The latest developments in the UK Government’s plans to establish Freeport sites across the UK.
During his Budget speech in March, the Chancellor of the Exchequer, Rishi Sunak, announced the locations of the first eight English Freeport sites which aim to unlock “billions of pounds of private sector investment, generating trade and jobs up and down the country”. Freeport sites are special economic zones with different rules making it easier and cheaper to do business. The Freeports policy is a key element of the UK Government’s economic growth strategy and seeks to take advantage of the increased flexibility available to the UK following its departure from the EU by offering customs concessions and tax incentives which may not have been possible whilst a Member State. It is intended that Freeports will play a key role in increasing the UK’s international trade and investment. Since the Budget there have been several new developments relating to the UK Government’s plans to establish Freeport sites across the UK.
Location maps published
The Government has published location maps of the eight successful English Freeports bids which show the proposed outer boundaries of the proposed Freeport areas and the customs and tax sites. These locations will now move to the next stage of Freeports designation and remain subject to approval.
Finance Bill 2021 – SDLT relief and Freeports
As mentioned in our separate article , Finance Bill 2021 set out the detail as to how stamp duty land tax (SDLT) relief on land purchases within Freeport tax sites in England will work. During the Committee of the Whole House the Chancellor proposed certain amendments to the Finance Bill drafting to ensure that this SDLT relief is available for property acquisitions in Freeport tax sites which use certain sharia-compliant alternative financing arrangements as well as those using conventional finance, by looking at the use of the land by the ‘relevant person’ rather than the financial institution. These proposed amendments were passed on 19 April 2021.
International Trade Committee Report published
On 20 April 2021 the International Trade Committee (ITC) published its report on UK Freeports. The ITC is a cross-parliamentary body which examines the spending, administration and policy of the UK’s Department for International Trade (DIT). It launched an inquiry into the Freeports proposal in April 2020 and following a final evidence session in February the committee has published its findings.
The ITC commended the Government’s ambition to increase international trade and investment through the Freeports policy and noted that the package of incentives available differentiated the Freeports policy from the traditional freeports model and was important because a “focus solely on tariff benefits would be unlikely to be successful in the UK”. It also noted that developments in the UK’s subsidy control regime could impact the types of support available through the Freeports policy and this will require ongoing monitoring.
The ITC also welcomed the flexibility the Government has demonstrated on the final number of Freeports, noting that with eight successful Freeport bids for England this would now likely mean that the total number of Freeports in the UK will exceed ten, given the Government’s intention that at least one Freeport will be established in each of the devolved nations. The ITC expressed its eagerness that the policy is implemented in a manner that brings increased trade and investment to all parts of the UK and stressed the importance of Freeports in the devolved nations not being disadvantaged by the manner in which funding is allocated.
The ITC provided a number of recommendations including:
- An impact assessment should be published promptly including estimates for economic growth, increased trade and investment, job creation and an analysis of the impact on different sectors. This is intended to enable a subsequent evaluation of the success of the policy in achieving its objectives;
- A full independent evaluation of the implementation of the Freeports policy (to include a review of the bidding policy and suitability of locations chosen, as well as the economic impact as mentioned above) should take place within five years of the establishment of the first Freeports, with the findings published promptly;
- The DIT should have oversight of the policy and administration of Freeports and should provide further information on its approach to Freeports within its export and investment strategies including how the new Office for Investment will be utilised to attract investment to Freeports and how DIT will tailor its business support and trade promotion activities to the businesses located at Freeports;
- When allocating seed capital funding, increasing connectivity for both the Freeport and the wider area within which it is located should be a key consideration;
- To address concerns about the risk of economic displacement a framework for assessing economic activity occurring at Freeports should be devised which distinguishes between that which is new and that which is relocated. This framework should be used by Freeport governance bodies to collect relevant information on economic activity which can later be incorporated into an independent evaluation of the policy;
- The Government should set out how it will ensure that the UK’s high labour and environmental standards will be maintained within Freeports;
- The Government should set out its view on how the Freeports model will need to be adapted in Northern Ireland to comply with the terms of the Northern Ireland Protocol; and
- The Government should publish its plans for long-term oversight and governance of Freeports.
Details of the Freeport policies of Scotland, Wales and Northern Ireland are yet to be published.
The eight English Freeports are due to enter into operation in late 2021 but it remains to be seen whether this is achievable in light of the ongoing disruption caused by the Covid-19 pandemic.
Whilst still relatively light on detail, the Freeports regime is the most ambitious regional investment initiative since Enterprise Zones in the 1980s. Businesses should start thinking now about their plans for growth over the next five years, and how the eight locations align with their existing supply chain, target customers and competitive ecosystem.
Key to this for businesses looking to set up activities in a Freeport will be modelling the return on investment for potential locations taking into account the tax benefits and other cost advantages available in Freeport sites and reviewing the draft legislation and guidance to check their commercial operations qualify.
For further information please see our UK Freeports overview.
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