Unlocking growth in the UK
Investment zones have the potential to support growth in both economic output and employment across the manufacturing sector, so it’s important that businesses understand the value they can bring to their operations.
Head of Manufacturing, Transport and Logistics, Barclays Corporate Banking
What is the Investment Zones policy?
Investment Zones are a place-based policy with the ambition of driving enterprise growth, innovation and job creation in defined areas of the UK that have been identified to have strong economic and innovation potential while also being in need of ‘levelling-up’. Within these defined zones, the Government will provide eligible businesses with time-limited fiscal incentives and provide grant funding to be spent flexibly on a per-zone basis. Investment Zones will all have a knowledge anchor (e.g. a co-located research institution) to drive innovation and public-private partnerships.
UK Manufacturers and Investment Zones
Our research shows that Advanced Manufacturing is identified as the most appropriate target sector for Investment Zones, with 82% of firms agreeing it is a priority industry. There may be a significant number of manufacturers that might be in a position to benefit from the scheme, and with the manufacturing sector spread throughout the UK, many of these firms occupy areas that the Government has identified for levelling up, a core ambition of the Investment Zones policy.
We urge HMT to clarify that the term ‘Advanced Manufacturing’ relates to process, not product. The term ‘Advanced' would refer to the use of modern technologies, processes and business practices in the manufacturing process, which we believe would capture far more companies than under the unknown and unclear definition.
Autumn Statement 2023 submission
What is the benefit of the Investment Zones policy to manufacturers?
The core of the Government’s Investment Zone policy offer are the economic incentives available to those businesses that subsequently operate within one of these zones. They are split into ten formalised incentives: five fiscal incentives and five on flexible spending. Both of these incentive structures will run for ten years from the Zone’s inception – but which are reported as most beneficial to manufacturers?
100% relief from business rates on newly occupied business premises, and certain existing businesses where they expand in Investment Zone tax sites.
Enhanced Capital Allowance
100% first-year allowance for companies’ qualifying expenditure on plant and machinery assets for use in tax sites.
There are also flexible spend incentives, with £160m available per investment zone.
Unlocking investment in the industry
Business rates relief was highlighted by the sector as the most potentially beneficial incentive on offer within Investment Zones, it follows that significant business action is most likely to arise from the receipt of the incentive.
What opportunities lie ahead for manufacturers?
Given that our research highlights increased investment activity in the event of business rates relief, it’s clear that the incentive is positioned to significantly boost the average rate of investment by manufacturers within these zones.
Businesses who benefit from one or more of the incentives could, by combining them with raising bank finance, seek to accelerate and amplify the opportunity for growth that they provide. Increasing profitability through business rates relief and improving free cash conversion from enhanced capital allowance could positively increase the debt capacity of a business, unlocking additional capital to support investment.
Head of Large Corporate Lending, Barclays Corporate Banking
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Strategies for success
Improve manufacturing sector awareness of Investment Zones to unlock their potential benefit. 37% of the sector remain unaware of the scheme, presenting a strong case for education and communication campaigns, highlighting the opportunities on offer.
There’s a need to clarify the definition of Advanced Manufacturing so businesses know how to take their business forward. Investment Zones identifies Advanced Manufacturing as one of the five pillars it sets to boost, but with confusion in the sector as to what constitutes Advanced Manufacturing and with lack of a formal definition, manufacturers themselves cannot align appropriately.
Our research finds that 62% would increase the total net amount of investment if in receipt of capital allowances. Manufacturers should make use of the incentives available to them as part of the Investment Zones policy and maximise investment where they can.