Could freeports help ‘level up’ the north?

Could freeports help ‘level up’ the north?

14 March 2020

9:00 AM

14 March 2020

9:00 AM

It’s hard to think of a place more deserving of a post-Brexit boom than Grimsby. In the 1950s it had the largest trawler fleet in the world, brought in hundreds of tonnes of cod a day, and you could cross its harbour by walking over ships in the dock. But the Cod Wars were lost and the EU’s Common Fisheries Policy began to bite. Now Grimsby is one of the most deprived areas in the country, and its long road down to the docks is littered with shuttered shops.

Simply put, it’s exactly the kind of place the Tories are hoping to ‘level up’ and win over before the next election. In 2016, along with Hull and much of the rest of the Humber, it voted to leave the EU and it elected its first Tory MP in 75 years in December.

One way to revive Grimsby, the Tories believe, is through freeports. Last month, a consultation was launched which could see up to ten built across the UK — and it’s a pet project of the new Chancellor, Rishi Sunak, who was writing about freeports as far back as 2016. For Sunak, freeports are everything Brexit should be about. They hark back to Britain’s maritime and trading golden age, when one in three of the world’s ships flew the Union Jack, and now we’ve left the EU he hopes they can turn us once again into a prosperous, free-trading nation — while also restoring our coastal towns.

The idea behind freeports is simple. They would be ports inside the UK but designated as outside our customs border. When goods arrive at a freeport from abroad, tariffs or taxes aren’t levied on them unless they cross the new border into the rest of the country.

As well as being able to store goods on dry land without paying duties (which helps with cashflow), businesses can put factories within the freeport to make goods which are then exported or moved into the UK. Often tariffs are higher on materials than on finished products, so factories inside a freeport can avoid higher tariffs. Once built, freeports become a private sector project, mainly managed by port operators rather than the government. Free trade zones aren’t a new idea: 3,500 exist around the world. But freeport ­supporters — including the new Chancellor — say their full benefits couldn’t be realised within the EU because the bloc’s state aid rules and other restrictions limited the support that could be given to businesses. Now we’re out, they hope to replicate successes like the Jebel Ali Free Zone in the UAE, which managed to entice entirely new industries to the country when it opened: 7,500 companies are based inside the port, making everything from Mars bars to heavy machinery. Every year 1.2 million tonnes of raw sugar are imported to Jebel Ali, to be refined and exported to more than 50 countries. When a port in the middle of the desert can become a major player in the sugar industry, why can’t Grimsby?

If freeports come to the UK, it helps that some of the infrastructure exists in the Humber already. Eight miles north of Grimsby sits Immingham docks. Immingham began life as a deep-sea, coal-exporting alternative to Grimsby, but is now the largest port in the UK by tonnage, handling around 46 million tonnes of cargo a year. I visited ­Immingham on a bleak, rainy day in February. Vast doesn’t begin to cover it. You can drive around 16 miles of roads inside the port, snaking around coal extraction systems, trains carrying biomass, container cranes and the huge ships which navigate the tricky waters of the estuary. Associated British Ports, who manage Immingham as well as the three other ports on the estuary (Grimsby, Hull and Goole), have been in favour of freeports since the referendum.

The Humber is a good fit for freeports. The region has acres of undeveloped land for new factories and has already encouraged outside investment — Grimsby is now a major hub for offshore wind. Several importers in Immingham already combine imports (such as fertiliser manufacturers) and would benefit from being inside a freeport, but the idea is that, as in Jebel Ali, new industries could be enticed to the area.

Local organisations such as Humber LEP (local enterprise partnership) underline the importance of a freeport’s location and size for it to succeed. Lord Haskins, the LEP’s chairman, gives the example of the Siemens factory in nearby Goole, which was awarded a £1.5 billion contract in 2018 to build snazzy new London underground trains for the Piccadilly line. The local area would like to see Siemens expand its base in the Humber. In a freeport, the factory could import engine components, assemble them, and then export completed trains to the rest of the world — all without paying any duties.

That’s the theory anyway, but in practice there are plenty of potential pitfalls. They could become lawless wastelands, where smuggling and money laundering is rife. The Geneva freeport in Switzerland became notorious in the 1990s when a pyramid’s worth of looted artefacts from LA’s Getty museum were found there. In 2003 Swiss customs discovered two Egyptian mummies stored in the vaults. The Geneva freeport has now become a storage space for the super-rich, who ­deposit paintings to appreciate in value (and sometimes dodge taxes) — the second largest collection of Picassos in the world is said to reside in the freeport’s warehouses.

Then there was a report by Sussex university last year which pointed out that, rather than encouraging outside investment, freeports could drain wealth from other parts of the country. The report also cast doubt on the Chancellor’s claim that freeports could create 86,000 jobs. Sunak reached that figure by taking the number of people employed in US freeports and comparing it with the size of the UK labour force. It’s a bit of a stretch: American economic zones are often used by car manufacturers to avoid being slapped with high tariffs on components, which probably wouldn’t apply to the UK anyway.

But the government’s ‘levelling up’ agenda is less about making the country ­wealthier than rebalancing our economy away from the south and toward deprived areas like Grimsby. As Boris Johnson told The Spectator last year: ‘I want to see that change in regions and towns that have been ­neglected.’ By that measure, even if freeports result in UK businesses flocking to deprived northern coastal towns, that may suit his agenda.

Everything depends on the kind of Brexit deal the government strikes with the EU. If the UK signs up to the bloc’s ‘level playing field’ obligations, it will limit the tax breaks and state aid which freeports can be given. And if the deal results in low tariffs, any other advantages will be minimal.

If the UK’s freeport model is based on tax incentives, rather than reduced tariffs at the border, it also poses a problem for Britain’s ports. Freeports (or free zones) don’t necessarily have to be by the sea — they can cover airports, inland factories or even whole regions. There’s a clear case for giving places like Grimsby a freeport, but some in government believe that creating freeports around existing manufacturing hubs such as the Nissan plant in Sunderland might create more wealth. The Conservatives may have to choose which they value more ­highly: ‘levelling up’ Britain’s battered coastline, or focusing on creating jobs more generally.

All of which raises the question: if ­coastal freeports aren’t going to create wealth in the UK, what’s the point? Their champions argue ports will have to prove they can create jobs and bring in outside investment to become freeports in the first place. The true benefits of freeports may not even come from reduced tariffs, but from the clever incentives, tax breaks and tools the government gives them to lure manufacturers to different areas.

Either way, the success of freeports won’t be decided once the first ten are chosen, but by how they are managed and supported afterwards. And if freeports can, through tax incentives and government investment, bring jobs and money back to places that have struggled for decades, it would seem foolish for the UK not to at least trial them.

The vast fishing trawlers may never return to Grimsby, but ports are dynamic places. With luck, perhaps freeports will be the way to make Grimsby great again.

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