The Lead Untangles: What is a freeport and why are they so politically attractive?
Labour has continued with the Conservative policy of popping up freeports across the UK
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At a glance facts
There are 12 freeport locations in the UK – eight in England, two in Wales and two in Scotland.
Businesses operating in freeports benefit from lower customs and tariff rules than the rest of the country, tax breaks, and public investment for infrastructure and trade promotion.
They are built close to existing ports, with one exception, and are intended to be national hubs for international trade as well as fostering regeneration and job creation in often deprived areas.
Freeports were reintroduced by then Chancellor Rishi Sunak in 2021, after a limited experiment up to 2012, and were at the centre of “levelling up” – remember that?
The government website says they have generated £6.4 billion in investment, 89 per cent of which is foreign direct investment.
The 12 are East Midlands Freeport, Freeport East, Humber Freeport, Liverpool City Region Freeport, Plymouth and South Devon Freeport, Solent Freeport, Teesside Freeport, Thames Freeport, Forth Green Freeport, Inverness and Cromarty Firth Green Freeport, Anglesey Freeport and Celtic Freeport.
Are freeports providing value for the subsidy money they need, and what merit is there in the criticism they attract?
Context
From Livorno in the late 16th century to Hamburg in the 19th century, freeports existed as special economic zones in Europe hundreds of years ago. When Margaret Thatcher’s limited experiment with them beginning in the 1980s was phased out, one government minister blamed EU meddling for their failure.
But they were revived by Sunak as a cornerstone of UK post-Brexit trade policy in 2021, after he’d written a Centre for Policy Studies paper advocating them as a backbencher five years earlier.
“I'm incredibly excited about what this means,” said Sunak in 2021. “It's a policy we can fully pursue in a unique British way now we've left the EU.
“Freeports are used extensively across the world and the EU is actually one of the few places that doesn't use them extensively.”
But critics warned that their economic benefits were limited and transitory, that they fostered tax evasion and the erosion of workers’ rights, and generally served corporate interests.
The EU had indeed meddled, but only because the European Commission had found evidence that tariff and tax regimes in freeports and other special economic zones produced a “high incidence of corruption, tax evasion, criminal activity”.
Some of the criticism in the UK looks to have been over the top. There were warnings freeports would be like the charter cities of Prospera in the Honduras and Nigeria’s Itana, libertarian utopias where corporations not only enjoyed lower tariffs and taxes but set their own self-serving laws.
This is not the case in the UK, where local authorities or elected mayors lead governance. Nor were the warnings true that freeport jurisdictions would extend way beyond the immediate confines of the ports – for instance that Plymouth and South Devon Freeport would run to the north of Dartmoor Forest.
Trade expert Sam Lowe called the suggestion that much of the country was to be carved up into huge charter cities “complete nonsense”, based on erroneous readings of admittedly badly presented government maps.
The danger is that exaggerated criticism distracts attention from realistic though more prosaic concerns.
Economists say two-thirds of freeports’ new jobs are largely displaced from nearby locations, or would have been created anyway, despite lower tariffs and taxes.
Five years after the policy launch, some freeports have only just received the formal customs designation they need to become operational, and take-up by companies has been low. By last September, only six firms had moved into customs sites in the eight English freeports, reported the Financial Times.
In a report last year, the Business and Trade Committee said job creation so far represented only 4 per cent of the government target. Yet it warned that the predicted costs of freeports could rise from £1 billion over five years to £2 billion over 10 years because the last government extended tax reliefs.
Equally worryingly, the Business and Trade Committee had concerns over transparency and governance, as readers of The Teesside Lead will be aware. Its report devoted a whole section to inquiries into Teesside Freeport, and it made strong recommendations on strengthening governance across the 12, as well as on increasing the transparency of information about them.
What do freeports actually do?
Freeports have both secure customs sites and tax sites. According to the law firm Shoosmiths, customs sites “permit goods to be moved under duty suspension from a port of entry to a separate freeport customs site which, in practice, means that goods can be brought into a freeport site from an overseas location and not be subject to any tariffs, import VAT or exercise until the goods leave the freeport”.
It adds: “The key tax benefits of a freeport include stamp duty land tax relief on qualifying acquisitions of land, enhanced structures and buildings and plant and machinery allowances, a zero-rate of secondary class 1 national insurance contributions and full business rates relief.”
What the left is saying
“Freeports are a symptom of a much wider malaise in global capitalism. The state’s retreat from public provision has led to a big increase in the role of capital in providing critical infrastructure, increasing its political power and sway.” Jonny Jones in Jacobin
“Freeports come straight out of the neoliberal playbook. 1. Restrict democracy. 2. Provide handouts to big business. 3. Tell other places they have to copy these measures or businesses will flee.” Grace Blakeley on X
What the right is saying
“I secured a Freeport for Teesside back in 2021 knowing it could bring huge amounts of investment and jobs for local people, and truly change the fortunes of our area… data shows not only are we delivering jobs and investment to the local area but that we are leading the way nationally.” Tees Valley mayor Ben Houchen
“Does the hon. Gentleman agree that it would be great if the current Government would designate a freeport for Northern Ireland? That is essential. As is shown in the East Midlands, Government support is an essential component for economic growth that sows into the wealth of the whole of this great United Kingdom of Great Britain and Northern Ireland.” DUP MP Jim Shannon in the Commons
What happens next?
Freeports were absent from the Labour manifesto last year but Keir Starmer later indicated he would retain the policy – just do it better. There were even briefings Rachel Reeves would create five more freeports in the last Budget but when they failed to appear from her red bag, officials blamed a communications gaffe. Instead she extended customs and tax designations to existing freeports.
Perhaps they take on new meaning in an era of international trade wars, but given their limited performance so far, it seems reasonable to question why they should be given so much subsidy and so many tax breaks, when spending cuts are being made elsewhere.
It could be that freeports are more a backwater than a murky maelstrom of tax evasion and corruption.
About The Lead Untangles: In an era where misinformation is actively and deliberately used by elected politicians and where advocates and opposers of beliefs state their point of view as fact, sometimes the most useful tool reporters have is to help readers make sense of the world.
The Lead Untangles is delivered each Friday by The Lead and focuses on a different complex, divisive issue with each edition. Is there something you’d like us to untangle, email ed@thelead.uk
About the author: Kevin Gopal is a Manchester-based journalist who has returned to freelancing after editing Big Issue North from 2007 until its closure in 2023. Prior to that he was assistant editor of Chinese community magazine SiYu, international editor of Pharmaceutical Executive, and deputy editor of North West Business Insider before freelancing widely on business, politics and policy for a number of titles. He is a leader in residence in journalism at the University of Central Lancashire.
There is an obvious risk of corruption, tax evasion and crime against which the UK is in practically defenceless. This should trump all other arguments.
It sounds like a bonded warehouse on Steroids with additional benefit for those who own/run them whilst offering nothing to those who work in/for them.