Freeports plan will have 'negligible' benefit to UK economy, trade experts warn

Latest in string of disappointing UK trade policies

Huge green container ship under loading operation with blue gantry cranes in the port of Felixtowe (Getty)

The government's plan to create so-called freeports will have a "negligible" benefit to the UK economy, trade experts have warned.

The UK Trade Policy Observatory said its analysis had found that the policy would have little effect in the UK because tariffs were already low.

The government says it wants to create 10 "freeports" around the UK. Under the policy, tax concessions would be granted to goods brought into a port, as long as they do not leave the port area – effectively placing them outside the UK's usual customs area.

The government says the policy could also be combined with a "special economic zone" with fewer regulations and more tax breaks.

While the government has linked the creation of such special economic zones and ports to Brexit, there is no prohibition on them under EU law.

In fact, the UK already had seven free ports from 1984 until 2012, but the policy was allowed to lapse by David Cameron's government when legislation expired.

“Our analysis of freeports has shown that their impact on the UK economy will be negligible at best," Dr Peter Holmes, Reader at the University of Sussex and UK Trade Policy Observatory fellow said.

“Their significance is largely symbolic for the UK Government and no more than a gesture at levelling-up. In reality, any jobs or increased economic activity within free ports is likely to come at the expense of other regions in the UK.

"When tariff rates are very low, there is little to be gained by cutting the cost of paying them. Any gains from additional urban regeneration measures which would not be helped by putting a fence round a port. Special subsidies to particular ports would be at the expense of places and if effective be liable to retaliation under the WTO subsidies code."

The government says goods would not have to pay tariffs, import VAT or excise duty until they leave the freeport and enter the domestic UK market, with simplified customs procedures and declarations.

Tax incentives could include business rate discounts, stamp duty reductions, research and development tax credits, reduced requirements for employers to play national insurance, and bigger capital allowances.

Local planning authorities could also have their powers reduced to suit international business. The government says the policy is “a key part of delivering our ambition to level up the economy across the country.”

Speaking on Wednesday at the Commons international trade committee, Catherine Barnar, a professor of EU law at Cambridge University, told MPs that the previous iteration of the policy had ended because they were no longer deemed necessary.

"There was a sense that they'd rather run out of steam, that we have become more modern in terms of our delivery of customs and could do the work without the freeports," she said.

Giving evidence to the same committee, the owners of various ports however welcomed the various tax advantages their users might be given.

The relatively limited advantages of freeports mirror other disappointing prospects of government trade policies. The Treasury admitted earlier this year that a planned free trade agreement with the United States would likely have a tiny effect on GDP of just 0.16 per cent. In April the UK economy shrunk by 20.4 per cent in a single month.

Similar planned deals with Australia and New Zealand would have likely essentially zero effect on GDP, another government analysis said.

The government says it needs to leave the EU's customs union to sign the deals.