A UK Freeport will be a geographical area with a diameter up to 45km which is closely linked to a sea port, airport or rail port. Eight new freeports in England are due to enter operation in late 2021, confirmed in the 2021 Budget. Areas due to receive the reintroduction of the freeport, are located in East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames. Chancellor Rishi Sunak thinks they will help the economy. The government proposes a range of measures covering customs, tax reliefs, planning, regeneration funding and innovation to create freeports as national hubs for global trade and investment across the UK.
Reintroduction of the Freeport
Goods that arrive into freeports from abroad aren’t subject to the tax charges, called tariffs, that are normally paid to the government. These taxes are only paid if the goods leave the freeport and are moved elsewhere in the UK. Otherwise, they are sent overseas without the charges being paid. The UK had seven freeports between 1984 and 2012. Locations included Liverpool, Southampton and the Port of Tilbury. The government is working with devolved administrations to establish the reintroduction of the freeport in each of the nations. Within the freeport there will be a primary customs site and perhaps custom subzones. These could see duty deferral while goods remain on site, duty inversion if the finished goods exiting the freeport attract a lower tariff than their component parts. Subject to the UK’s trade agreements, customs duty exemption on goods that are imported into a freeport, processed into finished goods and subsequently re-exported with simplified import procedures. The reintroduction of the freeport may also see one or more tax sites within which tax reliefs will apply. The aim is for a single site and up to three tax sites may be allowed but the total area of the site(s) must not exceed 600 hectares. The tax site will likely be located on primarily underdeveloped land to generate new, additional productive activity in freeport locations.
Regeneration and Levelling Up
It is hoped the reintroduction of the freeport, each of which can be up to 45km (27 miles) across, will help regenerate deprived areas. In England, companies inside the sites will also be offered temporary tax breaks, mostly lasting five years. These include reductions to the tax companies pay on their existing property, and when they buy new buildings. Employers will also pay reduced national insurance for new staff. One of the most important factors, according to the government, was to show how a freeport could bring economic opportunities to poorer regions and “level up” the country, as per their agenda during their election campaign. Ministers say other factors – such as the impact of Covid-19 on local areas and ensuring freeports are “spread fairly” across England – were also taken into account. The hope is to increase manufacturing, and encourage jobs and investment in areas that would otherwise struggle to attract them. Critics argue that they don’t boost employment overall, and moving economic activity from one place to another comes at a cost to the taxpayer. The intention is to offer stamp duty land tax relief on land purchases within Freeport tax sites in England where that property is to be used for qualifying commercial activity a 10% rate of structures and buildings allowance rather than the 3% rate that applies for businesses constructing or renovating structures and buildings for non-residential use. In addition enhanced tax relief for qualifying new plant and machinery assets for the full cost of the qualifying investment in the same tax period the cost was incurred. And 100% relief from business rates on certain business premises within Freeport tax sites in England. Very broadly, the reliefs will apply for expenditure from various dates in 2021 to 30 September 2026. Plus a 0% rate of employer NICs on the salaries of any eligible employee working in the Freeport tax site is proposed. The relief is intended to be available for up to 9 years from April 2022.
Freeports and International Trade
There are already 82 freeports in the European Union. In an apparently preparatory measure the conservatives floated the idea of using freeports as a way to boost international trade. It would have been more difficult for the UK to establish freeports under EU law, ie before Brexit, particularly if the tax benefits went too far. However creating them would not have been impossible even without Brexit. Critics argue that the reintroduction of freeports will not boost employment overall and simply move the flow of employment and resources away from existing areas for the purposes of favourable tax conditions for some traders. The Trades Union Congress (TUC) condemned the creation of the freeports in its post-Budget report. General secretary Frances O’Grady said: “Freeports don’t create jobs – and around the world they allow freeloading employers to dodge taxes.”
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