77.In its consultation response, the Government stated that it was working with the devolved governments to establish freeports in the devolved nations. Of the locations and bidding processes, it said:
The location of the Freeports in Wales, Scotland and Northern Ireland will be determined collectively by both the UK Government and the devolved administration and should align objectives, processes and timescale where possible.
The response noted that where policies included in the freeports package were devolved, their implementation and design would be a matter for each devolved government. Further, it indicated that there would be separate bidding processes in each nation and the number of freeports in each nation would be jointly agreed with each devolved government. The reasoning for separate processes was to “ensure that local conditions and priorities are considered as part of the allocation process” and to “account for differences between nations where policy levers are devolved”.
78.In evidence, we heard from business representatives who were largely receptive to plans for freeports in the devolved nations. Roger Pollen, Head of External Affairs at the Federation of Small Businesses Northern Ireland, said there was “broad enthusiasm” for the potential of the policy and it would draw together areas such as manufacturing and the knowledge economy. Roy MacGregor, Chairman of the Global Energy Group, cited the benefits freeports could offer the renewable energy industry on the Cromarty Firth through investment and the creation of a manufacturing hub. Tim Williams, Chief Executive Officer of the Welsh Automotive Forum, said that a freeport has a “distinct advantage” but, in the Welsh context, the location would have a considerable impact on who is advantaged and disadvantaged.
79.Representatives of the devolved governments were more cautious. While they indicated in evidence that they were open to considering freeports, they were keen to have more information about the policy. Ivan McKee MSP, Minister for Trade, Innovation and Public Finance in the Scottish Government, said the Scottish Government had undertaken sessions with ports, businesses and sectoral interests to gauge thinking and appetite for the policy. He said that the policy needed to be considered in terms of wider economic development and value for money. Rebecca Evans MS, Minister for Finance and Trefnydd in the Welsh Government, said the freeports policy would “inevitably evolve in different ways” and indicated that the requirements of the Well-being of Future Generations (Wales) Act, fair work and environmental agenda would be part of the Welsh Government’s approach should it support the policy.
80.Of the devolved nations, only the Scottish Government has announced its plans for freeports to date. Following a survey of business organisations, local authorities and other interested groups, it announced plans for “green ports” in January 2021. It said these would adapt the UK Government’s freeport proposals while also offering streamlined planning processes alongside customs and tax relief. Operators and businesses would be required to pay the real Living Wage; adopt the Scottish Business Pledge; commit to supporting sustainable and inclusive growth in local communities; and contribute to Scotland’s transition to net zero. The Scottish Government published a draft applicant prospectus in March 2021, with the final version to be published following agreement with the UK Government.
81.When giving evidence to us early in October 2020, representatives of the devolved governments raised the issue of engagement with the UK Government in evidence. Minister Evans told us “It is fair to say that engagement thus far has not been satisfactory in terms of the development of the proposals.” Aidan McMahon, Deputy Director at the Department of Finance in the Northern Ireland Executive, elaborated that engagement had largely been related to developments from a UK Government perspective but that his department had “not had that role in helping to shape the policy from the outset”. We heard that initial engagement was intermittent and primarily with DIT. Engagement had intensified following a letter from the Northern Irish Minister of Finance to the Chief Secretary to the Treasury. However, Aidan McMahon noted that the Minister would welcome a fuller role in the development of the policy and said:
The key point there is about the substance of engagement as opposed to the frequency. The frequency has been very regular with the Treasury of late, but it is the substance and the policy development process that is the key issue from our perspective.
Minister McKee reported that he had met the Chief Secretary to the Treasury and official-level engagement was ongoing but that they had not yet received information in the detail required. Each of the devolved governments indicated that they had also put forward their views on the policy in correspondence to the UK Government.
82.The devolved governments referenced access to information such as impact assessments and analysis as a challenge in developing their own freeport proposals. Minister McKee said the Scottish Government had repeatedly asked for detail of the impact assessment and fiscal shape of the policy. Minister Evans said the Welsh Government had been asking for greater involvement and information sharing for over twelve months and it did not have access to anything that was not in the public domain. Aidan McMahon told us it was his understanding that HMT was carrying out economic modelling work on “the aggregate impact of freeport policy” across the UK and that was to be shared with the devolved governments. Minister Evans also indicated that the Welsh Government understood there was quality assurance work occurring. Scottish and Welsh ministers told us that their ability to complete their own impact assessments was hampered by access to information with Minister Evans telling us:
We are in very much the same position as Scotland in terms of not being able to quantify what it is that we are assessing, where we do not have proper sight of what the plans might be.
83.In questioning on the devolved governments’ access to information, Minister Hall said the Government had shared “an unprecedent amount of information with them” including drafts of the consultation and bidding prospectus for England. The Chief Secretary to the Treasury said he “would contend that there has been a huge amount of collaborative working”. He said:
On the point of sharing modelling, I would slightly take issue with that because, of course, a number of the powers relating to freeports are within the gift of the devolved Administrations themselves. Therefore [ … ] the modelling would need to reflect those policy decisions, which, of course, often have not been taken. The devolved Administrations have flexibility, for example, on the planning side and clearly the model would need to reflect the decisions they took in that regard.
He added that the Government had shared notes on how the modelling could be undertaken.
84.The Government has said that the location of freeports in the devolved nations will be “determined collectively”. Minister Evans outlined the Welsh Government’s expectation was that it would “have a meaningful role in both developing a bidding criteria and in assessing those bids against the criteria”. She also noted that it was important that the policy be consistent across England and Wales to permit joint bids to be developed across borders. Minister McKee suggested the Scottish Government would want to be “able to make the decisions, working with stakeholders in Scotland, as to how and where those freeports should be with some freedom, given our geographical challenges, to be able to be flexible on that”.
85.The issue of funding was also raised by the devolved governments. In its bidding prospectus, the Government outlined that successful bids in England would have access to a share of £175 million seed capital funding. Aidan McMahon said the Department for Finance in Northern Ireland had heard from stakeholders that there would be a need for “significant public sector investment to make freeports successful;” and that the Minister had raised it with the UK Government but had not received any clarity on the issue. Minister Evans told us she had asked the Secretary of State for Wales and the Chief Secretary to the Treasury, and was told “the starting point is the Barnett formula”. She said this:
[ … ] obviously would not be satisfactory if we were in the position where we have, say, 10 freeports, one of which would be in Wales. We would have 10% of the freeports but 5% of the funding, as per the Barnett formula, so clearly that is not an appropriate funding mechanism for this particular piece of work.
Minister McKee also indicated that the Scottish Government would want “at least the Barnett share of any money” and for any reserved taxes applied at freeports “to be applied in at least equal measure as across Scotland”.
86.In discussion on the role of the devolved governments, the Chief Secretary to the Treasury said it was UK policy to delivery freeports but that the Government respected that there are areas of the policy that are for the devolved governments. The Chief Secretary to the Treasury confirmed that he had discussions with colleagues in the devolved governments on funding and that “in the normal way,” the £175m seed capital funding for freeports in England would be subject to Barnett consequentials. In questioning on the share of seed funding for freeports in the devolved nations compared with England, he said:
First, the main benefit is the tax offer. That is the main benefit, not the seed funding. Of the seed funding, which is a component, the point is that that goes through Barnett, which is not hypothecated. The Barnett funding that the Scottish Government receive, as they do for lots of other schemes, is more generous per head than it is for England. The allocation will be applied as it is with other policies, and it will be for the Scottish Government then, through their funding through Barnett, to do as they do in other areas of policy, consistent with the statement of funding policy, which says that it is for each devolved Administration to determine how overall Barnett funding is allocated within their devolved responsibilities.
He said he was not in a position to give a clear timetable for when freeports would be established in the devolved nations.
87.We support the Government’s intention to establish a freeport in each of the devolved nations but acknowledge that this is a decision for each of the devolved governments. We are eager that the policy is implemented in a manner that brings increased trade and investment to all parts of the UK.
88.We received concerning evidence from the devolved governments about the UK Government’s engagement with them in the development of this policy and their access to the information underpinning the policy. While the development of the freeports policy in the devolved nations is ongoing, we recommend that ministers and officials intensify engagement and information sharing efforts to ensure that the devolved governments have access to all the information necessary when making policy decisions.
89.We support the devolved governments’ call for an appropriate funding allocation. It is important that freeports in the devolved nations are not disadvantaged due to the way in which funding is allocated. We call on HM Treasury to ensure that funding available to freeports in the devolved nations corresponds with awards in England.
90.We heard in evidence that the Northern Ireland Protocol would impact how the freeports policy could be developed in Northern Ireland. Professor Catherine Barnard, of the University of Cambridge, explained:
As you know, under the Northern Ireland Protocol the EU state aid regime applies, certainly to Northern Ireland where there is an effect on trade between Northern Ireland and the rest of the EU. You should also bear in mind that the protocol is probably wide enough to catch any freeport legislation that applies throughout the United Kingdom. Any UK legislation that has an effect on Northern Ireland trading goods, and thus an effect on interstate trade, will have to be notified to the Commission under the state aid regime as laid down in the Northern Ireland Protocol. I realise that is quite a mouthful, but the bottom line is that as a result of the Northern Ireland Protocol the EU state aid regime will continue to be relevant to not just Northern Ireland but the rest of the United Kingdom.
Roger Pollen told us that there was an ambition to export around the world in Northern Ireland and that the sense from the Federation of Small Businesses’ membership was that businesses would make investments due to the policy. However, he later acknowledged that the relationship between the Protocol and the freeports policy had “not yet been tested and discussed”. He suggested that there could be an opportunity to address some of the issues in the context of the work of the EU-UK Joint Committee.
91.Aidan McMahon, of the Department of Finance in the Northern Ireland Executive, told us:
From a Northern Ireland perspective, and with the NI protocol in place, there are concerns from the Northern Ireland Executive about how the freeport policy will be delivered within Northern Ireland and if there will be differences in Northern Ireland vis-à-vis other freeports across the rest of the UK.
He later elaborated that the issue of tailoring the policy to the specific needs of Northern Ireland had been raised with HMT and that:
There is some acceptance that a final model could be a bit different in Northern Ireland, given our unique circumstances. That said, it is important in order to attract trade investment that a freeport in Northern Ireland—as I have said previously—is not at a competitive disadvantage to other freeports across the UK. We need to be able to align the freeport policy with other policy levers being used by the Executive to attract trade and investment into Northern Ireland.
The Chief Secretary to the Treasury acknowledged that the freeport offer would have to be adapted to comply with the UK’s obligations under the Northern Ireland Protocol. Nonetheless, he said there was flexibility in the Government’s agreement with the EU. He cited the example of customs where he said that changes, other than minor, technical ones, were unlikely to be required. He indicated that discussions with the Northern Ireland Executive to agree the model to be used were ongoing.
92.It is clear that the Northern Ireland Protocol will impact the terms on which a freeport can be established in Northern Ireland. The Government should set out, in its response to this Report, its view on how the freeports model will need to be adapted in Northern Ireland to comply with the terms of the Protocol.
212 ; see also Cromarty Firth Freeport Steering Group ()
217 Scottish Parliament Deb, 21 January 2021, , “Green ports to aid economic recovery”, Scottish Government press release, 21 January 2021; see also Scottish Government, Scotland’s Economic Performance - The contribution of place-based economic development zones Analysis of survey responses (January 2021). The Scottish Business Pledge is described as “a values-led partnership between Government and business that is based on boosting productivity, competitiveness through fairness, equality and sustainable employment”; see also Scottish Government, Scottish Business Pledge (March 2021).
218 Scottish Government, Green ports: Delivering Freeports for Scotland Applicant Prospectus (DRAFT) (March 2021), pp 2, 6
244 ; see also