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Freeports: What are they and will they make the UK money?

Wednesday, 03 March 2021 | 21:00

More details about new UK freeports are expected to be announced in Wednesday’s Budget.

The chancellor says freeports could help the economic recovery, but critics say they increase the risk of tax dodging and lower employment standards.

What are freeports?

Freeports are usually located around shipping ports or airports. Goods that arrive into freeports from abroad aren’t subject to the tax charges, called tariffs, that are normally paid to the government.

These taxes only become payable when the goods leave the freeport and are moved somewhere else in the UK.

Otherwise, they are sent overseas without the charges being paid.

Freeports are allowed within the European Union, and the UK had seven at various points between 1984 and 2012. Locations included Liverpool, Southampton and the Port of Tilbury.

Why are freeports being brought back?

The UK wants to bring back freeports to regenerate deprived areas.

In England, companies inside the sites will also be offered temporary tax breaks, mostly lasting five years.

These include reductions to the tax companies pay on their existing property, and when they buy new buildings. Employers will also pay reduced national insurance for new staff.

Ministers say at least seven freeports will be set up in England. Each one can be up to 45km (27 miles) across.

Scotland, Wales and Northern Ireland will set their own freeport policies.

How will freeport sites be chosen?

More than 30 areas in England have reportedly bid to become a freeport.

Bids in England will be scored against different criteria. One of the most important, according to the government, will be to show how a freeport can bring economic opportunities to poorer regions and “level up” the country.

Prime Minister Boris Johnson has said that “levelling up” is part of his agenda to boost struggling parts of the UK.

Other factors – such as the impact of Covid-19 on local areas, and ensuring freeports are “spread fairly” across England – will also be taken into account.

Ministers will have the final say over successful bids.

Will freeports benefit from Brexit?

There are currently about 80 freeports dotted around the EU.

Now that the UK has left the EU, some Brexit supporters say the UK can adopt a more generous freeport policy. For example, they say the government could give businesses more financial help.

Jonathan Branton, a partner at law firm DWF, says the UK does have more flexibility in this area now it doesn’t have to follow the EU’s rules.

He also points out tax breaks offered to freeport firms would no longer require prior sign-off from the European Commission.

However, he adds that the Brexit trade deal – agreed by the UK and the EU – still requires subsidies to be justified, otherwise they could be challenged in UK courts.

In more extreme circumstances, the EU could ultimately respond to UK subsidies by introducing tariffs on some UK goods deemed to be damaging EU trade or investment.

Furthermore, the UK will still be subject to World Trade Organization rules – which say you can’t introduce subsidies linked just to export performance.

There are also questions over Northern Ireland, whose goods trade with the EU will stay bound by the bloc’s subsidy rules under the UK’s withdrawal deal.

Treasury Minister Steve Barclay has admitted the freeport model used in Great Britain will need to be “adapted” for Northern Ireland.

Northern Ireland’s devolved government says it is working with the Treasury to find out how much of the model it will be able to follow.

Are freeports a good idea?

Supporters say freeports can help increase manufacturing and direct jobs and investment towards areas that would otherwise struggle to attract them.

But opponents say they don’t boost employment overall, and diverting economic activity comes at a cost to the taxpayer.

The Labour-led Welsh government says it has reservations about freeports, although it has not ruled out introducing them in Wales.

The SNP Scottish government – which has previously been critical of freeports – now plans to introduce its own scheme for Scotland, dubbed “green ports”.

Exact details have not been set out, but bidders will be asked to promote “sustainable” growth, and pay the voluntary real living wage.
Source: BBC

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