Since the Grenfell Tower went up in flames, the fans of smaller government have been cautious about using what was previously one of their favourite phrases, concerning their intention of making ‘a bonfire of regulations’. That would now seem to be in rather bad taste, although as more and more comes out about the tragedy, it becomes more and more obvious that it was not lack of regulations that was at the root of the disaster but the lack of regulation. The rules that should have prevented the fire spreading were not implemented, In some cases the tests that were supposed to be made were not made, in others the results of tests were falsified. In one case it was admitted that material that had been tested and found safe was substituted by an inferior material without any checks being made as to whether it was safe or not. In another case, an inferior material was used for the full cladding work, but a higher-performing material was used at the mock-up stage. Meanwhile, successive governments have opted for emasculating regulations by defunding the enforcement bodies, as a less controversial way of achieving their deregulation goals.
Liz Truss, however, is made of sterner stuff; Not for her the approach by stealth, she wants to be recognised as the queen deregulator, and a tool is ready to hand. Unhampered by a written constitution, which Ayn Rand’s Judge Narangansett found it necessary to amend with a clause forbidding congress from making laws that would limit the power of corporations to make money, she wields the power of ‘the King in Parliament’ and on top of that she has the Brexit-delivered opportunity of fulfilling her ambitions by the simple act of removing all EU-derived legislation.
With those regulations out of the way, her next target is taxation, but the country’s reaction to her chancellor’s proposed removal of the 45% top rate of taxation has warned her that she must walk in this area much more carefully. Her solution is the enhanced Freeport. Or rather, enhanced freeports. Lots of them. Never mind that the EU, which currently hosts 82 of them, has belatedly woken up to the fact that they are characterised by a “high incidence of corruption, tax evasion, criminal activity” and that the idea was also enthusiastically endorsed by her leadership rival, Rishi Sunak, Sunak was also, it seems, under the impression that the EU did not allow freeports. It does, but it is almost certainly true that Truss wants to go further than Sunak would wish or the EU would allow. What she wants is what she calls ‘full-fat freeports’, saying “We can’t carry on allowing Whitehall to pick the winners and losers; like we’ve seen with the current freeport model”. Hence she and Kwarteng are promoting what they prefer to call Investment Zones, for which mayors and council leaders are invited to deliver formal ‘Expressions of Interest’ by 14 October.
Just looking at that last sentence, it is almost impossible not to feel, and think ‘This can’t be right’. But it is. The Growth Plan 2022 document unveiled by Kwasi Karteng in his disastrous speech on 23 September 2022 talks the Investment Zones being chosen via a “rapid expression of interest (EOI) process open to everyone after local consent is confirmed”. Which gives the people concerned just three weeks to put together EOIs. Not much time there for ensuring local consent – and no indication of what degree of local consent is required. Judging from the way everything else is being done by the Truss-Kwarteng duo, probably very little. It is Truss on her tank, all over again.
Liz Truss on manoeuvres in Estonia. Unfortunately, it is the UK economy she has in her sights.
In the final analysis, of course, the important thing to know what is what applicants are supposed to be ‘interested’ in, and there we only have suggestions. We do know from The Growth Plan that:”Investment Zones aim to drive growth and unlock housing. Areas with Investment Zones will benefit from tax incentives, planning liberalisation, and wider support for the local economy” and that planning will be streamlined and red tape will be ‘disapplied’. And we also know there will be tax incentives. Not yet defined, but ….
The tax incentives under consideration are:
• Business rates – 100% relief from business rates on newly occupied business premises, and certain existing businesses where they expand in English Investment Zone tax sites. Councils
hosting Investment Zones will receive 100% of the business rates growth in designated sites above an agreed baseline for 25 years.
• Enhanced Capital Allowance – 100% first year allowance for companies’ qualifying expenditure on plant and machinery assets for use in tax sites.
• Enhanced Structures and Buildings Allowance – accelerated relief to allow businesses to reduce their taxable profits by 20% of the cost of qualifying non-residential investment per year, relieving
100% of their cost of investment over five years.
Those Tax Incentives look pretty expensive, with the taxpayer stepping in to pay for lots of things that companies would normally be expected to pay for themselves. If implemented, we can be sure that the zones will act as magnets for existing companies to relocate. But new companies? An invitation to the people behind the EU’s “high incidence of corruption, tax evasion, criminal activity” to set up shop in a low-risk environment, certainly, but who else?. The incurably optimistic? How many of those will crash in flames? Overseas investors? Would you invest in the UK under Truss and Kwarteng. Stability is what overseas investors generally look for, and that is one thing that the magic duo seem determined not to offer.
But what would Ayn Rand have made of all this?
In Atlas Shrugged she envisages her hero’s own Investment Zone, in Galt’s Gulch, where there are no taxes at all. Successful businessmen, as well as financiers, lawyers, scientists and artists, flock there in such numbers that the United States collapses behind them. Perhaps Rand was not so stupid after all, because that is going to be the inevitable consequence of the Truss Investment Zones, if they happen. The remainder of the country will lose its tax base and slump still further into impoverishment.
But there is something else, which Rand was able to ignore because the incomers to Galt’s Gulch were either godlike geniuses like John Galt himself, or were able to benefit from the virtually free electric power that Galt was able to supply. And, straight away, d’Anconia was able to find copper and Ellis Wyatt was able to find oil. There was, waiting for them, effectively already an infrastructure and a resource base. And they were also all in complete agreement with each other, and no regulation was needed because, as reasonable men, none of them would cut corners in search of greater profit.
Will the inhabitants of the Truss Investment Zones be so fortunate? If they are, who will pay?. The whole basis outlined in the Plan is that the users will enjoy tax holidays of epic proportions. They will be subsidised by the taxpayers in the rest of the country, to whom benefits will supposedly merely trickle down, if they come at all, Those taxpayers are also the people who will suffer the effects of the pollution produced by their under-regulated neighbours
Is this the way to run an economy, or a country?