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A First Port of Call? Free Ports and the UK Economy

Submitted by on March 25, 2021 – 5:21 pmNo Comment

The March budget presented free ports as the remedy to economic uncertainty in the face of Brexit and COVID, but are they a good solution?

The Chancellor of the Exchequer Rishi Sunak’s budget speech hailed free ports, where imported goods are exempt from tariffs, as a silver bullet to fix the economic uncertainty caused by both Brexit and COVID. Finding viable economic solutions is imperative during this time for the UK government which has been criticised for letting down fishermen in the Brexit deal, as well as being criticised for not acting fast enough in responding to the COVID pandemic. The full effects of Brexit on the economy are still unfolding, but with regards to COVID in 2020 the UK economy recorded its worst economic performance for more than 300 years.

The Malta Freeport in Birżebbuġa.

The UK government wants to use free ports, also known as enterprise zones or free zones amongst other names, to develop deprived areas of the country. The plan is to create eight of these customs zones to attract investment where it is most needed. Companies within these areas will also be offered temporary tax breaks, including reductions on stamp duty and business rates which can last up to five years. Each one of these free ports can be up to 45km (27 miles) across.

However, UK businesses could already use straightforward customs procedures that minimise bureaucracy and where tariffs are generally low that these enclaves, where customs rules do not apply, would not make much difference anyway.

Then there is the cost. With the uncertain economic gains of free ports, is it wise to invest a significant sum of money in fencing off large areas for customs zones, as well as recruiting and training staff to be able to monitor it, when that money could go towards genuine job creation within the UK economy? On top of this, there is the fact that the government is ambitiously looking to create as many as eight of these free ports, which makes it an even bigger gamble.

report by the independent research group, UK in a Changing Europe states that, “The only groups that are certain to benefit from free ports in the UK are businesses, presuming they decide to relocate operations to the free ports, and high net-worth individuals. The disadvantages of free ports, by contrast, will be experienced more broadly in the UK due to the public cost of maintaining them, which will be exacerbated by the necessity of providing financial incentives for businesses to relocate to UK free ports.”

Free ports were originally developed in Italy during the Renaissance, becoming famous examples of how they attracted trade from the thriving Atlantic region. The concept eventually spread to the rest of Europe and the world. Some of the most well-known free ports have included Hamburg, Hong Kong and Singapore.

In the article entitled Twentieth Century British History written by Sam Wetherell he states that the enterprise zone “has a long and curious history […] that goes back to a cluster of left-of-centre artists, urban planners and sociologists in the late 1960s who coined the idea of ‘non-plan areas’, large county-sized regions of the UK that would cultivate economic and architectural freedom in the absence of state regulation.”

One of the non-plan proponents included famed urbanist and socialist Peter Hall. Hall also worked with Colin Ward who was described as being one of Britain’s most famous anarchists for nearly half a century. It is hard to imagine what connection the original concept of these enterprise zones, infused with leftist, anti-statist ideas, could have with a traditional right wing conservative establishment government? However, Hall worked with Margaret Thatcher and her government to develop the enterprise zones policy.

In the 1980s, Thatcher introduced these enterprise zones in Birmingham, Belfast, Cardiff, Liverpool, Prestwick and Southampton. However, unlike the original non-state regulation leftist concept, these Tory versions of the enterprise zones were right wing free market hubs where deregulation for businesses meant that they could not be held accountable for bad practices. And as such they were condemned by left wing thinkers and activists for being misleading of the original concept of enterprise zones. Another example of where a Tory government has used a strongly left wing ideological economic concept and adapted it to their own purposes is when British prime minister David Cameron took the big society idea from the German born socialist EF Schumacher. However, Thatcher’s version of enterprise zones was eventually abandoned as they were also scrutinised for using a lot of taxpayer’s money but in the end did not create the high number of jobs that were promised.

In 2011 the Tory coalition government, led by prime minister David Cameron, reintroduced enterprise zones in the UK, based on Thatcher’s failed model, but they too ceased to exist in 2012 when the legislation establishing them was not renewed, and no reason at the time was given as to why.

In an attempt to prove that some great economic freedoms have been gained since leaving the EU, due to Brexit, in this year’s budget speech, Sunak stated that “now we’re outside the European Union” we can pursue the policy of free ports. In the Today programme in 2019, Sunak also proclaimed that within the EU is “where these [free ports] really don’t exist.” However, this is not the case, with over 80 Freeports existing in the EU. In 2016  Sunak even admitted in a report that he wrote, for the Centre for Policy Studies (CPS), entitled The Free Ports Opportunity, that the European Commission allowed member states “to create customs free zones within its territory” which of course at that time included the UK as an EU member state.

piece in the Trade Union Congress (TUC) website in February states that “The government has set up a Free Ports Advisory Panel to determine where the free ports will be created. But this panel has no union representation, even though thousands of jobs are at stake. Free ports encourage tax avoidance and are likely to become tax havens. That means less money for our NHS and schools. And they may even become hotspots for organised crime such as money laundering and smuggling.”

It is interesting to note that in 2020, the EU clamped down on 82 free ports after identifying that their tax reduction status has helped with the financing of organised crime, including terrorism and money laundering.

With the EU investigating these crimes in free ports and with two previous Tory governments, giving up on the right wing versions of free ports, can looking to a failed concept in the past really be the best way to plan the UK’s economic future? With all these examples the answer should be obvious that establishing these types of free ports should be a last resort rather than a first port of call.

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