Slow Progress With Investment Zones Could Hold Back Economic Levelling Up

Specialist business lawyers at Irwin Mitchell are calling on the government to continue its support for Investment Zones following new figures which reveal that interest in businesses in the West Midlands from overseas investors has stalled.

The law firm has analysed industry data* and says although the UK continues to drive significant interest from foreign buyers, the number of UK firms which were targeted in an overseas deal, such as an acquisition or management buyout, fell to 37 last year compared to 50 in 2022. 

The research says London and the South East accounts for four out of 10 foreign investment deals into the UK and also reveals that its dominance has increased in last five years. It says in 2019, 35% of the companies targeted by foreign investors were based in the capital or the wider region, but by 2023 this stood at 42% of total deals.

Bryan Bletso, partner at Irwin Mitchell and a specialist in advising overseas businesses that are looking to invest in the UK, said:

“Despite the dynamic nature of global investment patterns, this data underscores the enduring economic significance of London and the South East in attracting international business interest. Our research does however also highlight that investment activity in this traditional FDI hotbed is increasing whilst in other regions, such as the West Midlands, deal activity has been rising steadily over the last five years but reduced in the most recent 12 months.”

Foreign Direct Investment (FDI) refers to an investment in an enterprise operating in a foreign economy, where the purpose is to have an ‘effective voice’ in the management of the organisation. According to the latest ONS data, FDI into the UK has increased year-on-year for a decade to stand at over £2 trillion by 2021.

Last November, Conservative peer Lord Harrington published a report which called for a change of approach by the government in terms of attracting FDI. The report made several recommendations and the government accepted in its response that it needed to work more collaboratively with local government and public and private stakeholders. The UK Government also say that Investment Zones along with Freeports are a part of its FDI strategy. Announced in 2023, Freeports are designed to boost economic activity and the ‘levelling up’ agenda by fostering trade, investment, and job creation around maritime ports and airports.  Companies operating within freeports can enjoy reduced property taxes and national insurance rates.

The government is committed to establishing 13 Investment Zones across the UK, including one in the West Midlands**. The expectation is that many of the zones and tax sites within them will go live in Spring 2024 but so far Liverpool is the only one to have officially done this, announcing details of its proposition at MIPIM.

Bletso added: “Government initiatives such as investment zones could be a gamechanger for providing favourable conditions for businesses based in the West Midlands, attracting more interest and investment in the UK from abroad, and levelling up the economy.

“Making the UK the top investment destination in Europe, attracting new investment into communities and helping to level-up the country, is one of five key priorities for the Department of Business & Trade. Providing tailored support for each investment zone and promoting our offering in this area on an international stage is a crucial part of this.”

Irwin Mitchell published a report last summer which examined the most attractive locations in the UK for FDI. Inner London secured top spot due to its local skills, large economically active population, and many well-respected universities.

In the report’s ‘FDI Attractiveness’ league table, Birmingham came 7^th, Solihull was in 29^th, Wolverhampton was 31^st and Coventry 38^th.