The UK’s freeport model may not offer a ‘big bang’ of changes for Customs processes but, in the long-term, could improve ease of doing business and be used as a vehicle to support the energy transition and decarbonisation.
Earlier this month, the UK government confirmed the location of eight freeports that will be established in England – at East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside.
Speaking on a Multimodal Connect webinar, James Patterson-Waterston, head of cities and infrastructure at Vivid Economics, explained that the UK’s “unique model” was borne out of the government’s analysis of what works at other freeports around the world, as well as the success and failures of various other UK policies, such as enterprise zones. The hybrid model that emerged combines Customs zones with tax reliefs, planning freedoms and a primary focus on regeneration and innovation.
There has been some criticism, however. Robert Keen, director general of the British International Freight Association (BIFA), said: “To date, BIFA has been indifferent to this proposed development, and queries whether freeports will provide new advantages compared to the existing Customs Special Procedures, which from January 1, 2021 no longer need a guarantee to operate.”
Certainly, Patterson-Waterston noted that, from a Customs perspective, “the incentives offered are not dissimilar to the types of incentives you [small and medium-sized enterprises] can already make use of”. He elaborated: “I don’t think people should assume there is some kind of big bang just around Customs that will make things immediately easier. This will be a process by which we gradually improve ease of doing business and facilitate things in a quicker and more efficient way.”
He added that there will not suddenly be a new type of mechanism for these incentives, but the critical difference will be that they will be more accessible: “So whereas the types of existing incentives mechanisms are overwhelmingly used by large businesses or specialist businesses – partly because of the costs and complexity – the whole point of freeports is that you can access these mechanisms purely by the fact you are located in the freeport. So we expect some of the barriers, especially for SMEs, to fall.”
The big bang, continued Patterson-Waterston, comes from tax and investment incentives. These are “extraordinarily generous for those firms that will be investing within tax sites within freeports”, he explained.
Time will tell whether freeports in the UK are a success or failure. Peter Ward, ceo of the UK Warehousing Association (UKWA), said: “Our view is that the overall success of freeports would be a long-term outcome and likely to be modest at best in the foreseeable future. We are aware of the success of freeports in other parts of the world, notably in emerging markets, but believe the appeal is less beneficial in a mature market such as the UK.”
He noted that, on the whole, the UKWA supports the principles of freeports, including the benefits of simplified Customs procedures aligned to tariff and tax exemptions and other financial incentives. However, for existing businesses with well-established supply chains, the UKWA believes the current definition of freeports is unlikely to prove attractive.
Nevertheless, there is a big push from the government for the freeports to support the energy transition and decarbonisation. Tim Morris, ceo of UK Major Ports Group (UKMPG), explained that in addition to the green initiatives that the port deploys itself (the electrification of port equipment, for example), the port can act as a location for green energy infrastructure in its own right. “That might be renewable generation, hydrogen generation or processing, or it could be battery storage”, he said.
The UK’s renewable energy industry is already well developed, and it looks set to benefit further from the regulatory changes. One of the successful bids – Freeport East, which combines the ports of Felixstowe and Harwich – demonstrated this clearly in its ambition to become a strategic hub that serves the offshore wind industry.
Speaking prior to the budget announcement, George Kieffer, chairman of the Freeport East project board, explained: “The UK is the world’s largest market for the development and deployment of offshore wind and Freeport East sits right at its heart. The southern North Sea is the most densely populated area for offshore wind projects, home to 52 percent of the UK’s entire operational fleet with more developments planned. Securing freeport status will help attract additional investment in this vital sector, helping to regenerate an area in need of levelling-up and delivering on government’s targets for net-zero emissions.”
Still, critics of the freeports concept argue that instead of “levelling-up” they only encourage a relocation of activity or jobs, rather than providing a boost to the economy or a generation of new opportunities.
At the moment, the devolved nations of the UK – Scotland, Wales and Northern Ireland – have not moved ahead with freeports to the same extent as seen in England. However, panellists on the Multimodal Connect webinar noted that the concept is very much in the pipeline.
In Scotland, progress has been made with a ‘green port’ model that will adapt the UK’s freeport proposal, offering a package of tax and Customs reliefs, with requirements to commit to adopting fair working practices and contribute to the country’s transition to a net zero economy.
It is less clear what iteration of the freeport concept will be deployed in Wales and Northern Ireland, however. Morris said that there are ongoing discussions between Westminster, Cardiff and Belfast, with the governments keen to explore the potential role freeports can play in these nations.