Freeports will help the UK to 'level up' – so seize the opportunity

For more than 100 years, there has been an economic gap between London and the rest of the UK. This gap has been especially pronounced around some of our coastal and port communities. The government has committed itself to "levelling up" the country and giving much-needed attention and investment to areas that have been forgotten over the last few decades.

To overcome multi-generational challenges and truly level up will take many years of concentrated effort and a range of different types of policy interventions. The majority of the UK's ports and airports are surrounded by areas that score highly on the Government's Index of Multiple Deprivation, suggesting that they may require special and targeted investment and interventions. Looking specifically at the UK's 30 largest ports, more than half are situated in the bottom quartile of local authorities when ranked by the Index of Multiple Deprivation, and three quarters are 'below average'.

International learning

Freeports are a tried and tested approach that - if done well - can transform economic prospects and opportunities for local people.

With over 3,500 free trade zones in existence across 135 countries, according to a 2013 report for the US Government, the UK has the advantage of being able to learn from elsewhere, taking the elements that work well, while creating a policy framework that avoids some of the potential downsides.

"As the UK transition period with the EU ends, the government has the opportunity to deploy freeports around the UK drawing on the best examples in the world today"

The government's suggested freeport model for the UK layers a wide range of potential benefits, such as increased trade volumes, economic agglomeration and investment in R&D. These benefits are on top of the basic concept of a tariff-free zone to encourage Foreign Direct Investment, development and the creation of high-paid, high-value jobs. They will be far broader than those awarded to Enterprise Zone and they will last for many more years. The government has set out a much wider range of possible incentives and is considering to award them for at least 10 years compared to five years for Enterprise Zones.

Because the UK has left the EU, these incentives will not fall foul of state aid rules that have neutered the freeports concept until now.

Five-point plan for operators

For maximum benefit from the freeport allocation in the UK, we suggest that potential freeport operators or the Treasury consider the following five points as they develop the policy and the 'offer':

  • The R&D, tax, planning and customs benefits within a freeport must be simple and easy to understand and access otherwise the administrative burden of accessing them will become greater than the benefit received;
  • Each potential freeport needs to focus on what makes them and their area unique. This includes areas of competitive advantage, existing business clusters and underlying skills of local people;
  • The governance structure of freeports must be agile and in keeping with the spirit of innovation, R&D and dynamism the government is looking to foster;
  • freeport zones need to be practical and deliverable. If too large an area or too many different ports are included within a freeport zone the potential benefits may be reduced.

    This needs to be carefully balanced with the benefits of including different port modes - like rail and air, for example - especially where they are in close proximity to each other and their inclusion would reduce the chance of low value displacement;

  • Businesses locating within a freeport should be focused on high-productivity, high-value and high-knowledge industries to promote levelling-up and increased opportunity for local people.

As the UK transition period with the EU ends, the government has the opportunity to deploy freeports around the UK drawing on the best examples in the world today. This could have the dual benefits of boosting global trade for Britain and making a significant contribution to the levelling-up agenda. The opportunity is there for local communities, the government and freeport operators alike - they just need to seize it.

Paul Kelly is director for strategic advisory services at Mace

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