What role do freeports play in the economy?
Freeports accelerate economic activity by helping businesses save time, reduce costs, and remain competitive in international trade. They operate as low- or no-tax, customs and excise zones within the national tax system, governed by special rules and incentives. Within a freeport, companies can undertake intermediate steps in cross-border commercial transactions, such as warehousing or added-value manufacturing, without incurring high additional costs or complex bureaucratic procedures.
Goods entering a freeport are typically not subject to standard customs checks. Tariffs and taxes may be cancelled or deferred until goods are re-exported or sold on the UK market. This flexibility allows businesses to streamline operations and reduce overheads.
What is the current government policy on freeports?
The Government has positioned freeports as hubs for global trade, investment, innovation and job creation. The government has allocated around £200 million in seed capital to successful bidders. In its 2019 Manifesto, the Conservative Party committed to creating up to ten freeports across the UK. In March 2021, eight locations were announced: East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames. Teesside and Thames are already operational.
Freeports in England will attract businesses within a 45-kilometre radius and will benefit from customs, tax, planning, infrastructure, and innovation incentives. Each freeport is eligible for up to £25 million of seed capital funding to modernise infrastructure. Businesses may also benefit from tax reliefs and allowances, including on capital, buildings and employer national insurance contributions.
This marks a significant shift from the seven freeports that operated between 1984 and 2012, which offered only customs benefits. Between 2012 and 2019, government policy focused on enterprise zones offering tax and planning incentives but no customs relief.
How does the picture look today?
The Office for Budget Responsibility estimates that annual costs of running freeports will be around £50 million from 2022 onwards, largely due to employer national insurance reliefs and business rate exemptions.
The national subsidy control regime and the UK's international obligations under the World Trade Organisation and the Trade and Cooperation Agreement with the EU limit public authorities' ability to subsidise freeport development. To formalise the legal framework for subsidies, the Government introduced the Subsidy Control Bill in June 2021.
The Bill contains no specific provisions on freeports. Instead, it establishes a framework under which the Government may issue guidance. It prohibits subsidies tied to relocation within the UK and introduces transparency requirements for subsidies above £315,000 and subsidies to services of public economic interest above £14.5 million.
It also introduces reporting requirements for subsidies of interest, particular interest and those called in by the Secretary of State to the Competition and Markets Authority. The Bill has passed third readings in both Houses and awaits consideration of amendments before Royal Assent.
In February 2022, plans were announced for two green freeports in Scotland with up to £52 million in seed funding. Announcements for Wales and Northern Ireland are expected.
Why is not everyone happy about freeports?
Criticism focuses on two main concerns.
First, the lighter regulatory regime could be exploited for money laundering or tax evasion. Recent international developments have raised concerns that individuals avoid asset-freezing sanctions by storing valuable assets, such as art collections, in freeports.
Second, some argue that freeports may displace businesses within the UK rather than generate genuine economic growth. Critics suggest that companies may relocate to freeports to benefit from incentives without increasing overall national productivity.
However, this criticism overlooks freeports' potential to dismantle trade barriers, boost economic activity, and support decentralisation by creating jobs and infrastructure in previously deprived areas. With ports facilitating 95 per cent of UK international trade, the British Ports Association has advocated for more than ten freeports.
Freeports can benefit both regions and industries. Tax and customs incentives may encourage new companies to establish themselves in peripheral areas. Industries such as oil and gas, manufacturing, automotive, life sciences, IT, professional services and construction may benefit. For sectors reliant on just-in-time supply chains, such as automotive, freeports offer opportunities to maintain business continuity while keeping warehousing costs low.
What can businesses do to make the most of the freeport regime?
Businesses of all sizes can grow under the freeport model. To maximise benefits, companies should assess eligibility for tax and customs incentives, identify locations that best support existing and future operations and evaluate their readiness to meet customs requirements. Strategic planning will be essential for businesses seeking to take advantage of the new regime.
Not sure how close you are to qualifying?
The path-fit quiz reads your situation and shows you which routes you are ready for, and exactly what to do next. Four minutes, no account needed to start.
Check your readiness