iIn 2021, the Tory government introduced a new scheme to establish industrial freeports in economically disadvantaged areas of the UK. This article posits that the new Labour government should continue this programme, but some important considerations must be made.
As of legislation made in 2021, freeports are unique areas intended to attract investment and business activity by multinational corporations in historically less utilised areas of the country where business and investment have been neglected. Though the name implies a seaport, these are tariff-free areas intended to create high-quality, long-term jobs. Companies are encouraged to use freeports as they offer significant relief measures from local and business taxes.
Relief currently includes a relaxation of general business tax, national insurance contributions and removal of stamp duty taxes among many others. A prime example of this programme is Teesport – the first example in the programme. Located in Middlesbrough, the 4,500-acre industrial area is intended to regenerate economic activity in the region and provide long-term investment to the local economy.
Existing global freeports, and their issues
Though a relatively new concept to the UK, programmes similar to freeports are increasingly commonplace around the world. Free trade zones (FTZs), a type of special economic zone (SEZ), generally follow the same principles of economic growth as the Freeports Programme. Using existing FTZs, the new Labour government can and should shape existing freeport programmes to be resilient against problems that have plagued other areas. Sourcing and preventing problems experienced in existing FTZs could spearhead the UKs programme as world-class.
In the United States, streamlining of supply chains and an increase in investment have followed free trade zones development. However, red tape is replaced with high levels of worker exploitation and mismanaged labour practices. This has occurred in Chinese FTZs, where in Shenzhen corporations like Apple can host exploitative labour practices due to a lack of regulation protecting workers within these zones.
Additionally, FTZs have been the host of illegal activities that thrive there due to a lack of monitoring and proper law enforcement involvement. Activities include money laundering through the areas tax-reduced status and the transfer of material to bad actors and criminal organisations in the countries where these FTZs operate.
The new government and proposed adjustments to freeports
As the Labour government does not intend to rejoin the EU, customs union or any EU-adjacent institution, the continuation of the Freeports Programme is vital to ensuring that the country remains a hotspot for foreign and corporate investment. Freeports allow the UK to remain economically relevant, and by doing so help to prevent economic isolation and decay.
However, suppose the Freeports Programme is to be continued. In that case, serious changes must be made to ensure the retention of workers rights and that tax money is not wasted in a black hole of inefficient and misguided investment. As local taxes are waived for companies operating in freeports, the government should endeavour to compensate these councils in a unique pay-back scheme. One such way the government could do this is through compensating councils for lost income only if their freeport has shown to have a lesser statistical impact on the local economy than the money that would have been generated through taxes. For example, if the local economy has numerically been bolstered by increased spending in local businesses or home ownership by workers in freeports, then that council would not qualify for compensation.
The government should also introduce legislation to increase worker standards and establish a regulatory body to protect rights within freeports. An observatory panel should be created that, with both politicians and local union officials, could prevent the abuse of workers rights and ensure a consistent consent-to-work scheme. Union oversight would also set the basis for future freeport developments to remain ethical to workers. These rights should be in line with EU standards, keeping the UK as a prosperous and fair place to work on the same level as EU regulation.
Finally, the government should clearly outline their method of dealing with illegal hitchhiking of freeports to conduct illegal activity – as seen in global instances of sanction-skipping and money laundering. The same oversight authority should have the power to investigate criminal malfeasance and activities alongside clear regulations to prevent them from happening in the first place. Funding for this body could emerge from a flat fee for companies to use freeports, as an alternative to the typical tariffs and duties imposed on imports.
Freeports seem to be the primary way for the UK to remain economically relevant instead of EFTA membership, customs union, and single market provisions. If the government is against other international pathways, the Freeports Programme should be continued but with major changes to be made to the existing scheme.
Policy proposals
Charlie is currently a student at Cardiff University / Prifysgol Caerdydd studying International Relations. He focuses on security studies and quantitative economic data research.
Madeline was our Deputy Director (Internal) and now works at the National Audit Office as an Audit Associate. She previously worked as a Political Researcher at Animal Think Tank and holds a degree in Economics, Politics, and International Relations from Lancaster University.
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