UK freeports Contents

2Objectives and evaluation

Economic impact

11.Freeports have been the subject of several studies in recent years with a range of findings on their potential economic growth and job creation. The Centre for Policy Studies report, The Freeports Opportunity, authored in 2016 by Rishi Sunak MP, then a backbencher and now Chancellor of the Exchequer, said it was not possible to quantify the precise impact of a freeports programme in the UK. Nonetheless, the report provided indicative figures based on job creation in free zones in the US which suggested the policy could create as many as 86,000 jobs in the UK.25 In 2018, Mace Consultancy estimated that “supercharged freeports,” whereby freeports were integrated with enterprise zones, could boost international trade by nearly £12 billion and create 150,000 jobs in the north of England.26 A report by Vivid Economics, on behalf of the Tees Valley Mayor, said a successful free zone at Teesport could generate 32,000 jobs and £2 billion of gross value added (GVA) after 25 years. It contended that if this was successfully rolled out to five other ports across the UK, it could deliver 70,000 jobs and make a £4.2 billion contribution to gross domestic product (GDP) after 25 years.27

12.In evidence, the Chief Secretary to the Treasury did not provide figures on the possible economic impact of the freeports policy. He told us that “it is very difficult to model exactly what the impact on jobs, inward investment, and innovation will be”, and that “The economic benefits will vary between sites and the sectors the sites focus on.”28 He added that the Government would be completing economic modelling once successful bids were agreed and the focus of businesses at those sites was known.29

Objectives for freeports

13.As part of our inquiry we considered the Government’s stated objectives for the freeports policy, and how achievable they are. The Government launched its consultation on freeports in February 2020. The consultation document set three objectives for the policy. Each objective was subsequently allocated two expected outcomes in the bidding prospectus. The bidding prospectus outlined that bidders would be required to set out a strategy based on the objectives and their plans to support the delivery of the related outcomes. The final objectives and related outcomes were:

Objective 1 – establish Freeports as national hubs for global trade and investment across the UK

a)Trade: increase in trade throughput through the designated Freeport area

b)Investment: increase in investment within Freeport boundary area, surrounding area and nationally

Objective 2 – promote regeneration and job creation

a)Employment: increased number of jobs and average wages in deprived areas in and around the Freeport

b)Economic activity: increase in economic specialisation in activities high in GVA relative to the current makeup of the local economy

Objective 3 – create a hotbed of innovation

a)Innovation: Increased local involvement and funding in R&D and innovation

b)Productivity: Increased productivity in each target region, through increased capacity to absorb innovation30

14.Prior to the publication of the bidding prospectus, we heard from Charles Walker, Director at ChamberlainWalker Economics, that the objectives were “broadly the right ones”.31 Catherine Barnard, Professor of European Union and Labour Law at the University of Cambridge, told us they were a positive indication of a more ambitious plan for freeports than the traditional use of importing goods to add value before re-export.32 However, Centre for Cities warned that “it is unrealistic to expect that freeports are able to address these objectives all together”. It suggested different primary objectives and packages of measures for different types of freeports should be agreed.33 Andrew Carter, Chief Executive Officer of Centre for Cities, referenced the importance of the skills of localities and the extent to which they match the requirements of freeports. He said a greater focus on these issues would be required to meet the Government’s objectives and aspirations for the policy.34

Trade and investment

15.The first objective, and the intention that freeports play a role in increasing the UK’s international trade and investment, has been a key focus for us throughout this inquiry. The Government has claimed that “Freeports will play a significant role in boosting trade, attracting inward investment and driving productive activity across the UK.”35 Evidence from the UK Major Ports Group (UKMPG) said that “the development of freeports provides a strong base for supporting existing UK trade with the world and creating more capacity and capability to boost trade further”.36 Charles Hammond, of Forth Ports, echoed this view telling us that while freeports were not “a silver bullet”, they could improve trade flows and “get some of the wealth that has been created from trade back into coastal communities”.37 Nonetheless, we heard evidence that successful international special economic zones were “much broader in ambition in what they do” and to compete, the UK would also have to look beyond the traditional freeport model and adopt “a broader ambition”.38

16.Evidence also indicated that the ability to attract investment would be a measure of the attractiveness and success of freeports.39 The British Ports Association contended that by utilising enterprise zones alongside freeports, it would create a business environment conducive to inward investment and stimulate growth across the UK, if managed successfully.40 Roger Pollen, Head of External Affairs at the Federation of Small Businesses Northern Ireland, said the sense from businesses was that they saw the policy as a stimulatory measure and would make investments linked to it that they would not otherwise make.41 Other business representatives felt that the policy was an opportunity for exports.42 Aberdeen Harbour Board contended that it could prompt new activity and growth in traditional markets alongside supporting the commercial delivery of net-zero and low-carbon technologies.43

17.Despite the potential to increase trade and investment, research by the UK Trade Policy Observatory (UKTPO) concluded that benefits and savings to businesses from the trade elements were likely to be limited in the UK context. This was because tariffs were generally low, and where this was the case, the direct benefits of freeports were small. It found that there could be small cash-flow gains for businesses due to duty deferral and savings from simplified customs procedures, but that bigger gains could be achieved through greater use of enterprise zones (see Chapter 4).44 Further, while the freeports policy is primarily focused on supporting manufacturing activity, Dr Peter Holmes, of the UKTPO, alongside the UK Free Trade Zone Association, also noted the importance of services to the UK economy and their relative absence from the freeport proposals.45

Regeneration and job creation

18.Submissions that we received from port operators and representatives generally agreed that freeports had the potential to be a catalyst for regeneration and to generate employment. UKMPG contended that coastal communities around the UK, and not just at freeport locations, would benefit from regeneration activity but that the freeports policy should be seen as one element in a wider strategy including planning reform and connectivity.46 Councillor Kevin Bentley, Chair of the Local Government Association’s People and Places Board, said the policy could offer a good stimulus to areas but that it was important that local government was involved.47 Others questioned the rationale for linking regeneration initiatives to ports. Dr Peter Holmes suggested that new efforts should be put into regional development schemes as an alternative.48

Employment and skills

19.The Chief Secretary to the Treasury told us that jobs would be the key metric in determining the success of freeports from HMT’s perspective.49 As noted above, estimates for the job creation potential of freeports vary widely. Alex Stojanovic, a researcher at the Institute for Government, told us there were examples of benefits in employment but caution was required because many of the locations were in closed economies and it was not known how translatable the benefits would be to the UK.50 Research by the UKTPO found that in the case of the US, while there were many jobs in the free zones, “there is little evidence of how many are net creations”.51 Further, drawing on its research into enterprise zones, Centre for Cities was cautious about the job creation potential of freeports.52 It contended that while enterprise zones were open to all businesses, freeports would only be attractive to manufacturing businesses. It said “That will further limit a freeport’s ability to create jobs and there is a real risk as a result that they will be less successful in creating new jobs than enterprise zones were.”53 It suggested mitigations such as having skills schemes and apprenticeships in place targeted to people who are economically inactive or unemployed, with a job available at the end of the scheme, alongside incentives for companies to create such jobs.54

Agglomeration effect

20.Evidence also referenced the potential for agglomeration benefits through greater concentration of activities from key sectors, provision of connectivity, and the alignment of local skills and innovation providers.55 Andrew Carter suggested these benefits would depend on the types of businesses located close to one another:

[ … ] we do think about the agglomerative effects from proximity, but all the evidence tells us agglomeration effects for manufacturing firms are massively lower than they are for services firms. Manufacturing firms get very few additional gains from being in close proximity to another manufacturing firm—the evidence is pretty clear on that—whereas services industries and sectors benefit massively from being in close proximity to others.56

Innovation

21.The Government has said freeports will drive innovation by bringing together business clusters and encouraging the trialling of new ideas.57 UKMPG said the third objective, to create hotbeds of innovation, had caused a “certain degree of confusion amongst potential bidders”. It said that while innovation was desirable, it should not be regarded as material a factor as the other objectives.58 Centre for Cities maintained that not all freeports will have the same potential to develop into innovation hotbeds. It outlined that the main attractions for such firms was the presence of a highly skilled workforce and other innovative companies. It cited research it had completed which suggested that Derby and Coventry were the only cities in the UK with the strong manufacturing base and elevated innovative capacity to transform into innovation hotbeds.59 Nonetheless, evidence suggested aligning freeports with local sources of talent and innovation, such as universities, further education colleges and incubators, alongside incentives to foster innovation would help to attract inward investment.60 Atkins, an engineering and project management consultancy, also said that to drive innovation, freeports would need to be set up to succeed with modern infrastructure and a collaborative environment such as 5G coverage, research facilities and a stimulatory regulatory regime.61 Thales, an international technology firm, said it believed freeports presented “an opportunity to apply new digital technologies to improve efficiency and take a generational leap over traditional borders and ports”.62 To support innovation, it suggested designating a national “smart port” testbed to trial technology that could then be deployed to freeports.63

22.We commend the Government’s ambition to increase trade and investment across the UK through its freeport policy. It remains to be seen how successful freeports will be at achieving this objective.

23.We welcome the Government’s clarity on its objectives for freeports and the related outcomes freeport operators must deliver against. Progress made toward meeting these objectives and outcomes must be measurable and monitored. We recommend that the Government, or the cross-Whitehall governance body, set out in further detail the metrics that will be used to measure success against these objectives and outcomes, and how it will report on progress made annually.

24.Now that freeport locations in England have been announced, we recommend that HM Treasury promptly publish an impact assessment for the policy. This should include estimates for economic growth, increased trade and investment, and job creation, as well as an analysis of the impact on different sectors. Such an assessment would aid a full evaluation of the policy in due course.

Monitoring and evaluation

25.The Government has stated that “Rigorous monitoring and evaluation will be key to the success of Freeports.”64 This aligned with evidence we received from Atkins, who said:

Once selected, UK Freeports should continue to be assessed on the volume of extra trade and jobs they generate as well as their wider impact on communities and the environment. These assessment processes must be meaningful, challenging and credible, overseen and assured by an independent body and used to reassign Freeport status, if necessary.65

The bidding prospectus set out that freeport operators will be required to collect data on the proposed reliefs and their outcomes, particularly for the tax measures, new jobs, businesses created, private investment attracted and on local displacement.66 In addition, freeports will be assessed against the objective outcomes as part of the monitoring and evaluation process.67

26.In evidence, Minister Hall provided more detail on how the evaluation process would be developed. He said there would be an England-wide evaluation framework based on the three objectives and six outcomes. Each location would be allocated individual project milestones and programme outcomes, and would be expected to have a monitoring and evaluation plan agreed as part of its business case. He added that the process was still under development but that the Government would be providing further information ahead of the business case process.68 The Chief Secretary to the Treasury noted that the Government would also be seeking to evaluate and monitor the tax elements at set points. He maintained that:

The key issue is agreeing the metrics and having the quality of work around how that is done. Whether that is in house or outsourced is probably secondary to the quality of the work there.69

27.We recommend that the Government commission a full, independent evaluation of the implementation of the freeports policy, to take place within five years of the establishment of the first freeports. The findings of this evaluation should be published promptly. The evaluation should include: a review of the bidding process and suitability of locations chosen; an assessment of progress towards meeting the objectives and outcomes set out in the bidding prospectus; a measure of new economic activity and job creation generated by the policy; an assessment of the impact of the policy on different sectors; an assessment of what economic displacement, if any, has occurred due to the policy; and a value for money analysis including comparison with the findings of HM Treasury’s impact assessments. Those carrying out the review should be engaged at an early stage to ensure the information collated by freeport governance bodies, local authorities and others is relevant to, and can support, this evaluation.

25 Centre for Policy Studies, The Free Ports Opportunity (November 2016), pp 6, 36

26 Mace, Insights 2018 Supercharged Free Ports (June 2018), p 3

27 Vivid Economics, A proposal for a national Free Zone policy (July 2019), Executive Summary, p 33

30 HM Government, Freeports Bidding Prospectus (November 2020), p 13

32 Q35; see also Q82

33 Centre for Cities (FRP0014)

35 HM Government, Freeports Clarification Q&A (January 2021), p 3

36 UK Major Ports Group (FRP0012)

38 Q7; see also Qq4–6

39 UK Free Trade Zone Association (FRP0017)

40 British Ports Association (FRP0007); see also Q98

43 Aberdeen Harbour Board (FRP0009)

44 UK Trade Policy Observatory, What is the extra mileage in the reintroduction of ‘free zones’ in the UK? (February 2019), p 11; UK Trade Policy Observatory, Tariff inversion in UK Freeports offers little opportunity for duty savings (28 July 2020); see also Qq6–7, 11

45 Dr Peter Holmes (FRP0013), UK Free Trade Zone Association (FRP0017)

46 UK Major Ports Group (FRP0012)

48 Dr Peter Holmes (FRP0013)

50 Q8

51 UK Trade Policy Observatory, What is the extra mileage in the reintroduction of ‘free zones’ in the UK? (February 2019), p 11

52 In its submission to the inquiry, the Centre for Cities said that in 2011 HM Treasury claimed enterprise zones would create 54,000 but that between 2012 and 2017, the zones had created 13,500 sustainable private sector jobs. Further, it said the zones encouraged economic displacement with at least a third of jobs in the enterprise zones having moved from elsewhere in the same period. See also Q101, Centre for Cities (FRP0014)

53 Centre for Cities (FRP0014)

54 Centre for Cities (FRP0014)

55 Cromarty Firth Freeport Steering Group (FRP0001); UK Major Ports Group (FRP0012)

57 Qq199–202; see also HC Deb, 16 November 2020, col 1WS [Commons written ministerial statement]

58 UK Major Ports Group (FRP0012)

59 Centre for Cities (FRP0014)

60 UK Major Ports Group (FRP0012)

61 Atkins (FRP0018)

62 Thales (FRP0016)

63 Thales (FRP0016)

64 HM Government, Freeports Bidding Prospectus (November 2020), p 37

65 Atkins (FRP0018)

66 HM Government, Freeports Bidding Prospectus (November 2020), pp 35, 37

67 HM Government, Freeports Bidding Prospectus (November 2020), p 13




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