What is a freeport UK? Wales freeport locations, Scotland green freeports, Rishi Sunak tax break hub explained
Freeports are one of Prime Minister Rishi Sunak’s main economic policy ideas and were a 2019 Tory manifesto commitment
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Two further freeports have been announced in Wales, as Rishi Sunak’s flagship economic growth policy continues to expand across the UK.
Following the announcement of two new ‘green’ freeports in Scotland back in January, the Prime Minister and Welsh First Minister Mark Drakeford jointly announced the extension of the policy on Thursday (23 March). It means the Conservative Party is set to deliver one of its 2019 manifesto pledges.
Freeports are often said to be one of the so-called Brexit dividends - although the country could have introduced them, and even operated some, while still a member of the EU. They are also a key policy of Rishi Sunak, who has called for them to be set up throughout his parliamentary career.
However, there are fears freeports could become hubs for criminal activities. The idea that they can be ‘green’ has also been questioned - something which looks set to become a major battleground in the Holyrood coalition between the SNP and Scottish Greens in the wake of Nicola Sturgeon’s resignation as First Minister.
So, what exactly are freeports - and what kind of benefits (if any) do they offer? Here’s what you need to know.
What is a freeport?
Freeports are economic areas which are conferred benefits, such as tax breaks and less customs red tape, in a bid to drive economic activity. Essentially, they are ‘offshore’ zones within which it is cheaper and easier to import and/or immediately export goods than it is in other parts of the host country.
Taxes are only paid to the government by those operating within freeports if they then move the goods they’ve imported and/or processed into non-freeport parts of the country. Freeports typically cover an area of up to 30 miles around shipping ports or airports, and can be found in countries around the world.
Indeed, the UK used to have seven of them between 1984 and 2012, including at Liverpool and Southampton. The Government has already announced eight freeports for England. These are:
- East Midlands Airport
- Felixstowe & Harwich (includes the Port of Felixstowe and Harwich International Port)
- Humber (including parts of Port of Immingham)
- Liverpool City Region (including the Port of Liverpool)
- Plymouth & South Devon (including the Port of Plymouth)
- Solent (including the ports of Southampton, Portsmouth and Portsmouth International Port)
- Thames (including the ports at London Gateway and Tilbury)
- Teesside (including Teesside International Airport, the Port of Middlesbrough and the Port of Hartlepool)
The Government has said it intends to open at least one freeport in both Wales and Northern Ireland, alongside the two it has announced for Scotland.
Where are Scotland’s green freeports?
On Friday 13 January 2023, it was announced that the River Forth, as well as Inverness and the Cromarty Firth would become Scotland’s two freeports. Five bids were submitted in 2022, with the UK government and devolved administration in Holyrood choosing the successful bids.
They have a slightly different moniker from the English version of freeports - instead being known as ‘green freeports’. They will differ from their cousins south of the border in that they will focus on ‘green’ industries, such as off-shore wind, hydrogen and nuclear energy, so as to stay in line with Scotland’s net-zero commitments. The country has vowed to hit net zero by 2045.
The successful bids will receive up to £52 million in UK government funding, with ministers claiming they will create an additional 75,000 jobs across both freeports. The government also claims they will generate almost £11 billion in investment for the local areas around both sites.
The River Forth freeport will cover the ports of Leith, Grangemouth, Rosyth and an area in the Royal Burgh of Burntisland. Edinburgh airport also falls within the zone. The Inverness and Cromarty Firth freeport will cover sea ports in the region, as well as Inverness Airport.
Rishi Sunak heralded the announcement as “excellent” for Scotland, and said: “In extending the benefits of freeports to Scotland, we are unleashing the potential of the Firth of Forth and Inverness and Cromarty Firth – backing the delivery of thousands of high-quality green jobs for future generations, as we continue to make gains on our commitments to transition to net zero.”
Scotland’s Deputy First Minister John Swinney said the deal was a “milestone” and added: “The successful applicants showed a strong determination to embed fair work practices, including payment of the real living wage, and to enshrine net zero initiatives in their work. We will also work with the unsuccessful bidders to consider how they can build on the plans set out in their bids to deliver jobs and growth in their regions outside the green freeports programme.”
Swinney said that the devolved administration would work with the two freeports to get them up and running “as soon as possible”.
Despite the SNP’s positivity about the scheme, their coalition partners the Scottish Greens have expressed concern about the new freeports. They argue that the concept will see public money go into the pockets of private corporations, will drive down environmental standards, and fail to feliver any of the prosperity the UK government claims they will.
“They are a failed and dated Tory gimmick which hands public cash over to multinational corporations,” said Green MSP Ross Greer. “Under the deal struck for Scottish freeports there are no hard requirements for the companies to meet climate targets or implement fair work practices. Warm words don’t protect people and the environment from greedy corporations, legal obligations do. In this case there is plenty of the former and nowhere near enough of the latter.”
Where will Wales’s freeports be located?
The latest freeports announcement was made in Wales on 23 March. The UK government has pledged £52 million for two new sites to be created - one on the island of Anglesey and another one in South Wales that will be spread across Port Talbot and Milford Haven.
The government says the new zones will generate £5 billion in investment from the public and private sectors, while creating an estimated 20,000 new jobs in the areas. Rishi Sunak said the announcement would support a “thriving part of the UK” that would allow the two areas to “go from strength to strength”.
“Everyone deserves equality of opportunity and working closely with the Welsh government has helped to deliver these fantastic new sites. Today’s Freeports show the hard work being done day in, day out to bring new, high-skilled jobs to communities across Wales and deliver on my promise to grow the economy,” the PM said.
Meanwhile, Welsh FM Mark Drakeford said the new freeports would help build “a stronger, fairer and greener future” for his nation. “The joint working between governments on the freeport programme should serve as a blueprint for future intergovernmental work on a whole range of issues,” the Labour leader said.
Anglesey’s freeport is expected to focus on marine energy technology and low carbon energy. Investment in the new freeport zone will lead to the redevelopment of Holyhead port - a key transport hub for trade between Great Britain, Northern Ireland the Republic of Ireland - as well as improved rail infrastructure.
Meanwhile, what will be known as the ‘Celtic Freeport’ will focus on the hydrogen and offshore wind industries, and could lead to the creation of 16,000 jobs. Land, quayside and transportation infrastructure will be improved at the site, according to the government.
Will freeports benefit the UK?
The Government believes freeports will provide a major uplift for the UK economy and regenerate deprived areas - part of its levelling up agenda. However, critics of the idea think they will be of only minimal benefit and could encourage criminal activity.
Freeports have been one of the Chancellor Rishi Sunak’s pet projects since he entered Parliament in 2015. In a report he wrote for right-wing think tank the Centre for Policy Studies while still a backbencher, Mr Sunak said the zones could create 86,000 jobs.
Another report by the consultancy Mace suggested freeports could confer even bigger benefits, including a £12bn boost to trade, £9bn growth for UK GDP and 150,000 new jobs. However, the assumptions these studies are based upon have been deemed questionable by the UK Trade Policy Observatory (UKTPO).
In theory, freeports allow countries with high-tariff trade regimes (i.e. systems which require importers to pay high tax rates on the products they’re importing) to compete internationally with countries that have low tariff rates. Companies operating within the UK versions will also receive tax reliefs on things like National Insurance, and the freeports will also streamline planning rules, regulatory approval for innovations and customs paperwork.
But there have been warnings that there is a big risk freeports could end up diverting business from other parts of the UK, rather than creating actual new economic activity or jobs. Furthermore, there are fears the economic zones could further open the UK up to economic crime - although the likelihood of this will not be known until the freeports are up and running.
In 2020, the EU announced a clampdown on freeports after it was discovered they had helped to finance terrorism, money laundering and organised crime. This was because the combination of light-touch regulation and tax breaks had allowed criminals to land consignments, tamper with loads or associated paperwork and re-export the products without customs intervention. There are also fears freeports could become a safe haven for criminals to store their ill-gotten gains, such as high-value art or cash.