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What is a freeport?

What is a freeport?
Image source: Getty Images

UPDATE: The eight locations are as follows: East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames, and Teesside.

In October 2020, the UK government announced that it was planning to introduce a number of freeports across the country in order to create jobs, drive investment and regenerate communities after Brexit. Chancellor Rishi Sunak is expected to shed more light on freeports when he shares the Budget on 3 March.

But what exactly are freeports? How do they work and how will they benefit Britain? Let’s take a look.

What are freeports?

Freeports are areas designated by the government where companies pay little or no tax. 

Companies that operate within freeports don’t have to pay import taxes (tariffs) on products until they move them outside the zone and into the full UK market. They can avoid paying taxes altogether if they bring in goods to store or manufacture on site before they export them again.

Freeports are usually located near seaports, airports or rail ports.

Applications for areas to be designated a freeport closed in early February. Up to 30 seaports and airports around the country are said to have applied.

Final decisions are expected to be made by spring. The first freeports could be operational before 2022. 

The government expects to set up at least seven of these ports in England. The three other home nations will set up their own freeport policies.

Have they existed in the UK before?

Freeports are not a new idea in the UK. The country had a couple of them as recently as 2012 before the government abandoned them for failing to deliver the expected benefits.

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First established in the 1980s, they included sites in Birmingham, Liverpool, Prestwick, Southport, Belfast and Cardiff.

Why is the government bringing them back?

According to the BBC, the UK wants to bring back freeports to regenerate deprived areas following Brexit.

According to the Chancellor, “freeports will create national hubs for trade, innovation and commerce, regenerating communities across the UK and supporting jobs.”

In a nutshell, freeports could help increase manufacturing, employment and investment in those areas that would otherwise struggle to attract them. This would boost local economies.

How will they work?

Companies operating within the ports will get temporary tax breaks lasting up to five years. These include reduced business rates, stamp duty and national insurance rates on wages of staff employed in them.

The goal is to encourage global trade flows to pass through Britain and encourage companies to invest in Britain as we exit the coronavirus pandemic.

As the chancellor put it, “they will attract investment from around the world as we embrace new opportunities following our departure from the EU and will be a key driver for economic recovery as we build back better post coronavirus.”

Any there any downsides to creating freeports?

Naturally, the biggest downside of freeports is that they could lead to a loss of revenue for the Treasury.

Freeports also risk being facilitators of money laundering and tax evasion. This is because goods passing through these zones are not subject to the standard rules present elsewhere in the UK.

However, it’s likely that the government will put in contingent measures to prevent such outcomes. But for now, we’ll just have to wait and see.

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