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Why Freeports could help re-balance the UK economy

Barclays’ Head of Manufacturing on why Freeports could create jobs, drive investment and level up communities in the North of England.

Freeports to support trade

Over the centuries the UK has built a reputation as a great maritime nation and our role as a global seafaring country has seen the prosperous growth of some towns and cities.

In the north there is a flourishing cluster of ports; whether you drive east to west or vice versa along the M62, you will eventually end up in Hull or Liverpool and if you follow the east coast north from Grimsby you will arrive at the Port of Tyne and Teesport.

The supply chains that support the thriving sectors of the north’s economy: aerospace, chemicals, automotive renewable energy and food, do so through a good logistics network.

The recent Government consultation on Freeports has highlighted the benefits that free trade zones could bring.

In the north there is the infrastructure to take advantage of the opportunities in creating jobs, driving investment, innovation and regenerating communities as part of the wider levelling up agenda.

And as the government has indicated, these national hubs for trade will make a difference and “turbo-charge post-Brexit trade”.

If we embrace new trade opportunities from around the world following our departure from the EU, Freeports will also be a key driver in a post-pandemic economic recovery.

Lee Collinson
Head of Manufacturing, Transport and Logistics

What is a Freeport?

Freeports are ‘special economic’ areas; secure customs zones located at ports, where normal tax and tariff customs rules of a country, for example, the UK, do not apply.

This is particularly of interest to importers, exporters and manufacturers because it would allow the import of materials to enjoy tax incentives and their manufacture, which are then exported, to be done so without tariffs.

Companies can operate in the designated zone and by doing so pay lower taxes, such as reduced VAT and lower rates of employment tax. The Government has also implied that it could also use tax changes to reduce the costs of hiring workers in Freeport sites.

Other ways that Freeports could be used to incentivise business is via a host of different tax incentives, around for example, business rates and enhanced capital allowance on new machinery and equipment or R&D tax credits.

The core customs benefit the Government is proposing

Duty suspension

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

Duty inversion

If the duty on a finished product is lower than that on the component parts, a company could benefit by importing components duty free, manufacture the final product in the Freeport, and then pay the duty at the rate of the finished product when it enters the UK’s domestic market.

Duty exemption for re-exports

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.

Simplified customs procedures

The Government intends to introduce streamlined procedures to enable businesses to access Freeports.

Where would the UK’s Freeports be located?

The Government has said it would like to see a Freeport in every nation and is considering up to 10 Freeports in the UK. Typically, they are located close to ports, which does include rail and airports.

The north can also benefit from its digital and hi-tech sectors, because according to the Adam Smith Institute, Freeports could and should, be hi-tech, high enterprise hubs for the British economy, springboards for regional and global competition through free trade, and gateways to local employment and prosperity.

Director of the Adam Smith Institute, Eamonn Butler has said that “Freeports will provide safe harbour for trade in turbulent times and show that hi-tech hubs of enterprise, low taxes, deregulation and trade without restriction can rebalance the economy and benefit regions that have been left behind. Free trade and Freeports will set Britain on the right course as we sail out of the European Union and into the world.”

The northern region has the infrastructure in place to attract new investment and benefit from the opportunities of a vibrant digital sector that can help to build a digitally connected Freeport.

It will also provide opportunities for collaboration and partnership across different sectors and regions and draw upon the excellence created in sectors that the north excels in – manufacturing, transport and logistics – and provide a landscape to trial innovative technologies in customs as well as a platform to pursue green/decarbonisation programmes, talked about by the CBI at its annual (virtual) conference.

Transport connectivity

Freeports could also provide a welcome boost for improved transport connectivity, particularly on our road and rail networks.

Richard Ballantyne, Chief Executive of the British Ports Association, which has been lobbying for a port zoning economic vision akin to the Freeports strategy, said that Freeports^ mean the government can explore how to better deliver on its levelling up agenda without picking regions over each other. Coastal communities are often in areas of high deprivation and have also experienced challenges resulting from the Coronavirus pandemic and lockdown so this potentially transformative policy will be welcomed across a range of locations.

And for a region like the North East, where the value of goods exports per adult is higher than across England (excluding London) there is plenty to be gained especially through job generation and inward investment. The Tees Valley Combined Authority estimates that a Freeport on the River Tees could create up to 32,000 jobs and add £2billion to the regional economy.

There is great potential across the north to drive manufacturing and exports and we need to grasp the opportunities because exporting and manufacturing is key to this success. If we are to get more balanced regional growth, then where better to start than Freeports?

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