One of Rishi Sunak's big plans for the UK is the introduction of so-called 'freeports'. He has been promoting them for a long time, and long before entering government. The government has said of their plans:
The government is working to boost economic activity across the UK, ensuring that towns, cities and regions across the country can begin to benefit from the opportunities of leaving the EU. As part of this work, the government aims to create up to 10 freeports in locations across the UK.
And they added:
The government wants to establish freeports, which have different customs rules than the rest of the country, that are innovative hubs, boost global trade, attract inward investment and increase productivity. In doing so, the government wants freeports to generate employment opportunities to the benefit of some of our most deprived communities around the UK.
The government has the following objectives for UK freeports:
- establish freeports as national hubs for global trade and investment across the UK
- promote regeneration and job creation
- create hotbeds for innovation
The government has drawn on evidence from successful freeports around the world to develop a UK freeport model. The proposed model includes tariff flexibility, customs facilitations and tax measures. We are also considering planning reforms, additional targeted funding for infrastructure improvements and measures to incentivise innovation.
I was asked by the Fair Tax Mark to look at this issue and draft a response for then, which has now gone in. But I also wrote a much longer version, which is available here.
The summary of my submission says:
This submission details considerable concerns relating to the freeports that the UK government is proposing to create. These concerns relate in particular to:
- The significant money-laundering risks that they will create that are unavoidable without a comprehensive reform of the enforcement processes relating to UK company law;
- The extensive risk of tax avoidance activity because of the uncertainties that freeports will create with regard to a range of taxes including corporation tax, value added tax, income tax and social security;
- The inability of the freeport proposal to address the government's concerns with regard to stamp duty land tax, business rates, research and development credits and other related issues;
- The absence of any apparent economic need for freeports;
- The risk to UK tax morale that they will create;
- The threat to the UK's international tax relationships that they will pose;
- The challenge to the international consensus on ending the harmful race to the bottom in tax matters that they represent.
In our opinion none of these issues can be addressed by modification to the proposal made and as such we suggest that the proposal to create freeports should not be preceded with.
The submission is of thirty pages and highlights a great many issues, because as became apparent in discussions I had with the Treasury and others during the submission process, it is deliberately scant as to the proposals to provide the government with maximum opportunity to introduce ideas without prior notice having claimed a consultation has already been done.
My fear, too be blunt, is that the aim is to introduce tax havens in the UK.
It's an issue I will come back to, but for now I offer these paragraphs from the submission on which this proposal is not needed:
Economic need
We understand that the Government's intention in promoting freeports is to encourage increased economic activity in the UK. It intends to do so by providing incentives through the tax system and by relaxing other regulation.
There is little evidence that freeports have ever achieved this goal for a government. There is quite strong evidence that, at best, freeports relocate activity at cost to a government.
In addition, there is no evidence at all at present within the UK that there is a shortage of capital available for investment purposes. There is, for example, regular and informed comment on the pages of the Financial Times and The Economist on the existence of a savings glut, which savings are not put to use by investors. What is more, that capital is available at incredibly low cost, meaning that the hurdles to be overcome before investment can take place have little, if anything, to do with the cost of finance, which is all that can be influenced by reduced taxation and a reduction in the cost of regulation within freeports. In that case there is very little economic evidence to suggest that freeport creation will address any known economic problem: it would seem that all desired economic activity in the UK is currently being funded at very little capital cost without the assistance of freeport arrangements. The economic rationale for such arrangement is, then, very hard to discern. The government has not stated what they are in the current economic environment. We would very strongly suggest that this be done before any legislation is presented to Parliament so that proper appraisal of the proposal can be made.
Regulatory need
We have one final observation to make. The logic of freeports is that there must be regulatory failings in the UK that requires that they exist. The consultation document does not specify these failings, but if they exist it is logical that the whole country enjoy the benefit of reform rather than just some selected areas. We would therefore suggest the government address this broader issue rather than introduce freeports if they think there are regulatory issues requiring attention.
We do not need ten new tax havens in the UK. So why is the government intent on creating them?
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Would the existence of the government’s (Dominic Cummings’s) preferred policy of Freeport’s conflict with the proposal to empower localised investment (the Preston Model)? Would it make sense to propose this as a more ‘democratic’ alternative?
Let’s stop the freeports first
From the time when the idea of freeports first appeared, I had the opinion that they were part and parcel of the plans that Brexit’s “high finance” backers had in store for us.
Whenever the current crop of Conservatives use the word “innovative”, it’s time to start counting the spoons.
Do they see the freeports as a way of compensating for the loss of access to EU financial services markets in addition to embedding further opportunity for those of an “entrepreneurial” bent?
That’s another word that invites spoon-counting!
It’s ok for you to make your principled big picture ideological argument, but where I am from in Redcar the introduction of Freeport’s could give the area a massive boost..you won’t hear anyone from here arguing against them
You will when they destroy local jobs
They’re like out of town stores in that regard – they relocate and then reduce the number of jobs available and many people can’t get to them
… but once Redcar becomes a “freeport” the clamour will come from everywhere else that they want to be one, too. Eventually, the entire country is a low tax “free port”…. to the huge detriment of us all.
True
Yep, that’s the key. They will be strategically placed around the country and there’ll be no surprise if the so-called Red Wall constituencies will see a few. I could write their glowing evaluation now. And there’ll be no reason not to “extend” them. The same model will be used to “trial” innovative ways of delivering Health & Social Care. STPs sustainability and transformation partnerships already exist to bolt on “external partners” that will supply much needed financial muscle. No reason not to extend it to Education too — much better than free schools.
“Where I am from in Redcar the introduction of Freeport’s could give the area a massive boost”. Could, yes, but would they? Bearing in mind the present government’s “success” in combatting the pandemic, in protecting care homes, in reducing the death rate as compared with other countries, in developing a test and trace system, in its provision of PPE and ventilators, and in its development of a rival to Galileo and of a customs slectonic registration system, it is legitimate to wonder how successful the governments’s planning of the freeports initiative will be. One thinks of Mr Johnson and his cronies in terms of the inability to organise a piss up in a brewery. Of course, one benefit of the freeports iniative would be the provision of jobs for the 3 million young, well qualified and highly work motivated Hong Kong British citizens whom Mr Johnson has assured will be welcome in the UK. Bearing in mind the unwillingness of locals in Lincolnshire and East Anglia to work in the fields harvesting the crops that hard working Poles and Lithuanians pick, one might equally wonder whether Redcar workers would willingly take jobs in Freeports that would instead be taken up eagerly by immigrant workers. I note that locally, not far from my home, HS2 is being constructed. The promise was made that constuction ot the track would create a wealth of jobs for local people. In fact, very few locals have gone for jobs on HS2, and all you hear spoken on the construction sites are foreign languages and accents. So yes, freeports could give Redcar “a massive boost” – but whether they will is another matter.
@Steve Palmer
I think we all need to look behind various government announcements and try to deduce what is actually going on. These things are deliberately played out to local communities to appeal to them. The money behind these schemes knows how to present things as a boost to the local economy, whereas the only real boost is to those with the money.
This government is bent on having a US style economy – one in which 1/3 – 1/2 of people don’t have access to decent healthcare, where scarce water resources are in the hands of basically unregulated large corporates. I will stop there..
I think it better that we put our energy into to asking for a proper Green New Deal that can create jobs for ordinary folk and improve our lot. The government can find the funding necessary to finance this; it chooses not to.
I’ve learnt to wince when I hear politicians speak of inward investment opportunities. Like we’re supposed to believe foreigners are going to make us a gift of their money…..?
It’s as if when I sell me house to someone, they have ‘invested’ in me.
Meanwhile Im on the street in the rain, and probably sold it for less than it was worth… and forgot that I sold all the contents too
Correct me if I am wrong but surely three of the vital problems facing the UK are low productivity, low skills, and low wages. Freeports in my experience fail to add any REAL value to the economy – to corporations yes, but not to productivity, skills or wages.
Agreed
Freeports is the worst policy idea (other than BREXIT and Covid-19) that I have heard from this Government.
I also anticipate that it will use cheap imported labour too.
Perhaps explains the new found love that Boris has found for the citizens of Hong Kong.
The govt wants to create Freeports because, I imagine, the leaders of that govt will themselves be getting a handsome slice of all the dodged taxes the Freeports attract. Springtime for Bojo and Cummings, then. They’ll have the Henry the 8th powers by then too, making them Neo-monarchs, in effect. Maybe the plan is to take over from HM, given her age, the age of her eldest son and the general indifference shown towards wearing the Crown by the younger generation.
I’m currently ploughing my way through Julian Gerwitz’s book “Unlikely Partners: Chinese Reformers, Western Economists, and the Making of Global China” and the Conservative government’s idea for freeports is so reminiscent of the Chinese Communist Party’s attempt to bolster their economy with Special Enterprise Zones. Of course the CCP under Deng Xiaoping had another motive which was to ring-fence or set then aside them as experiments from the Russian communist command economy approach which China adopted after its revolution. The conservatives in the Chinese Communist Party were still dangerous believing any economic theory must have a “spiritual” side. Mao had led China to become an under-performing economy even one of many deaths through famine because he clung to his “spiritual” version of Marxism. Here in the UK we’re about to experience the “spiritual” version of market fundamentalist Libertarianism with Free Enterprise Zones!