Jeremy Hunt will create 12 new investment zones to boost economic growth in deprived areas in a major scaling down of the policy first put forward under Liz Truss’s short-lived Government.

Under Ms Truss’s proposals, 38 local authorities were invited to put forward bids to develop low tax, low regulation sites to try and kick start local economies in traditionally disadvantaged regions.

But the Chancellor will announce in this week’s Budget that just eight will be created in England, with a further four yet to be agreed in Northern Ireland, Scotland and Wales as part of the Treasury’s commitment to the levelling up agenda.

Each of the new zones will be based around major research institutions, most likely to be elite universities, where they will be handed £80m in funding and generous tax incentives to become research and development hubs.

According to the Government, the money will be used to improve skills, provide specialist business support, improve the planning system, or to boost local infrastructure.

The Treasury hopes the investment zones will focus on increasing growth in crucial sectors for the UK, such as technology, the creative industries, life sciences, advanced manufacturing and the green economy.

Mr Hunt said: “True levelling up must be about local wealth creation and local decision-making to unblock obstacles to regeneration.”

The plans come as the Treasury is also developing “innovation clusters” around universities in Glasgow, Greater Manchester and Birmingham in bid to develop them into global centres for research and innovation.

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Levelling Up Secretary Michael Gove said: “Levelling up means backing local growth across the UK, driving innovation to attract investment and putting power into the hands of local communities so they can reach their full potential.”

It comes as economic experts warned that the Chancellor’s decision to increase defence spending would lead to cuts to public services elsewhere under the Treasury’s current spending plans.

Ben Zaranko, senior research economist at the Institute for Fiscal Studies, said the Government’s decision to boost funding for defence at the same time as increasing spending on health would mean cuts to other departments.

Mr Zaranko said that sticking to the Government’s current spending plans as set out in the Autumn Statement, while increasing health and defence spending “would mean cuts elsewhere” of around 0.7 per cent a year to areas such as local government funding, prisons and the courts system.

The economist added that the spending plans would also form the basis that each of the parties will be using as a baseline when making spending promises going into the next election.

“These plans could cast a long shadow into the next Parliament,” Mr Zaranko added.

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