What is a freeport? Tax break hubs, Scotland ‘green freeports’ and where they will be located in UK explained

Freeports are one of the Chancellor Rishi Sunak’s main economic policy ideas and were a 2019 Tory manifesto commitment

<p>What is a freeport? New UK economic zones explained (image: AFP/Getty Images)</p>

What is a freeport? New UK economic zones explained (image: AFP/Getty Images)

Boris Johnson’s UK Government has been unable to pursue much of the policy agenda it set out in its 2019 manifesto due to the Covid pandemic.

But one of the commitments the Conservatives made - to set up freeports across the country - moved a step closer today (14 February) with the announcement two ‘green freeports’ will be launched in Scotland.

Freeports are meant to be one of the so-called Brexit dividends the UK can now enjoy having left the EU - although it could have introduced them, and did operate some, while still a member.

But what exactly are they - and what kind of benefits (if any) do they offer?

Here’s what you need to know.

Freeports allow businesses to import goods without having to pay tariffs, i.e. taxes, to the Government (image: Getty Images)

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.

The Port of Felixstowe is one of eight England freeports that have already been announced (image: AFP/Getty Images)

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:

  1. East Midlands Airport 
  2. Felixstowe & Harwich (includes the Port of Felixstowe and Harwich International Port)
  3. Humber (including parts of Port of Immingham)
  4. Liverpool City Region (including the Port of Liverpool)
  5. Plymouth & South Devon (including the Port of Plymouth)
  6. Solent (including the ports of Southampton, Portsmouth and Portsmouth International Port)
  7. Thames (including the ports at London Gateway and Tilbury)
  8. 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.

Will freeports benefit the UK?

The Government believes they 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.

There are fears freeports could divert jobs from other parts of the UK (image: Getty Images)

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.

The Government believes freeports could help regenerate deprived parts of the UK (image: Getty Images)

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.

What is Scotland’s version of a freeport?

Scotland’s devolved Government at Holyrood has announced what it calls ‘green freeports’ in tandem with the UK Government.

Details on how these will differ from the England versions have not been revealed, although the devolved Government said they would be in line with Scotland’s net zero targets.

It means bidders will have to pledge to achieve net zero emissions by 2045.

A bidding process will now take place in spring and It is hoped the new freeports will open by 2023.

The sites will be chosen by both the Scottish and UK Governments.

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