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02 Mar 2021

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Politics and Society

Freeports will at best relocate, rather than create, economic activity and jobs, and are unlikely to lead to the sort of transformation the Government hopes for, a new report by academic think tank UK in a Changing Europe finds.

The report, Freeports, explains what freeports are and sets out the cases for and against. It concludes:

  • evidence that freeports create additional jobs is unclear, and at best mixed
  • there is a public cost of maintaining freeports, which is exacerbated by the necessity of providing financial incentives for businesses to relocate to them
  • the benefits of tariff inversion* (see below) are likely to be negligible. There are very few cases where tariffs on components are substantially higher than the tariffs on the corresponding final goods
  • groups that will benefit from freeports are businesses that relocate there and high net-worth individuals
  • freeports could be a part of a broader industrial policy drawing on experience of enterprise zones
  • they could be used to solve specific problems, such as: attracting jobs to a lagging region, focusing them on a specific sector which is particularly struggling due to tariffs, or opening up new financing models for local authorities.

The report notes the UK had freeports until 2012 when the relevant legislation lapsed. The reasons for this are unclear but there was a suggestion freeports were of limited use, they made no difference to Government revenue or customs reliefs and they introduced unnecessary complexities regarding customs.

Professor Catherine Barnard, deputy director of UK in a Changing Europe and one of the authors of the report, said: “If the Government thinks freeports are a magic bullet that will create hundreds of thousands of new jobs, bring billions of additional pounds to the Exchequer and radically transform an area it is mistaken.

“That is not to say they should not be created but the thought they’re going to transform the wealth and prosperity of this country is simply untrue. It will help the regions that get a freeport – but possibly to the detriment of those that don’t.”

* Tariff inversion: where companies bring component parts into a freeport tariff free, build a finished product within the freeport, and then import or export the finished product, thereby only paying tax on the finished product and not the component parts

You can read the full report on Freeports here.

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