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Freeports – a golden opportunity?

9 February 2021
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One of the Government’s policy levers for re-igniting the economy, generating new jobs and prompting inward investment is freeports, writes David Mundy, partner and parliamentary agent with law firm BDB Pitmans.

Looking both ways – as domestic drivers and aids for rebalancing the economy but also the UK’s windows to the world, freeports are an initiative originally championed by Rishi Sunak when he was a newly elected backbench MP back in 2015 as part of a vision for a post-Brexit Britain.

Times have changed. Covid-19 has smashed in upon the world of trade and investment. Rishi Sunak is now chancellor of the exchequer. But freeports have remained a constant ambition and feature of the emerging policy landscape. The Government’s prospectus document has recently been published. But are the Government’s ambitions (and timetable) realistic in the current climate of uncertainty?

The bidding process for freeports opened for applications on Monday November 16, 2020. The bidding prospectus can be found here. The prospectus applies to freeport applications in England only; separate processes will be run in each of the nations of the UK. The deadline for applications is 12.00 noon on Friday February 5, 2021.

What are freeports?

A freeport is a special type of port where normal tax, customs and other regulatory rules do not apply. The basic concept is that imported goods can enter a freeport with simplified customs documentation and without paying tariffs. Technically, such goods do not pass through customs or excise borders despite having crossed a land border. Firms can import goods and process or store them within the freeport boundary. Some goods can then be re-exported outside normal tax and customs rules. Domestic import duties and tax only become payable (sometimes at reduced rates) on goods entering the economy. Advantages include the avoidance of paying import duties twice, once on the import of raw materials, and again on the processed product. Costs are lowered and competitiveness is increased. The port operators can also benefit from concentration of economic activity. freeports include sea, air and rail ports.

The full armoury of economic levers and regulatory interventions that may accompany freeport status are set out in the prospectus. They include:

  • customs benefits;
  • tax reliefs;
  • simpler, more streamlined planning rules.
  • access to a share of the £175 million seed funding;
  • innovation funding; and
  • wider Government funding, including the Green Energy Fund and Ports Infrastructure Fund.

What are freeports for?  

The overall ambition is to deliver the Government’s core objectives of:

1 Establishing freeports as national hubs for global trade and investment across the UK;

2 Promoting regeneration and job creation; and

3 Creating a hotbed of innovation.

With an eye on the impacts of Covid-19, regeneration and job creation are key considerations. Bids in deprived or vulnerable areas which demonstrate an ability to deliver investment and innovative-rich freeports are said to be “more likely to be successful in their application given the Government’s lead objective”.

Who can apply for freeport status?

Air, sea and rail ports are all eligible to apply and bids from multiple ports (eg a seaport and a rail port) are possible. Bids are being invited from “bidding coalitions”, which means ports, in coalition with local and international businesses, academic institutions, local authorities, mayoral combined authorities and Local Enterprise Partnerships are encouraged.

What are the geographic parameters? 

Freeports must be contained within an ‘outer boundary’, which is set at 45km. As a general rule, this means that the furthest permitted distance between any two sites (eg a customs site and a tax site) within the same freeport is 45km and that the largest area that a freeport outer boundary can cover is a circle of diameter 45km. However bids judged to be designed simply to maximise the area contained within the Outer Boundary without clear economic rationale will not qualify.

Within the outer boundary, there must be:

  • at least one port (air, sea or rail); and
  • at least one customs site, to which the customs measures/benefits would apply.

Tax reliefs/exemptions would apply within that area and up to three individual sites of prescribed size may be permitted, where a demonstrable economic case is made out.  However the overall area of the tax sites within the freeport must in no case exceed 600 hectares overall or they will fail the bidding process. There are likely to be significant advantages for businesses to be located within the tax site and this may cause a level of contention and need for negotiation.

The tax site rules are important and should be read carefully. Consistent with the concept of promoting deprived areas there is a preference for tax sites to be located within areas that are below national average GDP and above average national unemployment currently or over the past five years.

What form does the bidding document take? 

There are two broad sets of questions: essential information and detailed bid information.

The essential information is pass/fail. If the responses to any of these questions is incomplete or incorrect, then the bid fails. The essential information includes a map of the outer boundary, the customs and tax sites and a clear rationale for choosing that boundary and those sites, evidence of local authority support and how the location of any tax site mitigates against displacement of economic activity from deprived areas.

The detailed information required must demonstrate compliance with the following criterion:

  • ability to deliver against Government’s objectives;
  • deliverability of proposal at pace. Amongst other things, details of costs and funding required to deliver the proposal must be provided, along with an implementation plan (describing how, when and by whom specific milestones or targets required to deliver the coalition’s freeport strategy must be achieved), proposed governance arrangements, details of how the freeport proposal will support delivery of the UK’s Net Zero ambitions, monitoring and evaluation plans; and
  • a high level of private sector involvement. This requires bidders to confirm the primary type of business that are part of the bid and/or that the bidder aims to attract, along with the specific trade and investment support measures that would benefit the proposal.

When will the results be announced?

In spring 2021, following the conclusion of the Government’s bidding process. Successful bidders will then be granted seed funding to support governance set-up costs and will be asked to develop detailed business cases for their spending plans through the summer.

How many freeports are likely to be established? 

The Government has committed to at least 10 (and one in each of the four nations of the UK) but the prospectus indicates that the Government expects there to be a single freeport per Local Enterprise Partnership (LEP) area and there are currently 39 LEPs, so the numbers are not entirely clear. The overall theme of the prospectus is that, if bids are good enough, the Government will not hold back in awarding freeport status but clearly subject to the numbers cap.

The complexity and demands of this prospectus should not be understated. Bidding coalitions will necessarily be working up their detailed proposals before and around Christmas. But with Brexit negotiations still up in the air in mid-December and the transition period about to expire, ports, especially seaports, have plenty of other things to occupy their attention. Stir in the disruption to supply lines caused by Covid-19, ports are having to deal with a major policy initiative at a time of acute challenges.

Linkedin2David Mundy

For more information about BDB Pitmans’ ports expertise visit:

bdbpitmans.com/ports


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