Ministers are mulling plans for regionally-targeted tax breaks to persuade multinational corporations to invest in northern parts of the country as part of the levelling up agenda.
Under the plans, tax incentives could be used to encourage large multinationals to invest in so-called “Red Wall” areas with slugging productivity and growth, echoing the way the Thatcher government helped to win investment from Nissan in Sunderland in the 1980s.
The idea to use tax breaks to boost foreign direct investment is said to have been considered at senior levels in Number 10, the Treasury and the Department for International Trade.
One source said: “The Government is looking at using FDI to boost growth and productivity in lagging regions. They are looking at options for tax breaks – but have not made any decisions.”
A report out on Monday from the Levelling Up taskforce of 40 Tory MPs and the Onward think tank, urges ministers to use tax breaks to take advantage of new Brexit freedoms.
It argues that the Government should make use of its freedoms outside the EU to boost inward investment in lagging regions, in a similar way to Margaret Thatcher’s efforts to bring Japanese car giant Nissan to Sunderland in the 1980s.
The Thatcher government offered Nissan the 799-acre site of the former Sunderland Airfield at significantly discounted agricultural prices to encourage the Japanese manufacturer to locate its new factory in the North East, along with a site specific grant.
This led to the creation of 1,100 jobs in 1987, rising to 6,700 in 2019, and a supply chain that has created tens of thousands of additional jobs across the region.
The plant is now one of the most productive car plants in Europe, producing more than half a million cars a year.
The report, Firm foundations: Levelling up inward investment, found the UK is one of the only G20 countries not to offer formal tax incentives to foreign companies that invest in the UK.
Will Holloway, deputy director of Onward, and the author of the report, said: “One of the primary benefits of leaving the European Union is the ability to reformulate trade policy to better benefit the UK’s unbalanced economy.
“That must include reforming the way we attract high-value inward investment from overseas, just as Thatcher did in the North East in the 1980s.
“The prospect of attracting another Nissan to the UK’s lagging regions would turbo charge the Government’s levelling up ambitions – that’s the prize.
The report warns that this is making the UK less competitive as a destination over time and contributing to regional disparities in the economy.
Examples cited include Australia which uses payroll and land tax rebates to attract overseas investment, Singapore, which offers 15-year long tax breaks and the US which has a “vast array of over 2,000 local tax incentives”.
It says that one of the reasons the UK has no formal tax incentive at all for FDI is because of EU membership, which restricted the UK’s ability to introduce place-based incentives that would attract investment to underperforming regions.
Under the Assisted Areas scheme, the Government was able to provide support to businesses but aside from Northern Ireland the areas were tightly limited and only within certain thresholds.
The Treasury declined to comment. However sources questioned whether regional tax breaks were “a live discussion”.
One pointed to the Government’s free ports plans and the new “super-deduction” – announced in March’s Budget – to support companies when they invest, boosting the amount firms can offset against their tax bill.