Forty years ago Prime Minister Margaret Thatcher introduced six freeports into the UK. The intent was to combat regional inequalities and revive areas in economic decline. These were specialised economic zones that profited from simplified customs procedures, tariff inversion, and the relief on custom duties – particularly for goods processed within the area. But they proved to have limited success. Hence in 2012 Prime Minister David Cameron decided not to renew the freeport licences.
A study in 2021 found little evidence that freeports are an effective tool to encourage economic growth and increase prosperity. So why is the Conservative government re-establishing freeports?
A different world
The post-Brexit world of 2023 is different. Supporters argue that this flagship government programme will facilitate economic recovery and contribute to realising the levelling-up agenda, bringing jobs, investment and prosperity. Hence the government has committed to 12 freeports.
Dehenna Davison MP, parliamentary under secretary of state (levelling up), claims that we will see freeports “bring their plans to life with big private investments, upgrades to local infrastructure, and bold regeneration initiatives in those areas that need a boost, creating real impacts for local people. A true example of levelling up”.
What is a freeport?
Freeports encompass a geographic area. In the case of Freeport East this is Felixstowe, Harwich and Stowmarket’s Gateway 14, a 156-acre site intended to be the “largest Business, Innovation and Logistics Park in East Anglia”. Within the freeport boundary is Britain’s biggest container port and busiest railhead, two major ferry terminals, and Adastral Park telecommunications R&D facility. Here, business may be carried out with different tax and customs rules, planning and employment laws. Crudely put, the normal rules and laws of the land may not apply.
‘Operators’ will run the freeports. Freeport East is a partnership between Hutchison Ports, Harwich Haven Authority, New Anglia LEP, South East LEP, Essex County Council, Suffolk County Council, East Suffolk Council, Tendring District Council, Babergh and Mid Suffolk Councils and the Haven Gateway Partnership.
The government states that Freeport East will create 11,350 jobs “ensuring inclusive and equal access to Freeport jobs by positively enabling recruitment of ex-offenders, long-term unemployed people, and care-leavers, supporting Freeport employers to become Disability Confident as well as working through existing and new skills centres and institutes to facilitate a future workforce is available to support industries of the future”.
At Gateway 14, construction is underway of a state-of-the-art distribution unit for The Range, a garden and leisure products retailer. Alex Simpkin, The Range CEO, stated, “This a major landmark in the expansion of The Range with an eastern region distribution hub with a particular focus on the creation of a sustainable warehouse building together with 1,650 jobs for the region. We look forward to the opening of the building in the next 12 months”.
However Mid Suffolk Green Party Councillor Andy Mellon is more cautious: “We were hoping to see high-quality manufacturing and production on the site, but so far it looks like becoming mainly a logistics hub. We are sceptical of the benefits of the Freeport designation, which appears to provide significant tax benefits to large companies but does nothing for smaller local enterprises who may well be disadvantaged by not being in the Freeport.”
So why are freeports controversial?
This is a complicated policy and much of the low tax, low regulation detail is opaque. That’s part of the problem. Without clarity, disinformation spreads and conspiracy theories fester.
One suspicion is that the race to create freeports is ideologically driven, and primarily to mitigate what is increasingly being reported as the economic downsides of Brexit.
Supporters claim that many jobs will be created and that Freeport East will generate a Gross Value Added (GVA) of £5.5bn over 10 years. However research evidence is consistently less optimistic. A common view is that economic and employment growth is generated mainly by means of re-location rather than by actually creating new jobs. Moreover because of the wide range of tax cuts and customs privileges – tariffs and duties being exempted on imports that stay in the freeport zone and exports – the Exchequer is deprived of tax revenue. Will the generated GVA match or exceed the lost HMRC income? Or will the taxpayer lose out?
Business are exempted paying employers’ national insurance (NI) relief for staff earning less than £25,000 for up to three years. Might this create a two-tier workforce: “cheap and even cheaper”? If less NI is paid, what does this mean for an employee’s pension? Or health service and social care funding?
Regulation provides health and safety standards, employee protections in the workplace, and environmental protections. Will low regulation freeports waive some or all of the rights we expect and enjoy? What about regulation that is designed to prevent criminal activity?
A benefit offered to an operator is that they are allowed to set an ‘outer boundary’ with a diameter of up to 45km (28 miles). The Freeport East Boundary could therefore encompass Sudbury to Felixstowe, Colchester, Ipswich and Needham Market to Clacton-on-Sea. What this means is unclear. Might the radical curtailment of planning rules in freeports be extended to the ‘outer boundary’? Might residents face compulsory purchase orders? There are still too many unanswered questions. The main one being, who really is benefitting? And that’s the freeport controversy.