8 new freeports in England
The Chancellor has announced that licenses have been issued to operate eight new freeports in England.
The UK had seven freeports between 1984 and 2012. Locations included Liverpool, Southampton and the Port of Tilbury. Freeports are usually located around shipping ports, or airports. Around 135 countries, mostly in the Far East, have free trade zones.
Also called free trade zones or free zones, freeports are designated areas where the normal tax and tariff rules of the country in which they are based do not apply. Freeports allow goods to be imported, manufactured and re-exported without being subject to checks, paperwork, or import tariffs. This means raw materials can be imported, then engineered into finished products, principally for export.
UK customs charges are only paid if the goods leave the freeport and are moved elsewhere in the UK. If finished goods are sent overseas, there is no payment of local customs charges.
Typically, companies operating within a free port often also pay lower taxes, such as reduced VAT and lower rates of employment tax. In England, companies inside the sites will 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.
The locations of England's eight new freeports are:
- East Midlands Airport
- Felixstowe and Harwich
- Humber region
- Liverpool City Region
The Government says the new freeports will begin operations from late 2021. The Scottish and Welsh governments will have their own policies on freeports in those countries. It is not clear whether Northern Ireland will also be able to operate freeports, because of the Northern Ireland Protocol.
Freeports can be beneficial to companies with an export focus, or if there is a significant duty difference between components (higher duty rate) and finished products (lower). However, they are controversial, and the benefits are disputed. Supporters say freeports can help increase manufacturing and encourage jobs and investment in areas that would otherwise struggle to attract them. But opponents say they don't boost employment overall and moving economic activity from one place to another comes at a cost to the taxpayer.
The UK has greater flexibility now it does not have to follow EU rules, and tax breaks offered to freeport firms no longer require prior agreement from the European Commission. However, the Brexit trade deal still requires subsidies to be justified, otherwise they could be challenged in UK courts, and in extreme cases the EU could respond to UK subsidisation of freeports by introducing tariffs on some UK goods deemed to be damaging EU trade or investment. The UK also remains bound to World Trade Organization rules which say that countries cannot introduce subsidies linked just to export performance.