Earlier this year, the Government announced plans for 10 new freeports in the UK. In this briefing, the first of a series on freeports, we explain what freeports are, where they will be located, and when they are expected to be up and running.
To borrow the words of the Chancellor of the Exchequer, Rishi Sunak, 'freeports are special economic zones with different rules to make it easier and cheaper to do business.' These 'zones' are based around one or more transport hubs, such as a seaport, an airport, or a rail hub. Whilst freeports are within a country's geographical borders, they are generally treated as being outside of their customs borders. They are used globally in jurisdictions including China and the USA.
Seven freeports operated historically in the UK at different points between 1984 and 2012, before they were discontinued. Whilst the original 1984-2012 freeport model only captured businesses within UK port boundaries, the new UK freeports can include a substantial 'hinterland' measuring up to 1500 km sq. Within this hinterland there will be a variety of zones offering distinct benefits in terms of customs, tax, seed capital and planning, as summarised below (see "What are the key benefits of freeports?").
Following a competitive tender process held last year, the selected locations of the 8 freeports in England are Liverpool, East Midlands Airport, Plymouth, Solent, Thames, Felixstowe & Harwich, Humber, and Teesside (see interactive map below). Further discussions are underway between the UK Government and devolved administrations to establish two further freeports in Wales and Scotland.
The location of the freeports in England is in part a reflection of the government's levelling-up agenda, which aims to direct greater investment towards parts of the country considered to have been overlooked in recent years.
Freeports will offer a number of benefits, as outlined below. Importantly, however, (see under "Freeport benefits: size constraints"), these benefits will not be available uniformly throughout the entire freeport area of up to 1500 km sq.
Businesses operating in the new freeport customs sites will be entitled to use simplified import procedures and will not be required to pay tariffs or taxes on goods brought into the customs site unless those goods are transferred into the UK domestic market. No duty is payable at all on goods which are re-exported from the freeport customs site (although duty may well be payable when the goods are imported into the country of destination). For more detailed discussion of the customs benefits, see our briefing "Freeport customs sites: promising opportunity or not worth getting excited about?"
The following tax benefits will be available in the designated tax sites in designated tax sites within the new freeports on a time-limited basis (subject to complying with conditions and, in some cases, to clawback of relief):
We are still waiting to see precisely what areas within freeports will be given designated tax site status and the reliefs will come into effect once these are finalised.
On submission of a business case, the freeport sites in England will be able to access a share of £175 million of seed capital funding to support their development (this equates to about £21 million per freeport). Guidance states that proposals for seed funding should focus on land assembly, site remediation and small-scale transport infrastructure. Depending on their location, some businesses may also be available to benefit from other initiatives such as the Levelling Up Fund or the Towns Fund (although these are not specific to freeports).
Benefits from a planning perspective include:
For more detailed discussion of the planning issues, see our briefing "Freeports and planning: benefits and challenges".
It is critical to appreciate that the benefits outlined above are unlikely to apply throughout the entire freeport area of up to 1500 km sq and will generally be confined to smaller sites:
That said, the various benefits outlined above are not mutually exclusive and it will be possible to have areas where a number of benefits are available at once. For example, many of the successful freeport bids envisage combined tax and customs sites. If these sites were within an area covered by a local development order or development consent order, they would also be able to benefit from certain planning benefits. Depending on the approach taken by the freeport bidders, seed capital could also be available.
In addition, the Government has signalled a degree of flexibility on the precise location of certain sites. For example, whilst customs sites must be within the proposed outer boundary of the wider freeport area, they do not have to be situated within the relevant transport hub and could, potentially, be further inland. Similarly, the Government has indicated that, in exceptional circumstances, it would be prepared to consider tax sites outside the outer boundary of the freeport area (although it would expect bidders to provide a convincing economic and geographic rationale for doing so – and as noted above, the total size of all the tax sites could not be more than 600 hectares).
The Treasury will be leading on the overall policy for freeports, owing in part to the fact that the reintroduction of freeports in the UK was first proposed by the Chancellor of the Exchequer, Rishi Sunak, who authored a report on their benefits in 2016 as a backbench MP. HMRC will assume responsibility for authorising and approving tax and customs sites, and local authorities will lead on local implementation and planning decisions. A key challenge will be ensuring that all these different areas of government cooperate to ensure that the full benefits of the freeports policy can be realised.
The Government is keen to get freeports up and running as quickly as possible; its bidding prospectus includes a projected start date of late 2021/early 2022 for freeports to become operational. This may be achievable in the sense that tax and customs sites could be approved by this point, allowing those benefits to become available. However, where new physical infrastructure is required, this will obviously require time to construct. Similarly, on the planning side, local development orders or development consent orders may take longer to put in place. In practice, therefore, it may be some years before the full benefits of freeports can be realised.
Given the effective time lag in the start dates, it will be interesting to see if the backstop dates for the various tax reliefs to end will be pushed back in order that businesses have sufficient time to take advantage of them.
UPDATE: In October 2021, the Government announced that the first freeport tax sites in Humber, Teesside and Thames will become operational from November 2021 – but as noted above, it may be some time before businesses can actually start operating from these sites.
Whilst scepticism has been expressed in some quarters about whether freeports will deliver the extent of "levelling up" hoped for by Government, our view is that they are likely to be an attractive proposition for some businesses – particularly where it is possible to take advantage of a number of key freeport benefits in parallel. As noted above, however, simply having a presence within the overall freeport area may not confer any special advantages at all (other than proximity to the freeport transport hub and other businesses located there); to make the most of the opportunity, businesses need to be located in the particular sites or zones within the freeport area where the relevant freeport-specific benefits will be available.
To access all our materials on freeports – which include a recording of a webinar featuring Stephen Carr, Commercial Director of Peel Ports, Liverpool, where one of the new freeports is being launched – see "Freeports: business opportunity or hype?"
