Two areas of Wales are to become freeports, getting funding and tax breaks with the hope of creating jobs. But what are freeports? What benefits will those areas get? And are there any criticisms of the policy.
Freeports are not new. They have been around as an idea for decades and are used in countries around the word. The policy has been resurrected by the UK government with the hope of revitalising disadvantaged communities and creating jobs.
The UK and Welsh governments hope that the freeports in Wales can become hotbeds of regeneration, promote investment and act as hubs for global trade an investment. The two governments claim the site can bring together a total of £5bn in investment and create 20,000 jobs in the coming years. However critics fear that other areas will just lose out by the same amount.
Read more: Two areas of Wales named as freeports with tax breaks to create jobs
What is a freeport?
A Welsh freeport will be a special zone with the benefits of simplified customs procedures, relief on customs duties, tax benefits, and development flexibility. Goods entering freeports do not have to pay tariffs, import VAT or excise duty until they leave the freeport and enter the domestic UK market, with simplified customs procedures and declarations. Then all that focus on union recognition, net zero.
Where in Wales is becoming a freeport?
UK Ministers agreed to provide up to £26m of non-repayable starter funding for the Welsh freeports. The Port of Holyhead, called the Anglesey Freeport, was the first successful bid and a joint bid between the the ports of Milford Haven and Port Talbot, which submitted a bid under the name the Celtic Freeport, was also successful. A third bid for a multisite freeport covering Cardiff Airport, Imperial Park in Newport and the Bro Tathan Enterprise zone in the Vale of Glamorgan was unsuccessful.
Where else in the UK are there freeports?
The areas of Wales becoming freeports join eight existing freeports in England which include the London Gateway in the Thames Estuary; the port of Felixstowe; Liverpool Waters; a multisite freeport on the Humber encompassing Grimsby, Hull, Goole and Immingham; Teeside; East Midlands Airport; Plymouth and a multisite freeport on the Solent encompassing Southampton and Porthsmouth. In Scotland, there are two freeports in Inverness and Cromarty, and the Firth of Forth.
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Why are freeports needed?
Victoria Alford, tax consultant PKF Francis Clark, explained what the main benefits will be for those businesses operating in the freeport zones.
She said: “Freeports are similar to enterprise zones and will be designated geographical areas, recognised in law, where businesses can benefit from more generous tax reliefs, customs benefits, simpler planning and wider government support. Freeports are usually located around shipping ports and airports. In these zones the normal tax or tariff rules of the country do not apply."
The tax breaks include
- An enhanced 10% rate of structures and buildings allowance for constructing or renovating non-residential structures and buildings within freeport tax sites in Great Britain. This means investments will be fully relieved after 10 years compared with 33 years for properties in other locations which only achieve a 3% rate.
- An enhanced capital allowance of 100% for company investment in plant and machinery for use in freeport tax sites in Great Britain.
- Full business rates relief available to all new business and certain existing businesses that have expanded.
The government also intends to introduce a further tax relief in the form of employer national insurance contributions (NIC) relief for eligible employees in all freeport tax sites, but this is subject to parliamentary approval
What are the criticisms of freeports?
The big question is do they displace investment from elsewhere? There are commentators who believe freeports will have little net economic benefit, claiming they mainly displace business activity from elsewhere.
The UK Trade Policy Observatory said its analysis had found that the policy would have little effect in the UK because tariffs were already low. The UK had seven free ports between 1984 and 2012, but were wound down due to their limited economic impact.
Tim Morris, chief executive of the UK Major Ports Group, warned: “Freeports alone are not a silver bullet for addressing deprivation in coastal communities. The Government should look at extending some of the low-cost, pro-investment measures in the freeports ‘tool box’ to port areas more widely.”
Michael Harris, Financial Crime Consultant at global data and analytics provider LexisNexis® Risk Solutions , warned that while Freeports will provide a welcome boost to local economies, there is a risk of bringing criminal activity via the 'back door'.
He said: "In recent years, there has been numerous examples of vulnerabilities in free trade zones, with trade in high valuable goods being funded by illicit money. It is imperative that lessons are learned from this to ensure that firms taking advantage of the tax breaks and other benefits are held to account."
Research by the Centre for Cities published in 2019 and looking at enterprise zones and land-based incentive areas like Freeports, concluded that they are unlikely to provide high skill jobs, instead creating low wage jobs in warehousing and could well drain activity from elsewhere in the country rather than creating new activity.
Could we have had freeports in the EU?
Prime Minister Rishi Sunak, as Chancellor, hailed freeports as one of the big benefits of leaving the EU. However, what he didn't highlight was that the UK did have freeports when in the EU.
The UK had Freeports before - from 1984 to 2012, there were seven in the country at various stages but legislation allowing them was allowed to lapse.
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