Freeports frequent the news quite regularly and are the go-to response from the UK government when asked about the benefits for businesses from Brexit. However, there is a lot of complex criticism of freeports from various media commentators, making it difficult to easily understand whether freeports are genuinely a flagship initiative for UK businesses that can help drive competitive advantage.
So, is a freeport a new initiative?
Freeports are not a new initiative. The UK had freeports as recently as 2012, albeit with a more limited scope. They have also been used by other countries to drive international trade. They were particularly instrumental in China’s strategy to become the world’s import hub. The Jebel Ali Freeport in the UAE employs over 135,000 people and generates an estimated £81bn in wealth. And the Geneva’s freeport, helped the Switzerland economy during the 2008 global financial crisis, contributing £8.8m each year to the local economy.
Where are the UK's freeports?
Freeport |
Sector specialism |
Government published success story |
| Felixstowe and Harwich | Hydrogen, Offshore wind, Sustainable infrastructure, Technology, Clean agri-tech | The Range is a leading home, garden and leisure products retailer with stores and operations across the UK. The Range announced a strategic investment of £200m into a logistics unit of 1.2 million square feet on the Freeport East Gateway 14 site. This will meet growing demand in South and Southeast England and support wider operations across the UK. Gateway 14 offers a prime location for manufacturing and logistics with its position along the A14 providing easy access to Ipswich, Cambridge, and up to the Midlands as well as to the Port of Felixstowe. |
| Humber | Sustainable infrastructure, offshore wind, chemicals, green shipping |
In 2014, Spanish-owned SGRE announced it was opening a new 40,000 square metre, £350 million, factory in Hull (with the support of Associated British Ports). The plant was completed ahead of time and within budget in December 2016 and the first blades left the Alexandra Dock bound for Race Bank in January 2017. Since then, almost 2,000 blades have been manufactured at SGRE’s factory for projects throughout Europe. Following this success, Siemens Gamesa is expanding its successful blade factory in Hull by a further 41,600 square metres, more than doubling the size of the manufacturing facility. The expansion, representing an investment of £186 million, is scheduled for completion in 2023 and will directly employ a further 200 people. |
| Liverpool | Technology, creative industries, biopharmaceuticals, marine |
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| Solent | Creative industries, technology, professional and business services, green shipping |
Founded in 2017 and based in Austin, Texas, Ocean Infinity is a marine robotics company that deploys autonomous robots, typically in fleet formation, to obtain large amounts of information from the oceans and seabed. In March 2021, Ocean Infinity partnered with the University of Portsmouth, Airborne Robotics, and Bentley Telecom, to develop an autonomous offshore wind farm inspection fleet by 2022. The fleet will consist of unmanned drone swarms and a marine robotic vessel by 2022. The project is receiving £1.6 million in funding from UK Research and Innovation (UKRI) and the Industrial Strategy Challenge Fund. In September 2021, Ocean Infinity set up its state-of-the-art facility in the Woolston regeneration area of Southampton. The company located its control, data, maintenance, and engineering centre in the former Vosper Thornycroft shipyard. The centre will be developed as a remote control and data centre for robotic vessels, ensuring the Solent area has a significant role to play in the next chapter of marine development. |
| Teesside | Chemicals, offshore wind, sustainable infrastructure, green shipping |
On July 7, 2022, construction officially began on SeAH Wind Ltd’s £400 million offshore wind monopile manufacturing facility at Teesworks. The giant facility – the largest of its kind in the world, at over 800 metres in length – presents a range of design and construction challenges including its scale, low-energy design, and an accelerated programme. When complete, the 1.13 million square foot facility is expected to produce between 100 and 150 monopiles per year. These will be transported from the factory to Teesworks’ under-construction heavy lift South Bank Quay before heading to the North Sea for installation. The project will create 750 jobs when operational, with a further 1,500 in the supply chain during construction. |
| Thames | Food and drink, zero-emission vehicles, sustainable infrastructure |
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| East Midlands airport | Food and drink, hydrogen, biopharmaceuticals, greener buildings, zero-emission vehicles, sustainable infrastructure |
The East Midlands Freeport has already had a material impact on investment trajectory and the region. In particular: Maritime has progressed a significant expansion to its Strategic Rail Terminal. Located within the EMAGIC tax site and adjacent to the East Midlands Airport, it has confirmed plans to expand freight capacity, develop leading-edge crane infrastructure, and relocate the firm’s headquarters to the site. East Midlands Freeport has spearheaded the development of the Hydrogen Skills Academy, a public-private sector collaboration. They work with businesses as well as further and higher educational institutions to provide the skills needed to support the hydrogen economy in the region. |
| Plymouth and South Devon | Green shipping, space, maritime |
In 2018, French multinational Thales opened its Maritime Autonomy Centre. This is an important new test and evaluation facility in Plymouth with access to both shallow and deep-water trials, enabling progressive testing to be done from sheltered bays to the open sea. Thales has also collaborated with offshore renewable energy experts in a robot team challenge as part of the MIMRee (Multi-Platform Maintenance, Inspection and Repair in Extreme Environments) project. The project is funded by Innovate UK under a £4 million grant and is set to develop the world’s first fully autonomous robotic inspection and repair solution for offshore wind farms. |
| Forth Green | Advanced manufacturing, maritime, low carbon energy |
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| Inverness and Cromarty Firth | Hydrogen, life sciences, floating offshore wind |
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| Anglesey | Marine, low carbon energy, tidal energy |
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| Port Talbot & Milford Haven | Green finance and innovation, offshore wind |
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What are the benefits of freeports?
Freeports are designed to encourage direct foreign investment and business activity within the areas. The locations have been chosen to coincide with the levelling up agenda and help rejuvenate areas with economic difficulties. Teesside, for example, has been in difficulty since the last steel company moved out of the area.
They are also designed to help construction and infrastructure, as the UK struggles to complete these investments due to high costs within the UK, HS2 being a prime example.
Tax
- Enhanced 10% tax allowance, compared to standard 3%, on new investment over the life of the asset
- Enhanced capital allowance of 100% on investment in new plant and machinery
- Full relief on stamp duty land tax
- Full business rates relief for five years
- Potential relief from employer social security contributions for new employees up to £25,000 per employee for up to the first three years of employment if they spend 60% or more of their time at the tax site
Customs
- Duty suspension – no tariffs, import VAR, or excise payable until goods enter the UK domestic market
- Duty inversion – in some circumstances delay and reduce the payment of duties
- Duty exemption – reimports
- Simplified customs procedures
Other benefits
- Regulatory changes to encourage innovation and trialing of new technologies
- Planning changes to incentivise development
- Investment in regeneration and infrastructure
Source: PwC
What are the criticisms of freeports?
1. Limited scope
With a few exceptions (some simplified declaration and authorisation processes), the customs measure freeports provide can already be applied for by businesses elsewhere in the UK. UK’s trade tariffs are already low and freeports do not provide access to the final markets without having to pay tax. Generally, taxation is simply delayed until it reaches its final destination.
If you are importing raw materials/parts and then creating something new, you may find duty changes as the HS code associated with those goods changes (ie, it is no longer the raw material but is now the final good), but there is no guarantee the new duty figure is lower than the original one.
2. Displacement
There is an argument that the activity that happens within a freeport would have happened anywhere, so the freeports are not generating new activity, just the location of that activity. The government said it is committed to monitoring this, and that local freeport consortiums and local government need to avoid these displacement activities, but data has not emerged to this effect.
3. Marketing strategy
Geneva, for example, was a huge success because the market was competitive, and there was investment in technology and a full-scale marketing strategy to ensure adequate promotion. So far, this hasn’t been addressed in the government plans.
4. Facilitate illegal activity
The EU has called for the abolition of freeports because it believes they may facilitate the illegal imports of drugs, wildlife and counterfeit or stolen goods. This is associated with criminals taking advantage of the relaxed regulation in freeports, particularly reduced customs scrutiny of goods, processes, and documentation. Again, it is believed this hasn’t been fully addressed in the government’s plans.
5. Concerns over land ownership
The land connected to freeports was purchased very cheaply by some opportunistic individuals and they are currently making a lot of money from freeports, with limited investment back into the areas.
How do I decide whether a freeport can form part of my business strategy?
It is worth reaching out to a customs agent or consultant, like WTA, to work out whether there are cost advantages to using a freeport. This is often referred to as ‘tariff inversion’. Analysing HS codes into and out of the freeport is a good starting point for calculating an RoI.
It’s difficult to immediately spot where tariff inversion might be beneficial as about half of all types of goods entering the UK are already duty-free, and the average tariff for all industrial goods is only 2.5%. However, for sectors such as manufacturing of dairy, starch, and animal feed there may be tariff inversion advantages, especially if trading with countries like the US, where the UK doesn’t have an FTA in place.
If a business wants to move goods into or out of a Freeport customs site, it will be able to apply to use the Freeport customs special procedure. This is a single authorisation, combined with easier declaration requirements, to import non-controlled goods for processing or storage in the customs site before they are either exported from or they are sold in the UK.
Some good questions to think about including:
- Is your business eligible for any of the tax incentives on offer?
- Is your business accredited for AEO-S (Authorised Economic Operator Security and Safety)?
- Is there logistical/geographical advantages in locating to a freeport area?
- Will exported goods be eligible for preference in other countries?
- Will expertise need to be relocated?
