Hundreds of bids by councils to be granted tax exemptions and liberalised planning rules under the “investment zones” scheme have been killed off, as Rishi Sunak’s government dismantles another of Liz Truss’s projects. Sources said ministers were trying to scale down the scheme, which was a key part of the previous government’s growth strategy, while salvaging some aspects of it as a sop to the former prime minister and her allies. Fewer than 20 zones, which will probably be focused instead on universities, are now envisaged. Following alleged disagreements between the Treasury and the Department for Levelling Up, a planned announcement last week about a replacement scheme was called off at the last minute. In a letter seen by the Guardian, the levelling up minister, Lee Rowley, revealed that the idea of investment zones had been reviewed by both No 10 and the Treasury. He said the policy was “going to be refocused on productivity, improving growth and job creation”. Despite hundreds of councils and combined mayoral authorities submitting bids to be considered for zones in their patch, Rowley admitted the “previous expression of interest process will not be taken forward”. He insisted the government would “work closely” with all local authorities and businesses to consider how best to identify and support them, promising further details shortly. It was revealed last year that the government received bids to become investment zones from about 80 local authorities. Arranging these came at a cost with councils already under financial strain; the Local Government Association estimated that each competitive funding bid would cost about £30,000 to put together. Ministers still want to salvage elements of the investment zones scheme, sources said, given the amount of time councils put in to their applications and the extensive information they provided about specific wants and needs. Redesigning the scheme is also seen as a bid to keep Truss and her former cabinet ministers happy, given that they have become increasingly emboldened at making interventions critical of the government – most recently on childcare and onshore wind power. Investment zones were initially billed as a way to drive growth by cutting red tape, including planning regulation, and offering time-limited tax incentives. A government source said it was “Liz’s policy, she wanted it, was in the meetings and had all the details”. After Truss called her critics the “anti-growth coalition”, another insider admitted: “There’s a desire now she’s gone not to be seen as innovation killers.” However, those believing the project to be doomed have nicknamed the schemes “zombie zones”. Discussions have been held between the Treasury and the Department for Levelling Up for several months about rebadging the schemes as research and development zones, innovation zones, or academic zones. Various sectors have been considered as potential targets, including key industrial sites, but the most likely to benefit are universities. Several Whitehall officials suggested there had been disagreements between the departments, with some iterations rejected for being “half-baked”. However, a government source denied any accusation of a dispute, saying: “Investment zones will be an important part of the government’s mission to level up communities across the UK and drive economic growth. An announcement on the new investment zones programme will be made soon.” Labour claimed the debacle had been a “complete shambles that exposes the weakness of [the] prime minister”. Lisa Nandy, the shadow levelling up secretary, said: “Investment zones were the Conservatives’ big idea, then they were scrapped, then back on, and now seemingly off again. It is shocking that so much time and money has been needlessly wasted on applications because of Tory chaos.” Nandy criticised “the sticking plaster policies” and pledged Labour would deliver a “proper strategy to grow the economy and back every community to contribute to rebuilding Britain”. She pointed to the party’s devolution plans, claiming they would “deliver the biggest ever transfer of power out of Westminster”, and investment in green jobs. A government spokesperson said the new zones would still “boost levelling up, productivity and job creation”, and vowed to work with local authority leaders to “leverage expertise of research institutions in areas that have been left behind”. The spokesperson added: “The information gathered from councils has been invaluable and is helping to inform the new investment zones programme. We are grateful for all their efforts to support their local communities.” Further details are expected to be announced in the coming months.