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What is…a free port?

On 3rd March 2021, Chancellor Rishi Sunak announced the location of eight new β€˜freeports’ - special economic zones with different rules to make it easier and cheaper to do business to boost the UK economy. But what exactly are they and what benefits do they offer? We’ve pulled together a quick overview for you to get you up to speed.

In general, they are areas around shipping ports or airports where the usual tax and tariff rules do not apply. Goods in freeports can be imported, manufactured, and exported without being subject to checks, paperwork, or tariffs. For example, raw materials could be imported, made into whole products for export without any charges being paid - taxes are only paid if the goods leave the freeport zone. There are approximately 3,500 freeports around the world with about 80 located within the EU. They’re not a new idea - there were seven freeports operating in the UK between 1984 and 2012 but why are they being brought back?

The argument for:

  • An opportunity to stimulate trade and create opportunities: freeports have simpler planning, cheaper customs, and lower taxes with tax breaks to encourage construction, private investment, and job creation. Companies inside the sites will be offered temporary tax breaks, generally lasting for five years, including reductions to the tax companies pay on existing property and, when they purchase new buildings. Employers will also pay reduced national insurance for new workers.
  • Innovation and green tech: the suspension of duties on goods imported and the establishment of industrial β€˜clusters’ means that tax could be paid on a final, assembled product rather than on each individual component, especially important in the push towards net-zero (the balance between the amount of greenhouse gas emissions produced and the amount removed from the atmosphere).
  • Decarbonisation: the push to decarbonise could be supported by the streamlined planning processes with infrastructure such as EV charging points, hydrogen fuelling, shoreside power etc.

All of these factors can help to raise the profile of a region and increase manufacturing, jobs and investment in less affluent areas.

Sounds good? Indeed. However, don’t forget…the argument against:

  • Security is the major concern of critics: freeports are much less regulated than the rest of the country opening the threat of money laundering, tax evasion and trafficking. A Royal United Services Institute for Defence and Security Studies report highlighted the misuse of freeports for drug trafficking, the trade in counterfeits, money laundering and tax dodging.
  • Freeports do not boost employment overall simply move economic activity from one area to another: as employers in freeport zones pay reduced national insurance contributions for new workers, this cost must be subsidised by the state therefore negating their possible benefits. Research by the Centre for Cities published in 2019 concluded that they were unlikely to provide highly skilled jobs, instead creating low wage jobs in warehousing.

Whatever your view on freeports, the Port of Tyne, despite submitting a bid, was not among the eight announced. Teesport is set to become the freeport in the North East and the largest, spanning a huge 4,500 acres - the equivalent of 2,550 football pitches. Will it deliver? Only time will tell.

Still unsure? Check out the links below