On 4 March 2024 DLUHC referred the "English Investment Zones Scheme" to the CMA's Subsidy Advice Unit.
What are Investment Zones?
Investment Zones are designated sites in which businesses can benefit from time-limited tax incentives and other reliefs. The public policy objective of the initiative is to accelerate growth within a small number of high-potential clusters thereby boosting productivity and growth in parts of the country which are in need of levelling up.
The Government announced in March 2023, that eight public authorities would be invited to develop Investment Zone proposals, these being:
- Greater Manchester Mayoral Combined Authority;
- Liverpool City Region Mayoral Combined Authority;
- North East Mayoral Combined Authority;
- South Yorkshire Mayoral Combined Authority;
- East Midlands Mayoral Combined County Authority;
- Tees Valley Mayoral Combined Authority;
- West Midlands Mayoral Combined Authority; and
- West Yorkshire Mayoral Combined Authority.
The government has identified the following five priority sectors Digital and Tech; Green Industries; Life Sciences; Advanced Manufacturing; and Creative Industries, which will be the focus of the first round of Investment Zones.
It is understood that the initiative is likely to be implemented in other parts of the country in due course.
What incentives can be offered in Investment Zones?
According to the referral notification published by the CMA, businesses in Investment Zones will be eligible to receive a subsidy in the form of tax relief, if they undertake the following relevant activities in an Investment Zone tax site:
- full Stamp Duty Land Tax relief for land and buildings bought for commercial use or development for commercial purposes;
- 100% relief from business rates on newly occupied business premises, and certain existing businesses where they expand in Investment Zone tax sites;
- 100% first year capital allowance for companies’ qualifying expenditure on plant and machinery assets for use in tax sites;
- 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; and
- zero-rate Employer National Insurance Contributions (NICs) relief on salaries of any eligible 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.
The CMA notification also states that public authorities can give subsidies to businesses in the form of grants if they use this to undertake activity in Investment Zone areas that is aligned with the programme’s policy objectives, under the following 4 themes:
- skills;
- research and innovation;
- local infrastructure; and
- business support.
The details published so far are brief as is in keeping with an announcement of a referral having been made. Significantly more detail will emerge when the CMA's report is published in a few weeks' time.
What is a Subsidy Scheme?
A subsidy scheme is a framework established by a public authority which sets out the criteria (terms and conditions) under which multiple subsequent subsidies might be awarded.
In this instance, the proposed scheme will allow for other parties to make awards, subject to having met the eligibility criteria and other terms and conditions set out.
A public authority may only create a scheme where it is "of the view that the subsidies provided for by the scheme will be consistent" with the Subsidy Control Principles set out at Schedule 1 of the Subsidy Control Act 2022.
The government's guidance expressly states that "not all policies, programmes or projects that distribute subsidies can be considered schemes under the Act – even if they are labelled as a scheme". Rather a scheme requires particular steps to be undertaken by the public authority, including identifying the types of measure which might be subsidised under the scheme and the conditions which will be applied.
Subsidies will only have cover under the scheme if provided under all relevant terms of the scheme and therefore the public authority administering the scheme will need to carry out checks against these conditions, per individual award. Given that incentives could become repayable if this is not done right, it seems likely that businesses will also want to check that they meet the scheme conditions too.
It should be remembered that individual awards under a subsidy scheme still need to be the subject of a transparency notice if over £100,000 in value, but normally any challenge to an award made under cover of a scheme will be limited to whether the scheme's conditions have been properly adhered to.
Why has the English Investment Zones Scheme been referred to the Competition and Markets Authority?
Under Section 52(1) of the Act, public authorities must refer any award classed as a Subsidy of Particular Interest ("SoPI") to the Competition and Markets Authority prior to the subsidy being legally committed. In addition any scheme which envisages awarding SoPIs must also be referred as a Subsidy Scheme of Particular Interest (SSoPI).
SoPIs are defined within the Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations 2022. In this instance, it appears that DLUHC concluded that some of the subsidies which will be made under the scheme might otherwise constitute SoPIs.
The benefit of a SSoPI which has cleared the CMA hurdle is that assuming the relevant scheme is suitably adopted following the CMA's consideration, then individual awards under the scheme can be made in future without needing to return to the CMA, even if those awards would otherwise be considered a SoPI in their own right.
When will the CMA publish its report on the English Investment Zones Scheme?
The CMA report on the English Investment Zones Scheme is expected to be published on 17 April 2024, after which DLUHC will take account of the suggested amendments, ahead of launching the scheme later in the year.
Conclusion
The CMA's Subsidy Advice Unit represents an important safeguard in the Subsidy Control regime, examing the decision making of public bodies awarding large subsidies and establishing certain schemes. In this instance, the decision making of DLUHC will be scrutinised by the CMA ahead of the scheme being formally launched. Public authorities looking to administer the Investment Zones will be watching developments closely, but are likely to welcome DLUHC's decision to create a scheme given that it will reduce the administration involved in delivering this policy in due course, particularly when compared to the work that would otherwise need to be done by each administering authority to apply the Subsidy Control Principles on a case by case basis. This case is therefore bringing to greater prominence the technique of adopting subsidy schemes rather than applying an individual analysis per subsidy, which is a trend we are expecting to see increase.
