Rishi Sunak discusses freeports announcement

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The Chancellor has announced the location of eight regional freeports in the Budget after a bidding process that began earlier this year. He confirmed that freeports will be located at East Midlands Airport, Felixstowe and Harwich, the Humber region, the Liverpool City Region, Plymouth, Solent, Thames and Teesside. Mr Sunak said the freeports will have “simpler planning”, “cheaper customs – with favourable tariffs, VAT or duties”, and lower taxes – with “tax breaks to encourage construction, private investment and job creation”.

The concept is a significant part of the UK’s post-Brexit landscape, which the Government hopes will provide hubs for enhanced trade and promote investment and regeneration for economically deprived areas.

The country has had freeports before, but those – established in the Eighties and Nineties in ports like Liverpool and Tilbury – eventually withered and died.

All they could offer was freedom from customs duties, and this was not enough on its own, as more or less the same benefits could be gained by importers and exporters through normal customs procedures.

This time around, UK freeports will have greater attractions, such as streamlined planning processes, tax relief packages, simplified customs procedures and duty suspensions on goods.

These key elements are similar to the ones enjoyed by Singapore, which has boosted its economy thanks to the creation of freeports.

Something could get in the way of the Chancellor’s plan, though.

Jonathan Branton, a partner at law firm DWF, told the BBC the UK does have more flexibility now it doesn’t have to follow EU rules, as the UK can adopt a more generous freeport policy.

For example, by giving businesses more financial help.

He also pointed out tax breaks offered to freeport firms would no longer require prior agreement from the European Commission.

However, he emphasised that the Brexit trade deal – agreed by the UK and the EU on Christmas Eve – still requires subsidies to be justified, otherwise they could be challenged in UK courts.

It essentially means the EU could tear up Mr Sunak’s freeport plan, if Brussels deemed any of the subsidies as unjustified.

The BBC report reads: “In more extreme circumstances, the EU could respond to UK subsidies by introducing tariffs on some UK goods deemed to be damaging EU trade or investment.

“And the UK will still be subject to World Trade Organisation rules – which say you can’t introduce subsidies linked just to export performance.

“There are also questions over Northern Ireland, which still has to follow EU subsidy rules under the UK’s withdrawal deal.

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“Treasury Minister Steve Barclay has admitted the freeport model used in Great Britain will need to be ‘adapted’ for Northern Ireland.

“Northern Ireland’s devolved government says it is working with the Treasury to find out how much of the model it will be able to follow.”

In a recent report, British economist Eamonn Butler, made similar claims, adding: “Brexit allows us to be more generous about these things than if we were still in the EU, but there are still limits.

“We have to follow WTO rules against subsidies to export industries, and the EU could retaliate if we overegged it.

“But since trade is highly mobile, we need to have an offer that is as good as any in the world if our freeports are actually going to attract new business and develop into self-sustaining employment hubs.”

Mr Butler noted the last time Britain tried to “do freeports”, it got it completely wrong.

He explained in his piece for The Telegraph: “When Mrs Thatcher created half a dozen freeports in 1984, her Treasury and Revenue officials hated the idea.

“They saw only the potential lost revenue, not the much greater gains of new business and job creation. They steadfastly refused to ease customs paperwork or remove VAT on transactions within these areas that were for all intents and purposes outside UK taxes.

“Southampton was denied a bonded warehouse in its freeport because there was another nearby. And so on.

“In the end, the freeports created a quarter of the jobs predicted, and most of those were simply shifted from other parts of the UK. The economic boost came mainly through commercial property development, not through sustainable new jobs.”

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According to a new report by UK in a Changing Europe, the key components of the post-Brexit economic strategy are not a “magic bullet” and are unlikely to lead to the sort of transformation the Government hopes for.

It says that evidence that freeports create additional jobs is unclear, while there is a public cost of maintaining them which is exacerbated by the necessity of providing financial incentives for businesses to relocate to them.

Professor Catherine Barnard, deputy director of UK in a Changing Europe and one of the authors of the report, said: “If the Government thinks freeports are a magic bullet that will create hundreds of thousands of new jobs, bring billions of additional pounds to the Exchequer and radically transform an area it is mistaken.

“That is not to say they should not be created but the thought they’re going to transform the wealth and prosperity of this country is simply untrue. It will help the regions that get a freeport – but possibly to the detriment of those that don’t.”

However, Tom Lees, the director of the Northern Policy Foundation think-tank, rebutted: “It is well known that the vast majority of academics voted Remain in 2016 which sadly colours and influences the research they produce.

“Nobody has ever claimed freeports will be a ‘silver bullet’ and to do so would be naive or misinformed. Freeports are one type of intervention as part of a package that can help to create jobs, growth and encourage investment as can be seen from the 4,000 in existence around the world.

“The UK’s model cherry-picks the best elements of international freeports and makes it work for our economy and needs which will reduce displacement risks while coming with the highest standards against money laundering and inappropriate use.

“There were very basic and limited freeports in the UK up to 2012 which are incomparable to the model currently proposed. A major difference is that the current approach will include tax zones with attractive incentives and benefits well in excess of enterprise zones for businesses to help our post-Covid recovery and levelling up.

“Many businesses we have spoken with find the UK’s freeport approach attractive and look forward to creating new jobs, opportunities and securing inward investment that would have gone elsewhere.”

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