives

Subject to these proposals meeting specified requirements, the UK government has earmarked an overall fiscal envelope of £80m spread over five years. This can either be: (a) used flexibly with a 40/60 split between resource and capital funding across interventions such as R&D, skills, local infrastructure, local enterprise and business support and planning and development, in order to attract investment and unlock barriers holding back the growth of each sector, or: (b) taken as a single five‑year tax offer, or a mix of both, scalable based on the number of sites involved.

The £80m can be spent across the following five areas:

1. Research and Innovation – e.g. grants for projects.
   
   
2. Skills – e.g. skills boot camps, stimulating demand apprenticeships.
   
   
3. Local infrastructure – e.g. land remediation for labs or schemes to improve connectivity to improve access to the local labour market.
   
   
4. Local Enterprise and Business Support – e.g. sector-specific tailored support for start-ups and SMEs that leverages local research strengths and facilities.
   
   
5. Planning and Development – e.g. funding to recruit a dedicated planning team, implement a local development order, or support a Development Corporation to deliver complex or large-scale developments.
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Specific Investment Zone sites will be able to benefit from a 100% retention of business rates growth over an agreed baseline for 25 years. When drawing up proposals for Investment Zones, authorities will need to demonstrate how business rates retention will provide for local economic growth within their region, support the priority sector within the Investment Zone, and represent value for money for the government.

The UK government will offer the following tax reliefs in designated tax sites within each Investment Zone:

1. Stamp Duty Land Tax (SDLT) – full SDLT relief for land and buildings bought for commercial use or development for commercial purposes.
   
   
2. Business Rates – 100% relief from business rates on newly occupied business premises and certain existing businesses where they expand in Investment Zone tax sites. Business rates are calculated on a property’s ‘rateable value’.
   
   
3. Enhanced Capital Allowance – 100% first year allowance for companies’ qualifying expenditure on plant and machinery assets for use in tax sites.
   
   
4. Enhanced structures and Buildings Allowance – accelerated relief to allow businesses to reduce their taxable profits by 10% of the cost of qualifying non-residential investment per year, relieving 100% of their cost of structures and buildings over 10 years.
   
   
5. Employer National Insurance Contributions (NICs) Relief – Zero-rated employer NICs on salaries of any new employee working in the tax site for at least 60% of their time, on earnings up to £25,000 per year, with employer NICs being charged at the usual rate above this level. This relief can be applied for 36 months per employee.
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Implications for Hong Kong

To double down on the potential for zonal public policy to catalyse private sector investment into high‑potential locations across the whole of the UK, Investment Zones will look to ride on the early success of the UK Freeports programme.

The UK Government will look to promote Investment Zones and Freeports to prospective investors in a coherent, unified manner, given the degree to which they complement each other. However, unlike Freeports – which focus on brownfield (i.e. possibly contaminated land) regeneration within port areas and their hinterlands to attract trade‑orientated investment – Investment Zones will aim to nurture established or emerging clusters across the five priority sectors and concentrate on research institutions with the aim of boosting R&D and innovation.

Hong Kong is the UK’s second‑largest Asian FDI investor, accounting for an inward FDI investment position of £16.3bn in 2021. Businesses based in the SAR should therefore carefully examine the Investment Zones policy document to see how they might be able to benefit from the policy and its wide range of levers and incentives. They should look to enter into discussions and partnerships with the areas identified as prospective Zones and their local stakeholders, in order to help co‑develop development proposals.

The UK government intends to have the first proposals from the identified areas agreed by the summer, so the planning and preparation for delivery of the Zones can be expedited. It hopes that all Investment Zone proposals can be agreed by the end of the FY 23/24, and expects funding to begin in FY 24/25, subject to approval and change.