Following the EU referendum in 2016, Rishi Sunak presented a case for British Freeports and the potential and opportunity this presented as a fast response to Brexit. With the vision that successful Freeports would allow the country to level up, increase productivity, shift regional imbalance, and reinvigorate the North, as well as promoting and incentivising global trade.
The Trade Secretory, Liz Truss, announced The Freeports Advisory Panel in August 2019 to advise on the establishment of up to 10 Freeports. This was followed by a consultation on proposals to establish Freeports across the UK, published on 10 February 2020 and due to close in April however was extended to 13 July to allow key stakeholders to respond amid disruption caused by the COVID-19 pandemic. The Government confirmed it would work with the devolved administrations in Northern Ireland, Scotland and Wales to consider separate allocation processes to those in England.
The Freeports bidding process opened for applications on 16 November 2020 where bidders had to demonstrate how they able to satisfy the Government's three policy objectives: establishing national hubs for global trade and investment; regeneration and levelling up; and creating hotbeds of innovation. Bidders had until noon, 5 February 2021 to submit their bid.
The government's Freeports Bidding Prospectus indicates that bids will be assessed during March and a final decision on the successful Freeport locations will be announced in the Spring. However, many sources suggest that Chancellor Rishi Sunak is likely to announce the location of some Freeports in his Budget.
Check out our Freeports timeline which covers key events and deadlines as the UK looks to implement Freeports.
Freeports across the world, are areas, usually around a maritime port or airport where goods can be imported without having to pay import taxes (tariffs). These taxes only become payable when the goods leave the Freeport and enter the domestic market. Otherwise, they are re-exported without having to pay the relevant tariff.
Globally Freeports offer a range of tax incentives, customs delays and processing reliefs from import taxes, duties, and some administration and have been particularly successful in the US. They are designed to encourage inward and private investment, create tax reliefs which encourage production and enhance productivity and create new opportunity to those who import and export.
The implementation of Freeports in the UK will adopt a bespoke model which aims to achieve three objectives: to establish national hubs for global trade and investment; to promote regeneration and job creation; and to create hotbeds for innovation.
The customs zones to be created under the UK programme will have significant implications for all ports and shipping and logistics companies and businesses involved in the manufacture and import or export of feedstocks, components and finished goods.
Our Freeports will also include defined tax sites within which tax reliefs and other benefits will apply – operating in a similar way to Enterprise Zones. All customs zones and tax sites must be located within a 45km radius of the primary port.
Critics of the concept say we had free zones in the UK before and they didn’t achieve their objective, fearing abuse by the super-rich, who use them to hoard assets, or that the zones will become a haven for smuggling and avoiding tax. Sceptics are concerned the zones will encourage already strong businesses to relocate into them, rather than attract genuine inward investment. However, it is wrong to focus heavily on such negative aspects. They have been anticipated in the Government’s model and the regulations that will govern the zones will be designed to curb these issues.
Free zones under the Government’s proposed model are not like those we have seen before. The framework has been shaped by the Freeports Advisory Panel, which includes the Tees Valley mayor Ben Houchen amongst its members. The model draws on evidence from successful Freeports around the world.
Where will Freeports and ‘Free zones’ be located?
More than 30 proposals have been prepared across the country by ports in collaboration with local and international businesses, local authorities, educational institutions and regional stakeholders. All bids will have to satisfy clear criteria as part of the assessment to demonstrate the ongoing partnership between private sector commitment to investment, job creation and site operation and with public sector support, investment, and local initiatives to support regeneration. The bids must also demonstrate why the bidding region is right for a Freeport and how they would implement and run a successful operation.
Each of the devolved administrations in Northern Ireland, Scotland and Wales are due to have at least one Freeport allocated.
Customs and tax – current proposals
Within the designated customs and tax sites in the bounds of a Freeport, businesses will able to access reliefs and/or favourable customs duties. Current proposals include:
- Customs deferral while good remain on site
- Duty inversion (if the finished goods attract a lower tariff than component parts)
- Suspension of VAT
- Business rates reliefs
- Zero national insurance contributions
- Enhanced capital allowances
- Simplified planning and development rules
- Stamp duty reliefs
- Structures and buildings allowances.
Who will benefit from a Freeport?
Businesses that are already established within or which set themselves up in one of the designated customs zones or tax sites will enjoy the direct benefits described above. However, the government's clear objective is to ensure the benefits associated with Freeports extend far beyond the boundaries of such demarcations.
The areas surrounding the designated zones and sites can expect to see investment in many different ways in the form of, amongst other things, new and enhanced supply chains to support businesses attracted to and supporting the free port ecosystem, collaboration hubs to promote innovation in new and emerging technologies, upgraded transport connectivity and new housing developments, not to mention an increase in new and better jobs for local workforces.
Following the announcement of which locations have been selected, it is expected that Freeports will be set up later this year, following the development of outline business cases and a period of infrastructure planning to make the bids a reality.
Proposals are being ranked not only according to their potential to drive innovation, the involvement of the private sector and their importance to the economy, but also how quickly they can be set up. Freeports are expected to progress with varying timelines but with many operational throughout 2022. Guidance around governance, structures, procurement, security, technology, and responsibilities will be essential and need to be clearly outlined throughout 2021. We will continue to keep you updated with clear roadmaps, opportunities in and outside of ‘free zones’ and potential challenges that may affect your region or business.
We welcome this exciting development and we are keen to support the government's project. We can see the potential for the initiative to strengthen the regions we operate in up and down the country. We represent all manner of clients who will interface with free ports or who stand to benefit from them in some way and our multi-disciplinary team is keen to help deliver the government's objectives for the country as a whole.