Liz Truss to push ahead with unlimited ‘investment zones’ despite costs row | Economic policy

Liz Truss is preparing to push ahead with an unlimited number of “investment zones” despite a row within the government that it could hand an uncosted blank cheque of tax breaks to businesses.

The Treasury is believed to have raised concerns about “carpet bombing the entire country” with investment zones, with the government about to announce an appeal for areas to apply within days – as the Conservatives prepare for their annual conference in Birmingham.

However, Whitehall officials, including in the Treasury, are extremely concerned about the potential liability of not capping the number of areas allowed to get favourable tax and planning treatment. There is also concern that some of the tax breaks under consideration will last for 10 years.

The extra unfunded spending comes after a week of market turmoil and a Bank of England bailout for pension funds on the back of the government’s mini-budget that promised £45bn of tax cuts paid for by borrowing.

Within the new investment zones, businesses will receive big tax cuts, with options under consideration including the abolition of stamp duty, employment taxes being slashed, planning rules swept aside and companies able to completely write off investments in plant and machinery.

An ongoing row has been raging in Westminster with some officials in the Treasury and Department for Housing, Levelling Up and Communities concerned about the potential implications of handing limitless tax breaks to businesses. At the mini-budget last week, Kwasi Kwarteng, the chancellor, did not put a costing on the policy.

One government source said there had been debate about capping the number but that Truss’s team had pushed back, despite officials raising concerns. The Treasury is among the departments to have objected but a source said Kwarteng would deliver whatever Truss wants.

Another Whitehall source said some in government have pushed for a cohort of several dozen, but No 10 repeatedly demanded more.

After 38 areas were approached and asked to consider becoming investment zones so they could be announced by Kwarteng in his mini-budget, the offer of making a formal expression of interest is set to be made to all local authorities. The announcement is understood to have been pushed back several times due to the row between departments.

There was no costing for investment zones in Kwarteng’s growth plan document, which said: “It should be noted that for some policies, for instance investment zones, full details on implementation are yet to be determined meaning that it is not possible to publish a costing at this stage. Such policies will be included in the public finances at a future OBR forecast, once there is sufficient certainty about their implementation.”

The controversial announcement has already drawn fire from tax campaigners, who described it as triggering a “race to the bottom”. The shadow chancellor, Rachel Reeves, last week said the plans would result in “moving growth around the country, not creating growth”.

Planning changes under consideration include removing restrictions on height limits and potentially ditching requirements for affordable housing alongside developments, as well as other regulations such as environmental rules.

Lisa Nandy, the shadow levelling up secretary, said: “More unfunded borrowing in investment zones with no plan will only add to the market chaos made by the Tories.

“These investment zones will do nothing for levelling up. Slashing standards, destroying the environment and scrapping affordable housing is reckless and offers no prospect of sustainable growth.”

Not all Conservative MPs are impressed either, though the policy is less unpopular than scrapping the 45p tax rate and the abolition of the bankers’ bonus cap. One Tory MP said: “You either have investment zones or an investment country – if you want the latter, what’s the point in the former?”

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