Doubt on benefits

Freeports ‘not a magic bullet’ to trade growth

Port of Cromarty Firth

Port of Cromarty: keen to develop a freeport

Freeports are unlikely to lead to the sort of transformation the Government hopes for, according to a new report by an academic think tank.

The report, Freeports, by UK in a Changing Europe, says they are more likely to relocate, rather than create, economic activity and jobs.

Evidence that freeports create additional jobs is unclear, and at best mixed, it says.

The report comes ahead of an expected announcement from the Chancellor that he will invite bids for the first new freeports which are zones designated by the government as areas with little to no tax in order to encourage economic activity.

While located geographically within a country, they essentially exist outside its borders for tax purposes.

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Companies operating within free ports can benefit from deferring the payment of taxes until their products are moved elsewhere, or can avoid them altogether if they bring in goods to store or manufacture on site before exporting them again.

For instance, they can bring component parts into a freeport tariff-free, build a finished product within the freeport, and then import or export the finished product, thereby only paying tax on the finished product and not the component parts.

The Scottish government having initially dismissed the idea, now wants the Chancellor to match its ambitions to set up what it calls ‘green ports’ with higher thresholds on things such as pay and conditions of work. Port of Cromarty is among those keen to embrace the freeport concept.

Research by UK in a Changing Europe found they could be used to solve specific problems, such as: attracting jobs to a lagging region, focusing them on a specific sector which is particularly struggling due to tariffs, or opening up new financing models for local authorities. 

The report notes the UK had freeports until 2012 when the relevant legislation lapsed.

It says the reasons for this are unclear but there was a suggestion freeports were of “limited use”; that they made no difference to Government revenue or customs reliefs and they introduced unnecessary complexities regarding customs.

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