Just like death and taxes, new government initiatives to spur economic growth are inevitable. Sometimes they are revolutionary, truly transformative programmes and sometimes they’re quietly shelved never to be spoken off again.
As part of the current government’s ‘levelling up’ agenda, the creation of several new Freeports has been announced.
According to the government’s website:
“Freeports will play a crucial part in our post-COVID-19 recovery, helping to build back better, driving clean growth and contribute to realising the levelling up agenda.”
But what exactly are they?
Are they a new idea?
Where will they be located?
How are they supposed to drive growth?
This article answers these questions and more, as we take a deep dive into the new world of UK Freeports.
What exactly is a Freeport?
Freeports aren’t a new idea and they are certainly not confined to the UK.
The world is dotted with a host of ‘special economic zones’, ‘free trade areas’, ‘free economic zones’ and a plethora of other names and acronyms similar to Freeports.
You can find them in as diverse places as Serbia, Uruguay, Sri Lanka and Tanzania.
The fundamental idea behind them is quite simple:
A country designates a defined geographic area and relaxes certain rules & regulations, most significantly making it free to import and export within the zone.
Here’s an example of how they work:
An automobile manufacturer requires parts from around the world to build its cars.
Importing all the parts to its factory/assembly line is expensive because they potentially have to pay tariffs on every single nut, bolt and screw.
If they built their factory/assembly line in a Freeport, they could import all the required parts and manufacture their cars within the zone without paying tariffs on the components individually.
Once the car is complete, they can formally import it into the country and then only pay the tariffs on the finished product.
They are not new to the UK, this policy from the government is more like bringing back and supercharging a past idea rather than introducing something brand new.
According to the House of Commons:
Seven free ports operated in the UK at various points between 1984 and 2012. In July 2012, the [licences for] the remaining five free ports (Liverpool, Southampton, Port of Tilbury, Port of Sheerness and Prestwick Airport) expired.
Freeports don’t have to include physical ports, the planned one in the East Midlands is about as far away from the sea as you can get in England. (Although it is on the site of East Midlands Airport, one of the UK’s biggest airports for cargo).
They are set to be 45 square km in size and dotted around the UK.
Where are they going to be located?
Initially, over 15 places applied to become Freeports.
Last year eight, following various feasibility studies and government planning, were selected to be set-up in England.
They are located in/at:
1. The East Midlands
2. Felixstowe & Harwich
5. Plymouth & South Devon
6. Southampton & Portsmouth
7. The River Thames
Because of devolution, it’s not been smooth sailing for the government to get them established in Scotland, Wales and Northern Ireland. The Scottish Government for example failed to reach an agreement with the UK Government and is looking at its own plans.
Many of the new Freeports are located in area’s that are in need of economic regeneration or are already designated areas by the government for investment and ‘levelling up.’
All have large preexisting freight and cargo industries and are current hubs for import/exports. The Teeside Freeport for example will contain both The Port of Hartlepool and Teeside International Airport.
How will they drive economic growth?
The idea behind Freeports is that simply put, the inward investment and job creation these areas will generate will far out way any loss of revenue on tariffs.
The Freeport area’s are already the subject of huge PR campaigns promoting private sector investment. New business parks are springing up, factories and assembly lines are being built and supporting service industries from coffee shops to transport links are in the planning.
There will also be incentives for companies to expand into these, a company questioning whether to open a new warehouse or extra office for example, could be tipped over into making the decision by the incentives, tax breaks and support given to them to do it in a Freeport zone.
It’s important to note though that acclaim for Freeports is not universal. The idea attracts two key criticisms.
Firstly, many argue that Freeports facilitate foreign organised crime and money laundering by allowing potential stolen or ill-gained assets to be stored offshore in a UK Freeport.
Secondly, many have suggested that the level of economic regeneration and job creation that Freeports will bring is debatable, that they are a gimmick designed to put a PR-friendly label on what is essentially nothing more than a pretty standard government-sponsored regeneration plan.
Whether you support them or not, Freeports look to be a key part of the government’s agenda for the foreseeable future and therefore we’re set to hear much more about them over the coming months and years.