Freeports - the long road from opportunity to outcome

It has been more than three years since Rishi Sunak, then Chancellor of the Exchequer, reintroduced the concept of freeports in the United Kingdom. Kate Garcia and Jonah Cohen cover the latest developments surrounding the UK freeport programme.

What are freeports?

Freeports are hubs for global trade and investment. They were introduced by the Government with the aim of regeneration and to ‘level up’ local economies in poorer regions of the UK by increasing manufacturing, encouraging jobs and investments, and laying the foundations for long-term durable prosperity that leverages ports as key local economics assets.

What are the benefits?

Businesses operating within freeports benefit from tax reliefs, customs benefits and wider Government support. Freeports contain both secure ‘customs sites’, where business can be carried out within the country’s land border and where favourable customs rules apply, and ‘tax sites’, where additional tax reliefs are available. In more detail:

• Customs Sites – customs sites permit goods to be moved under duty suspension from a port of entry to a separate freeport customs site which, in practice, means that goods can be brought into a freeport site from an overseas location and not be subject to any tariffs, import VAT or exercise until the goods leave the freeport.
• Tax Sites – the key tax benefits of a freeport include stamp duty land tax relief on qualifying acquisitions of land, enhanced structures and buildings and plant and machinery allowances, a zero-rate of secondary class 1 national insurance contributions and full business rates relief.

Where are they located?

In total, 12 freeport locations have been announced to date. There are:

• eight locations in England (East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teeside and Thames);
• two locations in Wales (Anglesey and Celtic), and
• two locations for ‘green freeports’ in Scotland (Firth of Forth and Inverness and Cromarty Firth).

Have freeports been a success to date?

The UK freeport programme had been met with both enthusiasm and scepticism since its reintroduction in 2021. Proponents of the freeport programme at the time argued that freeports would attract investment to areas that have been left woefully short, bringing jobs and prosperity to deprived regions as part of the “levelling up” agenda. On the other hand, the Office for Budget Responsibility reported back in 2021 that if freeports were to generate any economic activity for the UK, the impact would likely be so small relative to the economy as a whole that it would probably be “difficult to discern even in retrospect”. Analysis conducted by the UK Trade Policy Observatory at Sussex University in 2021 found that “introducing Freeports in the UK [was] unlikely to generate any significant benefits to businesses in terms of duty savings” and that “the benefits […] would not have any material impact on the UK economy.”

Nearly four years later, the impact of the UK freeport programme remains a highly contested topic.

In November 2023, former Prime Minister Rishi Sunak announced that UK freeports had attracted nearly £3 billion of investment commitments which would create more than 6,000 jobs. The Government also delivered its Freeports delivery roadmap in December 2023, which set out the measures that the Government would be taking to maximise the future success of freeports. The roadmap focused on three key areas: (i) making freeports ready for businesses to invest; (ii) promoting freeports and working with businesses to secure investment; and (iii) capitalising on early investment in freeports and reinvesting in local economies and communities. In particular, the roadmap established a £150 million Investment Opportunities Fund to help freeports and investment zones attract large investment opportunities as they arise and extend the window to claim special tax reliefs in English Freeport sites from five years to ten – securing what was described as a whole decade of growth for port communities.

At the time, the publication of the Freeports delivery roadmap was viewed as an important step for accelerating the success of the UK freeport programme. Former Minister for Levelling UP Jacob Young said that “the Freeports Delivery Roadmap [would] maximise the potential of [freeport] communities to become centres of innovation and investment, with clear delivery timeframes to ensure rapid progress.”

Nearly a year after the publication of the Freeport delivery roadmap however, a recent publication by the Financial Times, citing figures prepared by HM Revenue & Customs, reported that only six companies have taken up customs sites at freeports across the eight English freeports. The meagre up-take of customs sites at freeports has raised questions about the success of the UK freeport programme more generally and why the Government continues to support freeport tax breaks. The article by the Financial Times did not make reference to whether tax sites within freeports have been more successful.

What are the plans for freeports following a change of Government?

On 25 October 2024, Sir Keir Starmer announced that the Government would introduce five new freeports and a new investment zone in the Budget as part of a bid to boost economic growth. In what was later described as a “cock-up with the comms”, however, the Government backtracked on this announcement, confirming that there will not be any new Freeports announced in the Budget and that the plan was to instead designate five new customs sites within three existing freeports and one new investment zone (in the East Midlands).

Despite the mistake in communication, the Labour Government has confirmed that it plans to maximise the potential of the UK freeport programme and has placed its stamp of approval on the programme, despite inheriting the policy from the previous Conservative Government.

The expectation is that the Labour Government will now work on driving forward the UK freeport programme so that it can deliver on its ambitious expectations. We hope to hear further announcements in the coming months on new developments and success stories involving freeports.

Please feel free to contact us if you would like more information about setting up business within a freeport.