Policy paper

Investment Opportunity Fund: prospectus

Published 6 March 2024

Applies to England, Scotland and Wales

1. Introduction: Case for action and objectives

1.1. The government has an ambitious plan for growth rooted in long-term decisions to strengthen the economy, by boosting productivity and increasing the number of highly skilled workers in good jobs. At the heart of this plan is a focus on unlocking private investment, fostering innovation and catalysing the growth industries of the future, and ensuring the benefits of this growth are felt by communities across the country. 

1.2. At Autumn Statement 2023, the Chancellor announced the government’s intention to establish a new Investment Opportunity Fund available over 5 years to secure specific, named private investment in Investment Zones and Freeports across the country. 

1.3. The Investment Opportunity Fund will complement the objectives of the Investment Zones and Freeports programmes, which seek to develop clusters in areas in need of levelling up, by providing a separate source of funding that government will use to help unlock strategically significant investment from specific companies in these areas, in support of both national and local economic priorities.  

1.4. This document sets out further detail of the Fund’s objectives, parameters, the broad criteria that the government will consider when identifying potential opportunities, and the next steps for delivery. 

Case for action 

1.5. The importance of the private sector as the engine of economic growth and wealth creation is well established. The Levelling Up white paper was clear that a vibrant, high-wage, high-skill economy – at both a national and regional level – requires above all unleashing private investment, encouraging enterprise and supporting a dynamic business sector that can create jobs, nurture skills and invest in innovation. This is key to ensuring economies and workers have access to the necessary infrastructure, technologies and ideas to thrive and realise their potential.  

1.6. Despite the UK’s significant strengths – including our world-class research institutions, significant natural assets, and competitive tax regime – levels of UK business investment have been relatively and persistently low compared to other advanced economies, at 9.5% of nominal GDP over the last 10 years, compared to 11.2% on average in France, Germany and the US. This contributes to a long-tail of low-productivity businesses and places which together go some way to explaining the UK’s low productivity growth compared to competitors. And while the UK continues to perform well on headline foreign direct investment, there is inconsistency in foreign direct investment across key sectors and between places, with London continuing to attract well over double the amount of foreign direct investment as the next best performing region. 

1.7. There is a role for government to irrigate the soil for the private sector and create the conditions for innovation and growth, by providing the right incentives and addressing barriers to investment. The government has already introduced an ambitious programme to this effect: including increasing the generosity of the UK’s capital allowances regime by making full expensing permanent at Autumn Statement 2023 and simplifying R&D tax reliefs; ensuring access to finance through a comprehensive package of pension reform; and providing clarity, vision and support to turbocharge priority industries through the publication of major strategies such as the Advanced Manufacturing Plan and associated £4.5 billion funding from 2025, the Creative Industries Sector Vision, and the additional £520 million to support transformational investments in Life Sciences. 

1.8. To complement these national measures, the government has also established a number of place-based initiatives to increase innovation and investment across the country. The Freeports programme (established in 2021) and more recent Investment Zones programme (launched in 2023) are aimed at supporting the development of high-growth clusters in areas in need of levelling up, attracting investment in key sectors and boosting regional productivity. These programmes have been designed to enable the development of bespoke strategies to encourage investment, providing a range of levers to help create more attractive investor environments, generate commercially viable investment opportunities, and respond to specific investor needs in a particular location and sector. 

1.9. Both Freeports and Investment Zones have made significant strides since they were launched. Freeports have so far attracted £2.9 billion of investment and created over 6,000 jobs, with over 200,000 jobs projected over the lifetime of the programme in the high-innovation, low-carbon technologies of the future. Plans have now been agreed for the majority of Investment Zones in England, with delivery commencing from April this year, and a further two Investment Zones have been announced in each of Scotland and Wales, alongside a £150 million package for an Enhanced Investment Zone in Northern Ireland. Initial anchor investments have already been secured in English Investment Zones, from both major multinationals like Boeing in Sheffield and Nissan in Sunderland, through to smaller, firms pioneering new technologies such as TriRx in Liverpool and First Graphene in Manchester. 

1.10. However, in an increasingly competitive environment for investment, there is a need to go further. While early indications suggest Investment Zones and Freeports are having a positive impact and creating more supportive enabling environments for private investment generally, feedback suggests there are still instances where businesses face viability gaps to investing, have a particular need which if addressed could enable new investment, or where relatively modest amounts of public sector funding could unlock further private investment. Securing such investment can be vital to enabling clusters of innovation to grow, further investment to flow and agglomeration to build.  

1.11. The Investment Opportunity Fund is therefore intended to double down on the objectives of Freeports and Investment Zones by providing a flexible, agile pot of funding that government can use to secure and respond to opportunities in these areas as they emerge. Consistent with the recommendations of the Harrington Review which called for greater links between national and sub-national government and an enhanced place-based offer for investors, the Investment Opportunity Fund will be used as a tool by government, in partnership with local areas, to unlock strategically significant investments in key sectors and technologies that will strengthen priority clusters, create jobs and boost productivity of  the wider region. Intended to complement the wider government offer to businesses, the Fund has a clear mission to provide the final or missing piece of funding to secure private investment in Freeports and Investment Zones that might otherwise be missed or unlock further investment that otherwise might not be possible. 

1.12. Taken together, our ambition is to enable a virtuous circle whereby Investment Zones and Freeports create the right conditions to attract investors, the Investment Opportunity Fund helps to secure specific, transformational investments to turbocharge the growth of the cluster, which in time becomes an incentive for further private investment itself.

2. Fund parameters and criteria

2.1. Government will take an opportunity-led approach to identifying and selecting investment projects to support via the Fund, guided by a clear set of parameters and core criteria, and informed by both central and local government intelligence of opportunities and needs of investors. Recognising the key role of local partners, projects will ultimately only be taken forward with local support to do so. 

2.2. DLUHC will work with other government departments – including the Office for Investment, Department for Business and Trade and HM Treasury – to identify potential investment projects that could be suitable for support via the Investment Opportunity Fund based on the following initial parameters:  

• Projects must be based in a Freeport or an Investment Zone. For Investment Zones, we will define this as the Mayoral Combined Authority (or Mayoral Combined County Authority) boundary in England, the boundary of the Regional Economic Partnership in Scotland, or the boundary of the selected Corporate Joint Committee in Wales. In a Freeport, we will define this as the boundaries of the local authorities involved in the Freeport consortium. 

• Projects must help unlock new investment from a specific company. The Fund is not intended to provide funding for speculative or enabling projects. Rather, government will focus on identifying relatively mature and well-defined propositions where funding will address a specific and known barrier to – or unlock a specific opportunity for – investment from a particular company.    

• Projects must be within one of the government’s 5 priority sectors. Government will continue to prioritise projects that secure investment in the following 5 priority sectors: Advanced Manufacturing (this includes defence, space and maritime, with part of Freeports focusing on these industries), Digital and Tech, Green industries, Life Sciences, and Creative. 

• The funding ask from the Investment Opportunity Fund must fall between a minimum value of £1m and a maximum of £25m. Government will not consider projects that require less than £1 million of funding and only up to maximum of £25 million funding from the Investment Opportunity Fund. Government will not act in a vacuum and will only support a project which leverages significant private sector match funding. Wherever possible, we will seek to maximise the return on the public purse through match. 

2.3. Where projects are identified which fall within these broad parameters, government will then further consider projects against the following strategic criteria, engaging local leaders of Investment Zones or Freeports on a case-by-case basis to leverage their insight and relationships, and ensure alignment with local plans: 

• Proof of need / urgency. The government will be guided by its own understanding of opportunities and the deliverability of potential projects. As set out, this Fund is explicitly focused on supporting investments that will unlock, significantly accelerate or scale up private investment and/or where urgent decisions are required to ensure that funding offers are aligned with investor decision-making timelines. As we identify potential projects, government will carefully consider the case for support, including the genuine need for government funding (including evidence of market failure and what would happen without support), the level of support required, why the Investment Opportunity Fund is the most suitable source of funding (with consideration of other government funds and why these are not suitable or sufficient), and why a funding commitment is required urgently. 

• Levelling up benefits. The Freeports and Investment Zone programmes have been clear since their inception that they sit on the intersection of two key objectives for government: supporting the growth of key sectors and driving levelling up ambitions. The Investment Opportunity Fund is no different. Government will work with local areas to consider if and how potential investment projects will support improved outcomes for local people. For example, it might be that projects both unlock investment and boost pay, support employment and drive-up skills, in turn supporting the cluster’s attractiveness and the opportunities for residents.  

• Alignment with Freeport / Investment Zone objectives and local economic priorities. Given the intention of the Investment Opportunity Fund to complement the Investment Zones and Freeports programmes, government will consider how potential projects will support the development of the relevant Investment Zone or Freeport cluster. This could include securing investment from a company in the same sector or investment to strengthen the wider cluster ecosystem, as well as investment that supports the wider local economic plans and priorities for the area. Government will engage places on this point at the appropriate time to ensure opportunities align with their local plans. Potential projects will only be taken forward where there is local support to do so. 

• Alignment with national objectives and sectoral priorities. The government has wider national and sectoral plans that projects will need to be aligned with and speak to, including the Chancellor’s 5 priority sectors. Projects in Scotland and Wales will also be considered in relation to the relevant broader Scottish and Welsh government strategies. Government will look to identify projects which align with these wider objectives for the sector and other national plans and priorities at this time. 

2.4. Wherever possible, government will also consider the geographic spread of opportunities supported, as well as spread across the UK government’s 5 priority sectors. 

2.5. Government will move swiftly to identify and consider potential projects that require support from the Fund to unlock significant investment, aligning with investment decision timelines as far as possible. 

What can funding be used for? 

2.6. The guiding principle of the Investment Opportunity Fund will be a focus on projects that will secure new private investment, from a specific, named company. For example, this could be supporting the expansion of businesses with an existing presence of strategic importance to the region, securing new investment into the region, or unlocking significant private R&D investment. 

2.7. Based on the experience of other government funds such as the exceptional Regional Growth Fund and the UK Shared Prosperity Fund, we expect funding could be used for a range of projects that broadly fall into the following categories: 

• Specific and targeted enabling works. While the Freeports and Investment Zone programmes help create the wider conditions to attract investment, in some cases a specific company will have a very specific ask to unlock new or further investment. For example, the Investment Opportunity Fund could support the construction of an access road to connect a site to the motorway, be used to remediate contaminated land or part fund capital construction costs of new laboratory space. Noting the inherent uncertainty of realising planned private investment, projects that could enable other investments will be taken account of.   
• Partnership working with the company. From the Regional Development Agencies to European Funding there is a well-established use case of companies making investment decisions based on their access to high quality research assets and skills. The priority sectors chosen by the Chancellor are focused on innovation and there is longstanding evidence of companies from major multi-nationals to smaller SMEs making funding decisions in the UK based on the availability of R&D capacity. Funding could be used to support projects delivering long term R&D work between a place’s local research assets and a specific company, or to fund partnership skills programmes with higher-level research institutions.   
• Direct support. In some instances, companies might have a viability gap where direct government support could provide the funding required to bridge that gap and unlock new investment. If this is the best route for funding, we will work with the company and relevant Freeport or Investment Zone local leadership to carefully consider the amount required to deliver the project in the most value for money way. Equally, it might be that the company or a partner on a project might be best to carry out the specific work and as such the easiest way to fund a project will be via a direct grant to the company in question. 

2.8. In some instances, government might choose to take forward a number of smaller projects to land a single investment within the minimum and maximum spends of the Investment Opportunity Fund.

3. Supporting investment across the UK

3.1. Our priority is to drive private investment across the United Kingdom, ensuring that world class businesses, innovators and entrepreneurs have opportunities from the North East of Scotland to Wrexham and Birmingham. 

3.2. The Freeport and Investment Zone Programmes have been designed collaboratively and are being delivered in partnership with the Scottish and Welsh governments. Working with the devolved administrations, we have been able to agree locations for Freeports and Investment Zones in Scotland and Wales. We will continue to work in this spirit, with the guiding principles of the Investment Opportunity Fund being its agility to respond to opportunities to unlock major private sector investment, to agree the best approach to delivering the fund in Scotland and Wales.

3.3. We want to build on the effective partnership working established through the Investment Zone and Freeport programmes and ensure that consideration is given to the specific circumstances of each part of the UK and the investment opportunities available. This will mean working with the Scottish and Welsh governments with the ambition to agree a partnership approach to identifying and considering the pipeline of potential projects in each part of the UK and alignment with local innovation strategies and business support instruments.

3.4.We recognise that the delivery timelines for both Investment Zones and Freeports in Scotland and Wales are different to that of England, particularly during year one of the Fund where not all sites will be operational. To this end, we will ensure the approach to delivering the Investment Opportunity Fund enables Freeports and Investment Zones in Scotland and Wales to benefit over the lifetime of the Fund.

3.5. Northern Ireland has been allocated £150 million for an Enhanced Investment Zone, as part of the broader financial package for Northern Ireland. The government will work with the Northern Ireland Executive and stakeholders on how best to deliver the benefits of the Enhanced Investment Zone and maximise investment across Northern Ireland. We will also pursue and engage through the East-West Council on the scope to extend Investment Zone benefits to the Stranraer/Cairnryan area in Scotland – recognising this vital Union connectivity route and boosting growth.

4. Delivery and next steps

Delivery 

4.1. The Department for Levelling Up Housing and Communities will oversee the delivery of the Fund. Given the Fund’s focus on securing investment in the UK government’s priority sectors, DLUHC will work with other government departments including the Department for Business and Trade, Office for Investment, Department for Science, Innovation and Technology, Department for Energy Security and Net Zero and the Department for Culture, Media and Sport to ensure the best outcomes. We will work with the devolved administrations on potential projects from within their administrations, and the relevant arm’s length bodies as required. 

4.2. Given the ambition to support investment projects that align with Freeports and Investment Zones objectives, and support wider local economic plans, we will work directly with relevant Freeports or Investment Zones, to consider potential projects against our criteria, drawing on local insight and relationships to test the viability and deliverability of projects. Where a project is considered to meet the objectives of the Fund, places will be asked to develop a business case demonstrating the value for money of the project and approach to delivery. 

4.3. Subject to business case approval, government expects successful projects to then be delivered on a day-to-day basis by Freeports or Investment Zones. Accountable bodies for Investment Zones and Freeports (or a locally agreed alternative) will be responsible for ensuring that projects they deliver meet all statutory and legal obligations and are compliant with the UK’s subsidy control regime. Public authorities should also ensure that they are complying with the Public Sector Equality Duty. 

Next steps 

4.4. This prospectus has set out the approach government will take in identifying the first projects for the Investment Opportunity Fund to support. DLUHC will work directly with other government departments, including the Office for Investment, HM Treasury and Department for Business and Trade, to consider government’s strategic pipeline of potential investments and begin to consider which best align with the objectives of the Fund and criteria set out here. 

4.5. We are conscious that in some instances Freeports or Investment Zones will have intel about projects which could be suitable for the Investment Opportunity Fund. Accountable bodies for Investment Zones and Freeports can alert DLUHC to potential opportunities they feel could be suitable by emailing Investment.Opportunity.Fund@levellingup.gov.uk and we will consider these in the context of the wider pipeline and in line with the parameters and criteria set out.   

4.6. We expect the fund to be used for urgent, well developed investment proposals, so if you are a company interested in the fund over a specific opportunity in a Freeport or Investment Zone, please reach out to local government or the Department for Business and Trade in the first instance who can then consider which, if any government funding, might be most appropriate.