In this opinion piece, IOE&IT Director General Marco Forgione finds much to admire in the government's freeports plan, but believes it can go further by establishing a global network linking freeports in all the major and growing economies

It’s budget time again and today (Wednesday 3 March), as part of the government’s plans to boost the UK’s economic recovery from Covid-19, Chancellor Rishi Sunak unveiled the first eight locations around the UK to be awarded freeport status.

Our hearty congratulations to the first winners – and to those others expected to be added to the list announced today:

• East Midlands Airport
• Felixstowe and Harwich (Freeport East)
• Humber
• Liverpool City Region
• Plymouth
• Solent
• Thames (including London Gateway Port and the Port of Tilbury)
• Teesside

These are trail blazers with the opportunity to regenerate their regions, redefine the role of freeports and create a new international trading network in a strong United Kingdom.

Background

First announced in pre-Covid 2019, the government’s embrace of freeports was timed ahead of our potential no-deal departure from the EU’s customs union and single market. Freeports were put forward as part of the UK’s planned emergence as an independent trading nation for the first time in fifty years.

Treasury tool

With an economy where growth and development are regionally polarised and facing the pandemic’s economic impact (not least the damage to manufacturing supply chains), freeports can be a valuable tool in the Treasury’s policy armoury.

Of course, the concept of freeports is not new. When in late 2020 the government invited applications from ports and regions around the UK, it was harnessing an idea that has existed for centuries – of zones where taxes, duties and regulations are liberalised to encourage trade and development.

Liberal tariff regime

And yet, critics ask, what further liberalisation does the UK economy actually require? In emerging from the EU the UK has, in our view quite rightly, opted for a very liberal tariff regime, negating the potential advantages of tariff inversion from which freeports have benefitted in the past.

In addition, the UK has long prided itself as an easy place to do business – to the extent that it ranks eighth in the world and second in Europe in the World Bank’s Ease of Doing Business index.

Arguably, then, there are relatively few restrictions for a UK freeports model to remove.

Joined-up approach

This does not mean there are not selective advantages to be gained in these areas, but it does mean that the UK’s approach to freeports – if it is to be successful – will also have to join up with other policy levers.

In short, the UK model for freeports needs to be different to those freeport models seen elsewhere around the world in high tariff, high tax environments.

Diverse package

There is much to admire, though, in the government’s diverse freeports package of incentives and allowances – one that can be tailored to a broad set of locations and companies.

On the one hand, there are the customs processes that traditionally attract investment to freeports, including duty exemption, VAT suspension and simplified procedures.

Then there are the government’s proposed tax reforms which could prove significant. Business Rate and limited NIC reliefs will be welcome to employers willing to relocate to UK freeports.

Simplifying the planning process, with the promise of enhanced Structures and Buildings Allowances and Capital Allowances, will help address an area of policy where the UK has historically underperformed in comparison to its peers.

Many companies looking to invest in freeports will also have an eye on the growing green sectors of the economy including offshore power generation and new technologies aiming to reduce the use of fossil fuels in industrial processes.

Linking the freeports programme with the Green Energy Fund is important and will provide synergies to boost the incentives to invest.

‘Servitisation’

So far, so good I hear you say. But in addition to encouraging regeneration of industrial and commercial land and housing, there is the potential for a new ingredient to be added: a global network linking freeports in all the major and growing economies.

Freeports traditionally bring benefits for manufacturing and the logistical infrastructure on which it depends.

But the UK could also focus on skills, training and the services sector in support of the growing ‘servitisation’ of manufacturing. We know that goods and services are increasingly interdependent – a synergy that modern freeport policies need to recognise.

A globally connected network of UK freeports – clearly tasked with creating high-skill, digital-first, manufacturing and service focused hubs – can turbo-charge UK plc in a way this government so ardently desires.

This opinion piece was first published in The Manufacturer magazine