Budget 2021: What are freeports, where will they be and what are their benefits?

The government has heralded the benefits of freeports for some years. Credit: PA

Rishi Sunak announced plans to build eight freeports across England to help “level up” the country’s economy out of the coronavirus pandemic.

But what are freeports, where will they be built, how do they work and how will they help the UK economy?

What is a freeport?

The government has heralded the benefits of freeports for some years, and say they will be a big benefit of Brexit.

Freeports are secure customs zones located at ports where business can be carried out inside a country’s land border, but where different customs rules apply.

Across the world, there are an estimated 3,500 freeports which employ around 66m people.

The aim is to reduce administrative burdens and tariff controls, provide relief from duties and import taxes, and ease tax and planning regulations.

Freeports offer a physical buffer for imported goods between the land border and duties border, meaning less tax regulations and levies and imposed on goods entering and leaving the country.

Freeports are said to offer simplifications to the normal customs processes on imported goods.

What is the government hoping freeports achieve?

According to a government paper produced in February 2020, freeports will “enhance trade and investment across the UK, boost growth and high-skilled jobs, and increase innovation and productivity in our port regions, particularly those situated in or near deprived areas”.

They add the creation of freeports will “send a strong signal that the UK is an attractive trade and investment location which is open for business”.

It is hoped freeports will attract investment to areas where they are created, owing to the incentives mentioned above, which will lead to regeneration and job creation.

Plymouth will be home to one of eight new freeports in England. Credit: PA

How will customs tariffs be affected?

No tariffs, import VAT or excise will be paid on goods brought into a freeport from overseas until they leave the freeport and enter the UK’s domestic market.

If the duty on a finished product is lower than component parts, a firm could benefit from important components duty free. They could then manufacture the final product in the freeport, and then pay the duty at the rate of the finished product when it enters the UK market.

Similarly, a company could import components duty free, manufacture the final product in the freeport, and then pay no tariffs on the components when the final product is re-exported.

Where will the freeports be located?

Mr Sunak announced eight freeports across England at Wednesday’s Budget.

These include:

  • Plymouth and South Devon Freeport

  • Thames Freeport

  • Solent Freeport

  • Felixstowe and Harwich Freeport

  • East Midlands Airport Freeport

  • Humber Freeport

  • Teesside Freeport

  • Liverpool City Region Freeport

Discussions are ongoing with Wales, Northern Ireland and Scotland about the introduction of freeports in the devolved nations.

The Welsh government, led by Labour, has not ruled them out.

The SNP government plans to introduce their own scheme labelled “green ports”.

Why are freeports coming back?

Long touted as one of the benefits of leaving the EU, Mr Sunak said the creation of these freeports would help revitalise parts of the country most in need.

But the UK had seven freeports between 1984 to 2012, including in Liverpool, Southampton and Tilbury.

Chancellor of the Exchequer Rishi Sunak announced visa reforms aimed ‘high-skilled’ migrants in Wednesday’s Budget Credit: Aaron Chown/PA

There are 80 freeports in the EU, so it is not necessarily fair to say that being a member state stopped the UK from having freeports. It could be argued it might be easier to take advantage of potential benefits from outside the EU.

What do critics of freeports say?

Despite the government championing the reintroduction of freeports in the UK, critics argue their benefits are marginal - or non-existent.

The Trades Union Congress (TUC) said freeports could create a “race to the bottom” and a “Trojan Horse to water down employment rights”.

Other argue freeports could simply transfer business away from one area of the UK to another, without increasing the overall size of the economy.

Jude Kirton Darling, former Labour MEP for North East England Region, said: “The North East has many manufacturing companies that are dependent on imports and exports.

“If a freeport was established on Teesside, would this create more jobs for the region or just shift jobs from across the North East into one area?

“An area where they pay less tax and basic worker protections and health and safety standards may not apply.”

Concerns have also be raised about risks relating to money laundering, tax evasion and trafficking.