Performance of investment zones and freeports in England

This is a House of Commons Committee report, with recommendations to government. The Government has two months to respond.

Fourth Report of Session 2023–24

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Contents

1 Inquiry

1. Over our inquiry into the performance of investment zones and freeports in England, we have scrutinised the objectives, implementation and outputs of investment zones and freeports.1 Witnesses at our three oral evidence sessions included academics, trade associations, representatives from freeports, regional leaders and Ministers from the Department for Business and Trade and from the Department for Levelling Up, Housing and Communities. We are grateful to all those who provided oral and written evidence to our inquiry.

2 Policy

Levelling up

2. The Secretary of State for Levelling Up, Housing and Communities described freeports and investment zones as part of a wider toolkit to level up regions outside the South East.2 As such, the policy is designed to help remedy the significant and persistent disparities in regional productivity, which are well known:3

  • No English city region outside the South East has a productivity level greater than the UK average.4 5
  • Cities such as Manchester, Birmingham and Glasgow have lower productivity levels than equivalent European cities by size, such as Lyon, Munich and Cologne.6 Cautious estimates suggested that the relative economic underperformance of second-tier cities is costing the UK economy £47 billion a year, with Manchester, Birmingham, and Glasgow accounting for 70% of that figure.7
  • Workers are most likely to report positive career progression opportunities in London and least likely to report such opportunities in the North East and the East Midlands.8

3. The Government response to regional disparities in the UK was the Levelling Up White Paper, published in February 2022.9 It stated that “by 2030, pay, employment and productivity will have increased in every area of the UK, with each containing a globally competitive city, with the gap between the top performing and other areas closing”.10 The Levelling Up and Regeneration Act 2023 has stipulated any future Government must prepare a statement of “levelling up missions” before Parliament, including regular reporting on those missions.11

Freeports and investment zones

4. Freeports and investment zones are part of the Government’s Levelling Up strategy. They are defined geographic sites where specific economic regulations, such as tax reliefs, business rates retention, planning and targeted public investment, are applied.12

5. The Government announced its freeports policy in January 2020. In the March 2021 Budget, eight English areas were chosen to host a freeport.13 Freeports have been in operation since early 2023.14 The Government announced its investment zones policy in the March 2023 Budget. Eight English areas have been invited to co-develop proposals to set up investment zones with the Department for Levelling Up, Housing and Communities.15 Investment zones will become operational and receive initial funding in the 2024–25 financial year.16 Liverpool, Teesside and the East Midlands, will contain both an investment zone and a freeport.

Rationale

6. The rationale for freeports and investment zones was set out in the Levelling Up White Paper. It suggested that the co-location of people, business and finance can generate positive impacts greater than the sum of their parts, creating a virtuous cycle of further investment.17 In economic terminology, there are increasing returns to scale to investment. The Secretary of State for Levelling Up, Housing and Communities stated that public investment in freeports and investment zones will “create the right circumstances for a renewed generation of private sector investment in those areas” and kick-start that virtuous cycle.18

7. Freeports and investment zones have different objectives. While both are designed to increase employment, freeports are designed to drive regeneration, where-as investment zones are intended to increase national productivity.19 20 The different policy objectives are reflected in the different choices of location for freeports and for investment zones.

  • All freeports have been established near major ports, some of which have high levels of deprivation and low levels of income and employment.21
  • In contrast, investment zones are situated in larger city regions. These regions were selected because they include “local research institutions like universities, strong local leadership, and evidence of an existing cluster of high potential businesses”.22

8. The incentives available to freeports and investment zones are described in Figure 1. These incentives have recently increased. In the November 2023 Autumn Statement, tax breaks available in freeports and investment zones were extended from five to 10 years. The Government has also introduced a new “freeport delivery plan”, announced in December 2023, to provide freeports and investment zones with wider support.23

  • Each investment zone will now receive a maximum of £160 million over 10 years, which can be split between tax incentives for businesses or spending on a portfolio of interventions such as skills or infrastructure.24 25
  • Each freeport will receive the same tax incentives for 10 years, alongside streamlined customs procedures to facilitate trade and £25 million to remediate land and address infrastructure gaps.
  • The nearest council to either an investment zone or a freeport will also be able to retain 100% of the growth in business rates above an agreed baseline to re-invest. Investment zones and freeports will receive the same wraparound support, such as an integrated international marketing campaign and Government support for planning, skills and innovation.

Figure 1: Incentives surrounding the Investment Zones and Freeports Policies

References: 1: UK Freeports guidance (DLUHC), 2: UK Freeports Induction Pack (HMRC), 3: Investment Zones Policy Offer (DLUHC), 4: Freeports Delivery Roadmap (DLUHC)


3 Government investment

9. Total public spending by region has not changed significantly since the publication of the Levelling Up White Paper in early 2022. The Government spent £126 billion on economic affairs in 2022–23 (4.9% of GDP, an increase from 2.1% of GDP in 2012–13), across three policy areas, namely transport (£44 billion), enterprise and economic development (£21 billion) and science and innovation (£7 billion).26 27 As Figure 2 shows, however, public expenditure on economic affairs per capita was 49% higher in London than the English average in 2022–23.28

Figure 2: Expenditure on Economic Affairs per head, Public Expenditure Statistical Analysis (PESA, HMT), 2022–23

10. The Government has stated that the Levelling Up agenda spans multiple policy areas and that several Government Departments are responsible for its delivery.29 It provided a list of examples from that agenda, with central Government investment totalling £51 billion. Examples of major public spending included Network North (£36 billion), the Levelling Up Funds (£5 billion), Project Gigabit (£5 billion) and Innovation Accelerators (£100 million).30 31

11. The Department for Levelling Up, Housing and Communities has so far spent £41.8 million to establish freeports, of which £8 million is revenue support, and £33.8 million is invested in developing Teesside Freeport (£21.5 million), Plymouth Freeport (£9.1 million) and Solent Freeport (£3.1 million).32 33 Separately, the OBR estimated that freeports would cost £50 million per year from 2022–23.34 This equates to approximately 0.04% of Government’s overall spending on economic affairs. However, the OBR warned that any estimate of the cost of freeports is highly uncertain due to unknowable factors, such as the extent of uptake of tax relief and of additionality of employment.35 The Government initially estimated the cost of investment zones at £1 billion over five years.36 However, the extension of tax reliefs could increase costs to £2 billion over 10 years, or £200 million per year, a figure that equates to approximately 0.16% of Government spending on economic affairs.37

12. Notwithstanding these figures, understanding the precise public investment in freeports and investment zones relative to other public investment is almost impossible due to the lack of relevant data. However, within this array of programmes, public investment in both freeports and investment zones is relatively small compared with the policies’ stated ambitions. The Secretary of State for Levelling Up, Housing and Communities told the Committee that further information will be published on “how the inner wiring of Government can be improved in order to ensure that spend is more effectively and equitably directed for levelling-up reasons”.38

13. The publication of detailed sub-national statistics on regional public investment would facilitate meaningful analysis, scrutiny and discussion of regional inequality by Parliament, civil society and the public. The publication of such statistics would allow Parliament to compare the investment in freeports and investment zones with other investments in the economy.

4 Outcomes

Benefits

14. Compared with the available information on costs, even less information is in the public domain on the benefits of freeports and investment zones. Freeports, academics and trade associations agreed that creating new employment in these regions was the main policy objective.39 Freeports asserted that such new employment would be “good-quality jobs, [with] good training and prospects”.40 41 Each individual freeport and investment zone has estimated the potential additional employment they will stimulate in their business case to Government.42 The methodology and evidence underpinning those estimates have not been published. The previous example of enterprise zones indicated that the Government’s estimates of employment created by area-based or zonal policies can be optimistic.43

15. Freeports estimated that they will create approximately 214,000 additional jobs, of which 131,000 would be directly related to the freeport and 83,000 would be created indirectly.44 If freeports were to create 200,000 jobs, the Government would be subsidising employment in freeports at £2,500 per job.45 The Secretary of State told us that these employment estimates will “come to fruition over the next 20 years” or by 2043.46 The Government estimates freeports have so far created 5,600 jobs, which equates to 4% of the estimated employment target.47 The Government has published some estimates for target employment created by investment zones over the next 10 years for those regions with a finalised plan.48 Based on these estimates, investment zones will create more than 89,000 jobs over the next 10 years.

16. Underpinning these goals for employment growth are ambitions for investment growth. Freeports and Ministers both stated that freeports and investment zones will compete on a global stage for investment.49 Investment zones have estimated that they will attract more than £11 billion in private investment over the next 10 years. To date, freeports in England have attracted £2.8 billion of private investment, which can be split between foreign direct investment (£2.1 billion, 75.4%) and domestic investment (£700 million, 24.5%). No further estimates on the total private investment that freeports will create have been published. Examples of private investment in freeports include a £400 million investment in Teesside Freeport to build an offshore wind manufacturing facility, more than £1 million of investment in marine autonomy in Plymouth Freeport and investment to develop a rare earth processing hub at Humber Freeport.50

17. Figure 3a shows targeted employment, current employment and secured private investment by each freeport.51 52 Figure 3b shows employment and private investment expected to be achieved by each investment zone over the next 10 years.53

Figure 3a: Estimated final employment, current employment and current private investment by freeport

Freeport

Current Employment

2043 Targeted Direct Employment

Share of Target Employment achieved (%)

Current Private Investment (£ million)

Targeted Private Investment (£million)

Teesside

2,150

41,780

5%

1,102

N/A

East Midlands

N/A54

28,900

N/A

175

Solent

N/A

15,062

N/A

15

Thames

1,000

12,478

8%

475

Freeport East

1,650

11,350

15%

350

Liverpool City Region

N/A

10,628

N/A

22

Humber

770

7,500

10%

516

Plymouth and South Devon

20

3,584

1%

N/A

TOTAL

5,740

131,282

4%

2,855

Figure 3b: Estimated final employment, and final private investment by investment zone

Investment Zone

2033 Target Employment

Target Private Investment (£ million)

Greater Manchester

32,000

1,100

West Midlands

30,000

5,500

Liverpool City Region

8,000

640

South Yorkshire

8,000

1,200

West Yorkshire

7,000

N/A

North East

4,000

3,000

East Midlands

N/A

N/A

Tees Valley

N/A

N/A

TOTAL

89,000

11,440

Dependencies

18. Employment apparently created by freeports and investment zones could have happened in those regions anyway, which is known as “deadweight”, or would otherwise have happened elsewhere, which is known as “displacement”.55 At least one-third of the jobs created in the enterprise zones in 2011 were created by businesses moving from elsewhere in the UK.56 Professor Steve Fothergill stated that, as a rule of thumb, one-third of jobs created would be truly additional with the remaining two-thirds being either deadweight or displaced.57 Mitigations have been introduced to minimise displacement in freeports by preventing activity currently happening elsewhere from accessing their benefits.58 However, such mitigations cannot prevent deadweight activity from accessing benefits. The greater the deadweight effects, the greater the chance that public money could have been better spent to level up regions through other means.

19. Both freeports and investment zones are predicated on concentrated investment and employment delivering positive spillover effects to transform regions.59 60 However, such active industrial policy can itself fail if businesses do not form clusters. Clusters could fail to form if the Government has chosen the wrong sectors or locations. For example, the Government has required regions to name one of five sectors that they aim to develop into a cluster in investment zones.61 However, hotspots where firms cluster together rarely centre on a single industry.62 Non-services firms are also less likely to cluster, because they need relatively extensive floorspace and because they have less to gain from sharing knowledge due to their intrinsic interest in protecting their intellectual property.63 Four out of the five investment zones that have announced their proposals decided to focus on advanced manufacturing, a non-services sector in which clusters may not readily form.64

20. Although the Government published the metrics by which the locations of freeports and investment zones were selected, these metrics do not assess the impact of the number of freeports and investment zones on investment.65 That risks either competition between regions for private investment, or private investment being spread such that it is insufficiently concentrated to create significant positive spillover effects.66 Oliver Coppard, Mayor of South Yorkshire, told us that “the challenge for the Government is to create those regional industrial strategies that speak to each other, so that we are not competing with each other”.67

Monitoring

21. Although evidence from economic theory and past policies can be a useful guide to the potential impacts of area-based policies, the actual impact of the programmes will be the ultimate test. The Government is currently conducting a feasibility study to assess whether a robust impact and value for money evaluation is viable for investment zones.68 The Government published a monitoring and evaluation strategy for freeports in May 2022 and commissioned a work programme of monitoring and evaluation of the freeports policy.69 There are four strands to the proposed freeports evaluation, namely monitoring, process evaluation, impact evaluation and value for money evaluation.70 71 As part of this programme, dashboards are being created to allow users to navigate data for each freeport at different geographical levels and aggregations.72

22. The Institute for Fiscal Studies (IFS) concluded that conducting the impact and value for money evaluations will be fundamentally difficult.73 Estimating the impact of freeports involves comparing actual outcomes in ports with the outcome that would have occurred in the absence of the policy. However, this counterfactual cannot be observed, so it must instead be estimated. To estimate the employment that would have occurred without the policy, analysts compare employment in freeports with employment in similar regions across the UK. However, employment in other regions may have decreased if individuals have left those regions to work in freeports, which would artificially inflate the impact of the freeport policy.

23. The Government proposed overcoming the challenge of estimating such displacement of employment with economic modelling exercises.74 However, the IFS concluded that it is difficult to see how this could be done without effectively assuming, rather than estimating, the scale of displacement.75 Other issues make the evaluation of costs and benefits difficult, such as low sample size, the changing policy landscape and difficulty monetising the estimated impacts.76 77 78 The Government admitted that monitoring just the cost of the policy will be challenging, because the programme involves “resources by a number of different Government Departments”.79

24. The economic impacts and benefit-to-cost ratio of freeports and investment zones will be difficult to estimate. However, the approach taken by Government will still provide some information on the programme impact on various outcomes. It will allow sharing of best practice between freeports, and provide lessons learned for future policy implementation. Such attention to detail on monitoring and evaluation should also be applied to investment zones.

25. The Government must publish the eventual evaluation reports of freeports and investment zones and, where possible, the data used, including detailed local data. In the meantime, the dashboards being created to monitor freeports should be published, with commercially sensitive information redacted, if required.

26. In 2021, the International Trade Committee recommended that the Government publish an impact assessment for freeports to inform analysis of employment creation.80 However, the Government is yet to publish such an assessment for either investment zones or freeports, which means that it is impossible accurately to assess both which policy provides greater value for money and the impact of the policies on the national economy.

27. To improve transparency and to facilitate accurate cost-benefit analyses of freeports and investment zones, the Government must publish quantitative assessments of the impact of freeports and investment zones on employment, investment and trade alongside the Freeports Annual Report (see paragraph 54). Those assessments should include a clear explanation of their underpinning methodologies and assumptions. To meet best practice, this would be in the form of an individual Impact Assessment for all (a) freeports and (b) investment zones separately. This echoes the recommendation made by the International Trade Committee in 2021.

5 Delivery

28. Notwithstanding concerns about both the scale of investment in freeports and investment zones relative to other ‘Levelling Up’ interventions and difficulties in estimating the return on investment, we found broad levels of support for the policy. Representatives from freeports and investment zones told us that the main recommendation to improve freeport and investment zones would be to extend tax incentives available in investment sites from five years to 10 years.81 That recommendation was implemented in the 2023 Autumn Statement.82 We have identified six additional issues that require improvement, including (i) access to energy, (ii) planning freedoms, (iii) access to better skills, (iv) improved customs arrangements, (v) connection to wider government economic security policies and, above all, (vi) improved governance.

Energy

29. Freeports and investment zones need to be connected to the grid to ensure that energy is available on site. Energy companies have told freeports they face a “four year plus window for connections”.83 Freeports identified grid connections as the key improvement to be addressed after extension of tax incentives.84 In response, the Government has committed to a Connections Action Plan, which aims to reduce wait times from five years to six months. That plan looks to power the most viable projects through several measures including: moving away from “first come first served” to a needs-based approach for connections, removing stalled infrastructure projects from the pipeline and raising entry requirements to increase the quality of projects applying for connections.85 86 Freeport East recommended further support surrounding energy at ports, including support to tackle regulatory barriers to grid enhancements and additional funding to support decarbonisation similar to support provided to international comparators.87

Planning

30. Freeports and investment zones require a supportive planning regime to use seed funding provided by Government to redevelop freeport and investment zones sites. Solent Freeport stated that:

The scale of development opportunities enabled by the freeport offer has proven difficult for local authorities under resource pressure to handle quickly. This has added to delivery timetables and shrunk the available time left to attract, new genuinely additional end users.88

Four freeports wrote to this inquiry to recommend increasing local authority planning capacity for freeports and investment zones.89 In response, DLUHC set up a new ‘Planning Super Squad’ of expert planners empowered to support freeport and investment zone projects.90

Skills

31. Representatives of manufacturing, engineering and trade highlighted skills shortages in the sectors targeted by freeports and investment zones.91 Economists at Make UK estimated that demand for labour in advanced manufacturing is currently twice as high as the long-run average.92 Businesses told the Association for Consultancy and Engineering that greater success has occurred “where local skills providers and commissioners have been successfully involved in planning for the skills needs of the Freeport, both during its construction and operation.”93 The Government has stated that it will link freeports and investment zones to local colleges and jobs fairs to meet those needs.94

Customs

32. Dr Holmes, Fellow of the UK Trade Policy Observatory (UKTPO), stated that the current customs benefits available to freeports are limited.95 Importers do not have to pay a tariff on goods imported into a freeport, but importers will pay this tariff once such goods enter the wider British domestic market.96 In addition, when importing into the domestic British market through freeports, businesses can calculate import duties based on the value of inputs rather than on the value of the finished product. That practice is known as ‘tariff inversion’. However, analysis by UKTPO found that only 1% of the value of UK imports would benefit from tariff inversion, a benefit that primarily accrues to dog food production.97 Moreover, once a good is exported from a freeport, under most UK Free Trade Agreements it will be subject to ‘duty drawback provisions’, meaning that a tariff must be paid at the final export destination.98 The Secretary of State for Levelling Up stated that elements of freeports and investment zones are an experimental attempt to identify which measures attract investment. In that context, he described customs incentives as “an additional benefit” as opposed to the principal benefit.99 Freeport East and Liverpool City Freeport suggested that the Freeports customs model can be strengthened further. One example included using grants to establish freeports as a national pilot for digitisation of trade ambitions.100

Supply chains

33. Kevin Shakespeare, Institute for Export and International Trade, argued that freeports and investment zones are an opportunity to encourage “critical mineral supply chains and green energy supply chains, with this desperate need that we have globally and in the UK.” However, he added that this “has been looked at but it has not really been fully implemented.”101 We also heard evidence that pointed to the need to provide additional relocation incentives for smaller firms to move to investment zones and freeport sites, in order to capture the full advantages of agglomeration that clusters can bring.102 The Government stated that it will link freeports and investment zones more closely to Net Zero policies inside the Department for Energy, Security, and Net Zero such as those relating to offshore wind, hydrogen, and Carbon Capture Use and Storage (CCUS).103

34. Freeports and investment zones are examples of active, place-based industrial policy by Government, which account for approximately 0.2% of spending on economic affairs. They may attract additional investment and jobs to the areas in which they are located. The critical factors determining success will be long-term political commitment, delivery co-ordination between central and local government and the extent to which workers and firms are prepared to relocate to areas where clusters are developing.

35. Given the relatively small scale of public investment and the long-term time horizon of potential gains, freeports and investment zones need long-term political commitment by central Government. Cancelling those policies would create policy uncertainty and instability with knock-on impacts on investment confidence.

36. Six challenges must be addressed to allow freeports and investment zones to achieve their full potential: (a) prioritised access to energy; (b) extended planning freedoms; (c) access to enhanced skills; (d) improved customs arrangements; (e) connection to wider government economic security policies, including the potential of relocation incentives for smaller firms; (f) and, above all, improved governance.

6 Governance

Local government and economic growth

37. In 2012, Lord Heseltine was asked to report to the Chancellor of the Exchequer and the Secretary of State for Business on how the UK might more effectively create wealth. In his report, entitled “No Stone Unturned: in Pursuit of Growth”, the first of his 89 recommendations suggested that “Central government should identify the budgets administered by different departments which support growth. These should be brought together into a single funding pot for local areas, without internal ring fences.”104

38. In the past decade, progress has been made on devolution, with city regions grouping local authorities together into mayoral combined authorities chaired by Metro Mayors. Metro Mayors are responsible for setting out a strategy for growing the economy in their areas. They have powers relating to housing, transport and skills.105 The Levelling Up White Paper committed the Government to ‘trailblazer’ deals including a ‘single settlement’ model, which will allow Metro Mayors to draw down from a single pot of funding from Central Government, as recommended in Lord Heseltine’s 2012 report. However, as devolution has been negotiated with each place on a case-by-case basis, there is variation between the powers of mayors.106

39. Oliver Coppard, Mayor of South Yorkshire Combined Authority, observed that Metro Mayors “need to be able to have conversations with Treasury, DLUHC, the Department of Health and the Department for Transport, in order to be able to fit all those pieces of the jigsaw together to create that growth strategy … As mayor, I have that ability, or opportunity at least.” Ben Bradley, Member of Parliament for Mansfield and leader of Nottinghamshire County Council described the challenge without a Metro Mayor as “if you want to come and invest in the East Midlands now, 18 different [local authority] leaders stick their hand in the air, and all tell you contradictory things.”107

40. Freeports and investment zones observed that one of the main requirements for their success will be “whole Government thinking”, or as described in the Levelling Up White Paper, “delivery co-ordination”.108 Tom Newman-Taylor, Chief Executive of East Midlands Freeport, told us that a “wider coalition of Government Departments—energy and transport—with the infrastructure piece and skills [should be] all brought together. All those things need to work in tandem in order to make these kinds of big regeneration projects work”.109 Lord Johnson, the Minister for Investment, described Metro Mayors as “one of the most important elements of the whole [freeport and investment zones] package” because of “their leadership, how they can market their areas, and the flexibility and responsiveness they can give to my investor base”.110

41. All parts of England should have a tier of government between local and national government, such as Metro Mayors. Devolution should continue to be rolled out with regions given new powers to drive growth and to champion their areas.

42. All freeports and investment zones should be linked to a single regional leader, such as a Metro Mayor, who should be held accountable for regeneration projects and link national and local government. Ministers should consider how best to include Metro Mayors on the new Ministerial Investment Group created as a result of the Harrington Review.

Governance models

43. Investment zones are aligned with new mayoral combined authorities, which should simplify delivery and governance.111 Freeports, however often cross local authority borders. They therefore have more complex governance models than investment zones at the local government level.

44. Freeports are partnerships between the public and private sectors with significant variations in their institutional and legal make-up depending on their location.112 All freeports are governed through boards that represent interested parties, with local authorities acting as the accountable body.113 Local authorities are responsible for oversight of public funds, transparent functioning of the governing body and delivering value for money.114

45. As part of their comprehensive business case, freeports were required to describe their governance structures.115 Central Government requires all freeports to adhere to the Nolan principles of good governance, which are selflessness, integrity, objectivity, accountability, openness, honesty and leadership.116 Freeports signed the Freeports Framework and a Memorandum of Understanding (MOU) with Government, which outlined expectations of local authorities and freeport governing bodies in receipt of funding.117 The Government stated that funding will depend on freeports achieving the level of performance agreed in the MOU.118 All freeports that submitted evidence believed that sufficient structures were in place to deliver effective governance.119 Chairs of freeports described structures of governance as “robust” and highlighted the effect of having “personal liability as the Director”.120

Teesside Freeport

46. Governance structures are only as sound as their implementation. We published two pieces of written evidence regarding the management of Teesworks, a major site within Teesside Freeport, by Tees Valley Combined Authority.121 122 The Secretary of State for Levelling Up, Housing and Communities described the Teesside Freeport as “a flagship” for the freeports policy.123 However, the Secretary of State also announced an independent assurance review in June 2023 to investigate concerns about the governance of Teesworks.124 The final report of the independent review panel, the ‘Tees Valley review’, was published on 29 January 2024. It included 28 separate recommendations for improvement.125 We sought further clarification on certain points within this review and its terms of reference in correspondence with Angie Ridgwell, who led the panel.126 We thank her for her prompt and illuminating response.127

47. The recommendations of the Tees Valley Review have been accepted by the Mayor of the Tees Valley Combined Authority.128 The Secretary of State for Levelling Up, Housing and Communities has requested an update on progress on those recommendations by August 2024. In addition, the Secretary of State has asked for fuller use of independent support and peer challenge from the Local Government Association and Centre for Governance and Scrutiny to implement recommendations.129 A summary of the Tees Valley case and how it links to the freeports policy is set out in Appendix 1.

Audit and scrutiny

48. With increasing sums of public money being devolved to local regions through the creation of mayoralties and freeports, comprehensive and prompt audit and scrutiny are critical to ensuring value for money for the taxpayer. We note the recent Report from the Public Accounts Committee, which observed that the backlog of audit opinions for local government bodies remains unacceptably high.130 We also note the recent Government proposals to “reset, recover and reform” the local audit system.131

49. All mayoral combined authorities have an overview and scrutiny committee intended to enable councillors from the constituent member authorities to examine and challenge the decisions and policies of the combined authority board. However, the status of the scrutiny committee tends to be relatively low, and councillors have little time or incentive to engage with it.132 As one official observed to the Institute for Government, “The problem is not so much with the theoretical powers, but the low status and engagement. They could be good, but they are not.”133 Analysis by the Institute for Government found that 24 scrutiny meetings (35%) in the Greater Manchester Combined Authority and 14 scrutiny meetings (64%) in the West Midlands Combined Authority were cancelled over the three financial years to 2021–22.134

50. The Government must enhance scrutiny and audit of mayoral combined authorities. Improvements could include making additional funding provided to combined authorities conditional on high attendance and engagement with scrutiny meetings or piloting local audit account committees.

Transparency and reporting

51. Effective and inclusive communication and consultation with the public is key to establishing democratic accountability. Academics told the Committee that freeport websites vary in the detail and forms of information provided to the public.135 Only three freeport business cases and two MOUs are currently available online.136 The Government stated that some of these agreements have only just been finalised and freeports are currently in the process of publishing them.137 It reiterated to freeports the requirement to publish those agreements, asking any freeports that are not currently compliant to publish the relevant material without delay.138 139

52. In addition, the Government committed to publishing an annual report on the progress made by freeports.140 The most recent annual report was published in December 2022. We note the continued delay in the publication of the Freeports Annual Report 2023, which was expected in November 2023.

53. In line with the Nolan principle of openness, the Government must (a) publish and (b) require adherence to guidelines on communications and transparency by freeports and investment zones. Those guidelines should ensure that regular updates on the progress of freeports and of investment zones are available to the public. Such updates should include the publication of key documents, such as MOUs and business cases, redacting commercially sensitive information where required.

54. The Department for Levelling Up, Housing and Communities must ensure that the Freeports Annual Report 2023 is published forthwith to allow Parliament and the public to judge the progress made on the freeports agenda. It must commit to publishing a similar annual report describing progress on investment zones, when investment zones are operational.

Appendix 1: Tees Valley Review

55. In March 2021, the Tees Valley was announced as one of the first places in the UK to receive freeport status. Teesside Freeport stretches across 4,500 acres of land in the region, with multiple sites receiving tax and customs benefits including Teesworks, Teesport, the Port of Middlesbrough, the Port of Hartlepool, Redcar Bulk Terminal, LV Logistics, Wilton International and Teesside International Airport.141 The Secretary of State for Levelling Up, Housing and Communities described Teesside Freeport as a “flagship case study” for the freeports policy.142

56. Teesworks is one of the largest brownfield sites in Europe. It is one site of almost 1,000 acres within Teesside Freeport.143 As part of the Teesside Freeport, it receives both tax and customs benefits and public investment, with the latter estimated at £21 million spent thus far.144 More widely, Teesworks has received a total of £560 million of public resources to date, including £246 million in Government grants and £257 million in prudential borrowing, with a further £238 million investment planned. Existing investment has remediated 450 acres of the site, creating 2,295 direct and 3,890 indirect jobs.145

57. The operations and delivery of the Teesworks project has generated a range of concerns.146 In response to those concerns, the Government commissioned an independent review in May 2023 to consider whether sound governance was being exercised to ensure value for money and to address allegations of corruption and illegality.147 The independent panel published its report (‘Tees Valley Review’) on 29 January 2024.148 The report made 28 recommendations on the financial management and governance of the Teesworks site by Tees Valley Combined Authority (TVCA). The executive summary concluded:149

The review Panel has now completed its work within the scope of the terms of reference. Based on the information shared with the Panel, we have found no evidence to support allegations of corruption or illegality. However, there are issues of governance and transparency that need to be addressed and a number of decisions taken by the bodies involved do not meet the standards expected when managing public funds. The Panel have therefore concluded that the systems of governance and finance in place within TVCA and STDC at present do not include the expected sufficiency of transparency and oversight across the system to evidence value for money.

Financial management

58. The former owner of the Teesworks site, Sahaviriya Steel Industries UK Ltd, liquidised in 2015. In response, the South Tees Development Corporation (STDC), a public body, was created by TVCA to manage and, if possible, to redevelop the Teesworks site.150 Initially, little of the land was in public ownership. A Compulsory Purchase Order (CPO) was considered necessary to acquire it.151 As part of CPO negotiations, STDC created a 50/50 joint venture partnership between themselves, and private partners called Teesworks Limited (TWL).152 153 This venture gave private partners a 50% stake in value derived from the regeneration of the Teesworks site. It also gave partners options to buy the land at market value, when the land was redeveloped. In return, the private partners assisted to help settle the CPO and STDC therefore acquired 300 acres of the Teesworks site.154 The private partners also offered their knowledge and expertise in support of the project, which has “brought pace to delivery that would not have been achievable by STDC alone”.155

59. Following the announcement of Teesside Freeport in March 2021, STDC decided to accelerate the remediation process further to fully exploit the tax concessions associated with freeport status. In August 2021, the STDC Board agreed to change ownership of the joint venture partnership (TWL) to be split 90/10 in favour of the private partners.156 As a consequence, STDC lost meaningful control over the running of TWL, because it could be outvoted on decisions. In addition, the options provided to private partners to buy the land after redevelopment were reduced from market value to a fixed value of £1 per acre.157 STDC explained to the Tees Valley Review Panel that this was in return for the commitment of TWL to undertake future remediation and development activity. However, the legal documentation does not impose any such obligation on TWL to undertake remediation, and there is no evidence that TWL has yet done so.158 As there is no obligation for re-development, this leaves a plausible scenario whereby STDC is left with stranded liabilities.159

60. The Tees Valley Review Panel stated that the “90/10 model cannot reasonably be characterised as a joint venture in the same sense as the initial arrangement”.160 On the face of it, this has the potential to significantly increase the financial returns available to the private TWL and conversely to reduce the proceeds realised by the public STDC.161 The Panel stated that in the interests of good governance, transparency and accountability, TVCA should have been involved to a greater extent in scrutinising this decision to assess whether the decision constituted value for money.162

Governance

61. The arrangements for the Teesworks site are captured in a range of legal documents involving several legal entities. The arrangements were described by one of the lawyers involved as the most complex that they had seen in this type of arrangement.163 Information about, and oversight of, the Teesworks project sat with a small number of individuals, namely the statutory officers and the Mayor of TVCA. Such tight control of information enhances the risk of misinformation, and when it is aligned to late reports, a lack of detail, and overt reliance on verbal reporting, it can undermine appropriate decision-making.164

62. The legislation that created STDC, a modification of the Localism Act 2011, is clear in its intent for TVCA to have a supervisory function of STDC, either directly or through the Mayor.165 The business case for the Teesworks redevelopment stated that “TVCA will effectively play the role of Government… as the lead accountable body” for this programme.166 The Tees Valley Review stated that there is “no evidence that any of the monitoring officers have advised TVCA that they can review their delegations and directions to STDC at any time. Nor have they reminded TVCA of their duty of oversight of STDC. Furthermore, a former monitoring officer advised TVCA Overview and Scrutiny Committee on 15 September 2021 that they had no jurisdiction to review STDC decisions.”167 The Panel stated that STDC should have referred more decisions to TVCA Cabinet and that TVCA Overview and Scrutiny Committee had a legitimate right to scrutinise STDC decisions.168

63. The Tees Valley Review Panel stated that it had heard concerns about openness and transparency throughout the review.169 The Panel itself experienced those challenges in relation to securing the necessary information in an accessible form to contextualise the story of Teesworks.170 The limited access to information is a key factor driving concerns about the decision-making process.171 The Panel members concluded that the level and nature of the transparency and accountability associated with this project had not always met the standard that they would consider appropriate for a publicly funded project of this scale and nature.172

Teesside Freeport

64. The Tees Valley Combined Authority outlined the management of Teesside Freeport within the published Full Business Case (see Figure 4).173 A Freeport Board has been established with the Tees Valley Mayor as Chair of that Board. TVCA acts as the accountable body for both Teesside Freeport and STDC.174 STDC is solely responsible for delivering seed funding for Teesside Freeport, and it is jointly responsible for tax site operations and use of retained business rates for Teesside Freeport. Seed funding so far provided to Teesside Freeport (£21 million) has been spent on re-developing the Teesworks site.175

Figure 4: Organisational Responsibility for Teesside Freeport

Lead Organsations

TVCA

LAs

Freeport Operators

Teesworks (STDC)

Freeport Board

Accountability for Public Funds

Delivery for Seed Funding

Planning

Innovation

Trade & Investment Promotion

Tax Site Delivery & Operation

Customs Site Delivery & Operation

Use of Retained Business Rates

Skills Plan

Regeneration

Alignment with Wider Initiatives

Stakeholder Engagement

Security and Compliance

Net Zero Policy

Risk Management Oversight

Monitoring & Evaluation

Reporting

65. The decisions examined by the Tees Valley Review with respect to the Teesworks site were taken by the South Tees Development Co-operation Board, which is operationally independent from the Teesside Freeport Board.176 As Figure 4 outlines, however, there are significant overlapping responsibilities between STDC, TVCA and the Freeport Board for the management of land within the Freeport, one of which is the Teesworks site. The recommendations made by Tees Valley Review to improve financial management and the governance of public funds therefore apply equally to the management of wider Freeport land by combined authorities.

66. We agree with the Tees Valley Review Panel that it is the responsibility of the public authority, in this case Tees Valley Combined Authority, to ensure that appropriate checks and balances are in place such that any venture with the public sector reflects the Nolan principles of openness and transparency as well as value for money and public returns. All recommendations in the Tees Valley Review should be implemented in full.

67. We underline the following Tees Valley Review recommendations on STDC and the management of Teesworks land:

a) Recommendation 1: TVCA should ensure full understanding of the liabilities of both STDC and TVCA in relation to the activities of STDC and TWL and ensure appropriate management arrangements are in place to manage and mitigate the consequential financial risks to both organisations and the constituent authorities.

b) Recommendations 22: STDC should explore opportunities to influence when and how land is drawn down and developed and if possible, renegotiate a better settlement for taxpayers under the JV agreement.

c) Recommendation 28: STDC [Director of Finance and Resources] should work with the external auditor to support the completion of their value for money arrangements work for 2021/22, including any additional risk-based work that may arise in light of the Panel’s findings. The progress of this work should be reported to TVCA and STDC Audit Committees.

68. To recognise Teesside Freeport’s flagship status, to address the gravity and breadth of the concerns raised by the Tees Valley Review, to extend scrutiny beyond the limited remit of the Tees Valley Review and to assure the public that taxpayers’ money has been disbursed appropriately and legally, the Secretary of State for Levelling Up, Housing and Communities must direct the National Audit Office to scrutinise the expenditure of public funds associated with Teesside Freeport, Tees Valley Combined Authority and South Tees Development Corporation.

Conclusions and recommendations

Government investment

1. The publication of detailed sub-national statistics on regional public investment would facilitate meaningful analysis, scrutiny and discussion of regional inequality by Parliament, civil society and the public. The publication of such statistics would allow Parliament to compare the investment in freeports and investment zones with other investments in the economy. (Paragraph 13)

Outcomes

2. The economic impacts and benefit-to-cost ratio of freeports and investment zones will be difficult to estimate. However, the approach taken by Government will still provide some information on the programme impact on various outcomes. It will allow sharing of best practice between freeports, and provide lessons learned for future policy implementation. Such attention to detail on monitoring and evaluation should also be applied to investment zones. (Paragraph 24)

3. The Government must publish the eventual evaluation reports of freeports and investment zones and, where possible, the data used, including detailed local data. In the meantime, the dashboards being created to monitor freeports should be published, with commercially sensitive information redacted, if required. (Paragraph 25)

4. To improve transparency and to facilitate accurate cost-benefit analyses of freeports and investment zones, the Government must publish quantitative assessments of the impact of freeports and investment zones on employment, investment and trade alongside the Freeports Annual Report (see paragraph 54). Those assessments should include a clear explanation of their underpinning methodologies and assumptions. To meet best practice, this would be in the form of an individual Impact Assessment for all (a) freeports and (b) investment zones separately. This echoes the recommendation made by the International Trade Committee in 2021. (Paragraph 27)

Delivery

5. Freeports and investment zones are examples of active, place-based industrial policy by Government, which account for approximately 0.2% of spending on economic affairs. They may attract additional investment and jobs to the areas in which they are located. The critical factors determining success will be long-term political commitment, delivery co-ordination between central and local government and the extent to which workers and firms are prepared to relocate to areas where clusters are developing. (Paragraph 34)

6. Given the relatively small scale of public investment and the long-term time horizon of potential gains, freeports and investment zones need long-term political commitment by central Government. Cancelling those policies would create policy uncertainty and instability with knock-on impacts on investment confidence. (Paragraph 35)

7. Six challenges must be addressed to allow freeports and investment zones to achieve their full potential: (a) prioritised access to energy; (b) extended planning freedoms; (c) access to enhanced skills; (d) improved customs arrangements; (e) connection to wider government economic security policies, including the potential of relocation incentives for smaller firms; (f) and, above all, improved governance. (Paragraph 36)

Governance

8. All parts of England should have a tier of government between local and national government, such as Metro Mayors. Devolution should continue to be rolled out with regions given new powers to drive growth and to champion their areas. (Paragraph 41)

9. All freeports and investment zones should be linked to a single regional leader, such as a Metro Mayor, who should be held accountable for regeneration projects and link national and local government. Ministers should consider how best to include Metro Mayors on the new Ministerial Investment Group created as a result of the Harrington Review. (Paragraph 42)

10. The Government must enhance scrutiny and audit of mayoral combined authorities. Improvements could include making additional funding provided to combined authorities conditional on high attendance and engagement with scrutiny meetings or piloting local audit account committees. (Paragraph 50)

11. In line with the Nolan principle of openness, the Government must (a) publish and (b) require adherence to guidelines on communications and transparency by freeports and investment zones. Those guidelines should ensure that regular updates on the progress of freeports and of investment zones are available to the public. Such updates should include the publication of key documents, such as MOUs and business cases, redacting commercially sensitive information where required. (Paragraph 53)

12. The Department for Levelling Up, Housing and Communities must ensure that the Freeports Annual Report 2023 is published forthwith to allow Parliament and the public to judge the progress made on the freeports agenda. It must commit to publishing a similar annual report describing progress on investment zones, when investment zones are operational. (Paragraph 54)

Appendix 1: Tees Valley Review

13. We agree with the Tees Valley Review Panel that it is the responsibility of the public authority, in this case Tees Valley Combined Authority, to ensure that appropriate checks and balances are in place such that any venture with the public sector reflects the Nolan principles of openness and transparency as well as value for money and public returns. All recommendations in the Tees Valley Review should be implemented in full. (Paragraph 66)

14. We underline the following Tees Valley Review recommendations on STDC and the management of Teesworks land:

a) Recommendation 1: TVCA should ensure full understanding of the liabilities of both STDC and TVCA in relation to the activities of STDC and TWL and ensure appropriate management arrangements are in place to manage and mitigate the consequential financial risks to both organisations and the constituent authorities.

b) Recommendations 22: STDC should explore opportunities to influence when and how land is drawn down and developed and if possible, renegotiate a better settlement for taxpayers under the JV agreement.

c) Recommendation 28: STDC [Director of Finance and Resources] should work with the external auditor to support the completion of their value for money arrangements work for 2021/22, including any additional risk-based work that may arise in light of the Panel’s findings. The progress of this work should be reported to TVCA and STDC Audit Committees. (Paragraph 67)

15. To recognise Teesside Freeport’s flagship status, to address the gravity and breadth of the concerns raised by the Tees Valley Review, to extend scrutiny beyond the limited remit of the Tees Valley Review and to assure the public that taxpayers’ money has been disbursed appropriately and legally, the Secretary of State for Levelling Up, Housing and Communities must direct the National Audit Office to scrutinise the expenditure of public funds associated with Teesside Freeport, Tees Valley Combined Authority and South Tees Development Corporation. (Paragraph 68)

Formal minutes

Tuesday 23 April 2024

Members present:

Liam Byrne, in the Chair

Douglas Chapman

Jane Hunt

Ian Lavery

Andy McDonald

Anthony Mangnall

Julie Marson

Mark Pawsey

Performance of investment zones and freeports in England

Draft Report (Performance of investment zones and freeports in England), proposed by the Chair, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.

Paragraphs 1 to 54 read and agreed to.

Summary agreed to.

Appendix, paragraphs 55-68, agreed to.

Resolved, That the Report be the Fourth Report of the Committee to the House.

Ordered, That the Chair make the Report to the House.

Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.

Adjournment

[Adjourned till Wednesday 24 April at 9:30am]


Witnesses

The following witnesses gave evidence. Transcripts can be viewed on the inquiry publications page of the Committee’s website.

Tuesday 24 October 2023

Professor Steve Fothergill, Professor, Sheffield Hallam University; Dr Nichola Harmer, Lecturer in Human Geography, University of Plymouth; Dr Patrick Holden, Associate Professor, University of Plymouth; Dr Peter Holmes, Fellow of the UK Trade Policy Observatory (UKTPO) and Emeritus Reader in Economics at UKTPO - University of Sussex at UKTPO - University of Sussex, UKTPO - University of SussexQ1–28

Kevin Shakespeare, Director of Strategic Projects and International Development, The Institute of Export and International Trade; Stephen Marcos Jones, CEO, Association for Consultancy and Engineering (ACE); Mr James Brougham, Senior Economist, Make UKQ29–77

Tuesday 21 November 2023

Steve Foxley, Chief Executive Officer, Advanced Manufacturing Research Centre; Jan Ward CBE, Chair, Plymouth and South Devon Freeport; Tom Newman-Taylor, Chief Executive, East Midlands Freeport; Thomas O Brien, Chair, Liverpool City FreeportQ78–132

Oliver Coppard, Mayor, South Yorkshire Mayoral Combined Authority; Ben Bradley MP, Leader, Nottinghamshire County CouncilQ133–177

Wednesday 10 January 2024

The Rt Hon Michael Gove MP, Minister for Intergovernmental Relations and Secretary of State, Department for Levelling Up, Housing and Communities; Lord Dominic Johnson of Lainston CBE, Minister of State (Minister for Investment) and Minister of State (Minister for Regulatory Reform), Department for Business and TradeQ178–261


Published written evidence

The following written evidence was received and can be viewed on the inquiry publications page of the Committee’s website.

PIZ numbers are generated by the evidence processing system and so may not be complete.

1 ACE (PIZ0003)

2 British Chambers of Commerce (PIZ0010)

3 Brooks, Richard (Journalist, Private Eye) (PIZ0016)

4 Clark, Dr Andre (PIZ0002)

5 Department for Levelling Up, Housing and Communities (PIZ0009)

6 East Midlands Freeport (PIZ0008)

7 Fothergill, Professor Steve (Professor, Centre for Regional Economic and Social Research, Sheffield Hallam University) (PIZ0001)

8 Freeport East (PIZ0012)

9 Hibbert, Dylan (Chief Executive, Spyder Network) (PIZ0011)

10 Holmes , Dr Peter (Emeritus Reader in Economics at the University of Sussex Business School, UK Trade Policy Observatory (UKTPO)); Holden, Dr Patrick (Associate Professor of International Relations and Politics , University of Plymouth); Harmer, Dr Nichola (Lecturer in Human Geography, University of Plymouth); and Larbalestier, Guillermo (Research Assistant in International Trade, UK Trade Policy Observatory (UKTPO)) (PIZ0004)

11 Institute of Export & International Trade (PIZ0007)

12 Liverpool City Region Freeport (PIZ0015)

13 Plymouth and South Devon Freeport (PIZ0014)

14 Solent Freeport Consortium Ltd (PIZ0006)

15 Tees Valley Mayor (PIZ0017)

16 Thames Freeport (PIZ0013)

17 What Works Centre for Local Economic Growth (PIZ0005)


List of Reports from the Committee during the current Parliament

All publications from the Committee are available on the publications page of the Committee’s website.

Session 2023–24

Number

Title

Reference

1st

Batteries for electric vehicle manufacturing

HC 196

2nd

UK accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership

HC 483

3rd

Post Office and Horizon redress: Instruction to deliver

HC 477

1st Special

Scrutiny of Strategic Export Controls

HC 436

2nd Special

Batteries for electric vehicle manufacturing: Government Response to the Committee’s First Report

HC 547

3rd Special

UK accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership: Government Response to the Committee’s Second Report

HC 674

Session 2022–23

Number

Title

Reference

1st

Pre-appointment hearing with the Government’s preferred candidate for Chair of the Competition and Markets Authority

HC 523

2nd

Draft Legislative Reform (Provision of Information etc. relating to disabilities) Order 2022

HC 522

3rd

Energy pricing and the future of the Energy Market

HC 236

4th

Post-pandemic economic growth: state aid and post-Brexit competition policy

HC 759

5th

The semiconductor industry in the UK

HC 291

6th

The semiconductor industry in the UK: Government response

HC 1115

7th

Royal Mail

HC 1045

8th

Memorandum of Understanding on scrutiny of the Investment Security Unit

HC 1235

9th

UK plc

HC 1120

10th

Post-pandemic economic growth: UK labour markets

HC 306

11th

Decarbonisation of the power sector

HC 283

1st Special

Decarbonising heat in homes: Government Response to the Committee’s Seventh Report of 2021–22

HC 208

2nd Special

Energy pricing and the future of the energy market: Responses to the Committee’s Third Report of Session 2022–23

HC 761

3rd Special

Post pandemic economic growth: State aid and post-Brexit competition policy: Responses to the Committee’s Fourth Report of Session 2022–23

HC 1078

4th Special

Revised (Draft) National Policy Statement for Energy: Government response to the Committee’s Ninth Report of Session 2021–22

HC 1299

5th Special

State aid and post-Brexit competition policy: Office for the Internal Market response to the Committee’s Fourth Report

HC 1302

6th Special

The semiconductor industry in the UK: Further Government response to the BEIS Committee’s Fifth Report of Session 2022–23

HC 1404

7th Special

Royal Mail: Responses to the BEIS Committee’s Seventh Report of Session 2022–23

HC 1391

8th Special

UK trade negotiations: Agreement with India: Government response to the International Trade Committee’s Fifth Report

HC 1584

9th Special

CPTPP: opportunities and challenges for the UK: Government response to the International Trade Committee’s Sixth Report

HC 1614

10th Special

Free Trade Agreement Negotiations with the Gulf Cooperation Council: Government response to the International Trade Committee’s Seventh Report

HC 1626

Session 2021–22

Number

Title

Reference

1st

Post-pandemic economic growth: Industrial policy in the UK

HC 385

2nd

Climate Assembly UK: where are we now?

HC 546

3rd

Post-pandemic economic growth: Levelling up

HC 566

4th

Liberty Steel and the future of the UK steel Industry

HC 821

5th

Pre-legislative scrutiny: draft Downstream Oil Resilience Bill

HC 820

6th

Pre-appointment hearing of the Government’s preferred candidate for Chair of the Financial Reporting Council

HC 1079

7th

Decarbonising heat in homes

HC 1038

8th

Post Office and Horizon - Compensation: interim report

HC 1129

9th

Revised (Draft) National Policy Statement for Energy

HC 1151

10th

Draft Legislative Reform (Renewal of National Radio Multiplex Licences) Order 2022

HC 1199

1st Special

Decarbonising heat in homes: Government Response to the Committee’s Seventh Report of 2021–22

HC 208

2nd Special

Net Zero and UN Climate Summits: Scrutiny of Preparations for COP26—interim report: Government Response to the Committee’s Third Report of Session 2019–21

HC 120

3rd Special

Uyghur forced labour in Xinjiang and UK value chains: Government Response to the Committee’s Fifth Report of Session 2019–21

HC 241

4th Special

Mineworkers’ Pension Scheme: Government Response to the Committee’s Sixth Report of Session 2019–21

HC 386

5th Special

Climate Assembly UK: where are we now?: Government Response to the Committee’s Second Report

HC 680

6th Special

Post-pandemic economic growth: Industrial policy in the UK: Government Response to the Committee’s First Report

HC 71

7th Special

Post-pandemic economic growth: Levelling up: Government Response to the Committee’s Third Report

HC 924

8th Special

Liberty Steel and the Future of the UK Steel Industry: Government Response to the Committee’s Fourth Report

HC 1123

9th Special

Pre-legislative scrutiny: draft Downstream Oil Resilience Bill. Government Response to the Committee’s Fifth Report

HC 1177

10th Special

Post Office and Horizon – Compensation: interim report. Government Response to the Committee’s Eighth Report

HC 1267

Session 2019–21

Number

Title

Reference

1st

My BEIS inquiry: proposals from the public

HC 612

2nd

The impact of Coronavirus on businesses and workers: interim pre-Budget report

HC 1264

3rd

Net Zero and UN Climate Summits: Scrutiny of Preparations for COP26 – interim report

HC 1265

4th

Pre-appointment hearing with the Government’s preferred candidate for the Chair of the Regulatory Policy Committe

HC 1271

5th

Uyghur forced labour in Xinjiang and UK value chains

HC 1272

6th

Mineworkers’ Pension Scheme

HC 1346

1st Special

Automation and the future of work: Government Response to the Committee’s Twenty-third Report of Session 2017–19

HC 240

2nd Special

Future of the Post Office Network: Government Response to the Committee’s First Report of Session 2019

HC 382

3rd Special

Safety of Electrical Goods in the UK: follow-up: Government Response to the Committee’s second report of Session 2019

HC 494

4th Special

COP26: Principles and priorities—a POST survey of expert views

HC 1000


Footnotes

1 The performance of investment zones and freeports inquiry opened on the 9 June 2023 with a call for evidence. The Committee published 17 pieces of evidence, including a submission from the Department for Levelling Up, Housing and Communities. On 24 October 2023, the Committee took oral evidence from academics and trade associations. On 21 November 2023, the Committee took oral evidence directly from freeports, a key investment zone partner, and representatives of regional leaders such as leaders of Mayoral Combined Authorities. Finally, on 10 January 2024, the Committee took oral evidence from Ministers of Department for Levelling Up, Housing and Communities and the Department for Business and Trade.

2 Q178

3 Bridging the gap, Resolution Foundation, June 2022, p.16

4 “This is partly a reflection of the way in which the size and huge lead of London (at 143 per cent) drags up the UK average. But it also indicates that the city regions away from the capital are not especially impressive in terms of productivity, ranging from 98 per cent of the average in Greater Birmingham & Solihull through to 79 per cent in Sheffield City Region.” Source: The Productivity of Industries and Places, Christina Beatty and Steve Fothergill, Centre for Regional Economic and Social Research, Sheffield Hallam University, July 2020

5 According to latest ONS data, in 2021, only five percent of English ITL3 regions outside London and the South East have above average productivity levels compared to 60% of regions inside London and the South East. These regions were Cheshire (East and West), Swindon, Solihull and Central Essex. Source: Subregional productivity: labour productivity indices by UK ITL2 and ITL3 subregions, Published June 2023, Accessed January 2024

6 Why big cities are crucial to ‘levelling up’, Centre for Cities, February 2020

7 Ibid

8 It should also be noted industry distribution drives the geographical trends with men in London reporting higher perceived progression opportunities as the industries with the highest reported career progression (financial and insurance activities) are disproportionality located in London and are male dominated. Source: ‘Job quality in the UK’, Office for National Statistics, December 2022

9 Levelling Up the United Kingdom White Paper, February 2022

10 Levelling Up the United Kingdom White Paper, February 2022, p.110

11 Levelling-up and Regeneration Act 2023 - Parliamentary Bills - UK Parliament

12 Freeports incentives are available in specific areas within each Freeport’s ‘outer geographic boundary’, of an area up to 45km across. Tax incentives are available in a maximum of three sites, with a maximum of up to 600 hectares. Similarly, Investment Zones are designated sites of a maximum of 600 hectares, which can be split into a maximum of three 200 hectare sites.

13 Freeports are located in East Midlands, Harwich and Felixstowe, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside, and the Thames.

14 The first approved full business cases were announced on 7 December 2022 for Plymouth and South Devon, Solent, and Teesside Freeports (Annual Report 2022) and seven out of eight Freeports are now operational as of 8 September 2023. Source: Department for Levelling Up, Housing and Communities (PIZ0009)

15 Investment zones are proposed in Liverpool City Region, South Yorkshire, Greater Manchester, West Midlands, East Midlands, West Yorkshire, Tees Valley and North East., with the first five recently confirmed in the recent Autumn Statement 2023 (p.75).

16 Investment Zones policy offer, March 2023, p.30

17 Levelling Up the United Kingdom White Paper, February 2022, p.44

18 Q178

19 Freeports guidance, ‘Why are they important’, December 2023

20 Investment Zones policy offer, March 2023, p7

21 For example, the Chair of Plymouth and South Devon Freeport told the Committee “when [Plymouth Freeport] submitted their bid, Plymouth was within 20% of the most deprived local authority in the country and was on the index of multiple deprivation as well”. Q84

22 High Potential sectors have been named as Digital and Tech, Green Industries, Creative Industries, Life Sciences, and Advanced Manufacturing. Source: Investment Zones policy offer, March 2023, p13

23 Freeport delivery plan, Department for Levelling Up, Housing and Communities, December 2023.

24 The precise costs of tax sites will vary by site, however the estimated cost of 600 hectares of tax reliefs is £90m (doubled from £45m when lasting for 5 years). Source: Investment Zones policy offer, March 2023, p17

25 The chosen amount of spending in each investment zone must then be split between resource and capital (investment) at a 40/60 split. Source: Investment Zones Policy Offer, p17, March 2023

26 Public Spending Statistics release: November 2023, HMT, Published December 2022, Accessed January 2024

27 Public Expenditure Statistical Analyses 2023, Chapter 5, Table 5_,1 Published July 2023, Accessed January 2024

28 Public Spending Statistics, Country and regional analysis: 2023, Table B_10, Published December 2023, Accessed January 2024

29 Letter from the Secretary of State for LUHC relating to Freeports and investment zones, 7 February 2024

30 Ibid

31 Innovation Accelerators are designed to develop clusters of innovation, similar to investment zones and freeports. It will fund 26 R&D projects across three locations: Glasgow, Manchester and the West Midlands. Source: Innovation Accelerator programme, UKRI

32 Freeports Annual Report 2022, Published December 2022, Accessed December 2023.

33 Department for Levelling Up, Housing and Communities (PIZ0009)

34 Office for Budget Responsibility, Economic and fiscal outlook, CP 545, October 2021, para A.23

35 Ibid

36 Investment Zones: technical document - GOV.UK (www.gov.uk); 11 Funding Profile

37 The OBR last mentioned Investment Zones in the March 2023 Economic and Fiscal Outlook (p.73) but did not have enough information to estimate the impacts of the policy. This estimate does not include spend on wraparound support for investment zones.

38 Q219

39 Q121, Q27 and Q37 respectively

40 Q123

41 Academics have recently discussed “good employment” as “work that pays well enough to maintain reasonable living standards; that provides dignity, security and autonomy; and that creates opportunities for progression and self-development over time… which creates the conditions for thriving communities”. Source: Productivist policies for the UK, Dani Rodrik and Huw Spencer

42 For example, in the economic case of the Freeports Business case guidance, Freeports were asked to create a quantitative assessment of “additional jobs in the Freeport Travel to Work Area, investment into the Freeport area, and trade throughput in the Freeport area.” Source: English Freeports Full Business Case Guidance, November 2021

43 Twenty-Four enterprise zones were created in 2011, with discounts on business rates and capital allowance with easier planning permissions. HMT estimated there would be 54,000 jobs created from this scheme. By 2017, the total new jobs were only around one-quarter of the estimates (13,560) produced by the Treasury in 2011. Source: In the zone? Have enterprise zones delivered the jobs they promised?, Centre for Cities, Published on 11 July 2019

44 Freeports Annual Report 2022, Published December 2022, Accessed December 2023.

45 This calculation assumes a 10-year policy lifespan. It is subject to a high degree of uncertainty and assumptions. The Monitoring and Evaluation programme will provide a much greater understanding of the costs and benefits of the proposals but will only be available in at least five years’ time.

46 Letter from the Secretary of State for LUHC relating to Freeports and investment zones, 7 February 2024

47 Ibid

48 The government has agreed final plans for six Investment Zones, with Tees Valley and East Midlands still to finalise their planned investment zone. Source: Investment Zones in England, Department for Levelling Up, Housing and Communities, March 2024

49 Q106, Q197

50 Department for Levelling Up, Housing and Communities (PIZ0009)

51 Targeted employment figures for Freeports can be found in the Freeports Annual Report 2022.

52 Current employment and investment figures are based on publicly available investment data, excluding projects without precise investment values disclosed. Consequently, the sum of investment for a given Freeport may be lower than the actual total, considering ongoing efforts to secure additional investments that may not be reflected in the table because of commercial sensitivities. Letter from the Secretary of State for LUHC relating to Freeports and investment zones, 7 February 2024

53 Investment Zones in England, Department for Levelling Up, Housing and Communities, March 2024

54 For three Freeports, job figures are not publicly disclosed and therefore there is currently no publicly available data.

55 Q9

56 In the zone? Have enterprise zones delivered the jobs they promised?, Centre for Cities, Published on 11 July 2019

57 Q9

58 Mitigations include: sites are being chosen needed to be undeveloped or under-developed locations, and sectors chosen were not operating at scale elsewhere in the UK. Tax breaks are only available for new, rather than existing, employment and investment. In addition, councils can apply a ‘displacement test’ to deny business rates relief to businesses relocating from elsewhere. Source: Freeports: What are they, what do we know, and what will we know? Institute for Fiscal Studies, March 2023

59 Agglomeration is the geographic concentration of economic activity… Agglomeration occurs because of the benefits that firms and workers derive from being close to one another. There is now a great deal of empirical evidence consistent with the theory of agglomeration, which indicates superior economic performance for firms and workers in larger cities and industrial concentrations. Source: The impact of agglomeration in the economy, Centre for Cities, March 2023

60 Freeports are designed to creates ‘hotbeds of innovation’ (Freeports guidance, ‘Why are they important’, December 2023) and investment zones have been created to ‘catalyse a small number of high-potential clusters’ (Investment Zones policy offer, March 2023)

61 Investment Zones policy offer, March 2023, p11

62 Innovation hotspots, Clustering the New Economy, Centre for Cities, September 2023, p14

63 Ibid

64 Autumn Statement 2023, p.75

65 Freeport bids were assessed by officials, with thirteen locations categorized into “High/Medium/Low” by each of the Freeport objectives, private sector investment and deliverability. The number of chosen Freeports and the location of those Freeports was then a ministerial decision. Source: English Freeports selection decision-making note, April 2021. Investment Zones regions were invited to submit bids if they were assessed to have potential to benefit, by a number of measures, and were ranked by their sectoral base, research credentials and leadership capability. Source: Investment Zones place selection: methodology note, March 2023

66 Q11

67 Q166

68 Investment Zones: technical document, July 2023

69 This monitoring and evaluation work is currently being carried out by a consortium of firms led by Arup, also including Technopolis, Cambridge Econometrics, Grant Thornton, PCLP and the Institute for Fiscal Studies. Freeports Programme, Monitoring and Evaluation Strategy, May 2022.

70 Monitoring uses a range of quantitative and qualitative measures, to check whether implementation is going as planned and whether process and outcome milestones are being reached. Process evaluation builds on monitoring to assess whether the anticipated mechanisms leading to positive economic impacts are taking place. Source: Freeports: What are they, what do we know, and what will we know? – Institute for Fiscal Studies, p.72, March 2023

71 Impact evaluation will attempt to quantify the impact of the programme on a range of economic outcomes, including investment, innovation, employment, productivity, wages, and trade. Value for money evaluation will attempt to quantify the overall benefits and costs of the programme. Source: Freeports: What are they, what do we know, and what will we know? – Institute for Fiscal Studies, p.72, March 2023.

72 Freeports Monitoring & Evaluation Innovative PowerBI APS Dashboard, Serrano, L. and Pogonyi, C. (2023). [Accessed 27 Dec. 2023].

73 Freeports: What are they, what do we know, and what will we know? – Institute for Fiscal Studies,p.11, March 2023.

74 Freeports Programme, Monitoring and Evaluation Strategy, May 2022

75 Freeports: What are they, what do we know, and what will we know? – Institute for Fiscal Studies,, p.74, March 2023.

76 Ibid, “[There are] eight Freeports in England, and a relatively small number of potential control areas. This means that it will be hard to tell whether differences in trends between the Freeports and the selected control areas reflect the impact of the policy or just random variation… [In addition] Almost all of the biggest ports in England are Freeports, so the control group will not include major ports. Thus, it will be hard to separate the effects of the Freeports policy from the effects of, for example, a change to the environment for international trade, which affects major ports more than other places in the UK.”

77 Ibid, “Other government policies over the coming years – most obviously those also designed to promote regeneration or levelling up – might affect Freeports more or less than the areas with which they are being compared, making it hard to separate out the effects of Freeports from the effects of these other policies.”

78 Ibid, “A thorough assessment would require not only estimates of specific impacts, such as how much tax revenue is generated (or lost) by additional (or displaced) activity as a result of the policy, but also assessments of how much value is placed on outcomes ranging from additional employment (and the resulting loss of time to spend with family or in other ways they might value) to decarbonisation to levelling up… [this is] not straightforward.”

79 Freeports Programme, Monitoring and Evaluation Strategy, May 2022.

80 UK Freeports, Fourth Report of Session 2019–21, HC 258, Published 20 April 2021

81 In February 2023, all eight English Freeports co-signed a letter to the Prime Minister to consider extending the tax relief window for Freeport sites, and ensure it aligns to any Investment Zone (IZ) policy. Source: Solent Freeport Consortium Ltd (PIZ0006)

82 Autumn Statement 2023, p.75

83 Q131

84 Ibid

85 Infrastructure, Freeport delivery plan, Department for Levelling Up, Housing and Communities, December 2023.

86 Connections Action Plan: Speeding up connections to the electricity network across Great Britain

87 Freeport East (PIZ0012)

88 Solent Freeport Consortium Ltd (PIZ0006)

89 East Midlands Freeport (PIZ0008), Liverpool City Region Freeport (PIZ0015), Freeport East (PIZ0012), Solent Freeport Consortium Ltd (PIZ0006)

90 Planning, Freeport delivery plan, Department for Levelling Up, Housing and Communities, December 2023.

91 Q36

92 Q48

93 ACE (PIZ0003)

94 Skills, Freeport delivery plan, Department for Levelling Up, Housing and Communities, December 2023.

95 Q8

96 Freeports induction pack, HMRC, November 2023

97 Two key things to know about Freeports, Peter Holmes and Guillermo Larbalestier, UKTPO, November 2021

98 Q8, “ Most of the UK free trade agreements we have signed include a provision that is called a duty drawback prohibition. If a product is made with inputs that have been exempted from tariffs when they came in, that product will not get the preferential treatment in the export market. The trade and co-operation agreement with the EU has a provision in that says that there is no duty drawback ban, but it is to be discussed in 2023. If any country, whether the EU or anybody else, considers that freeport treatment is giving a benefit, they can invoke WTO compatible countervailing duties or rebalance things in the TCA. “

99 Q210

100 Institute of Export & International Trade (PIZ0007)

101 Q50

102 Q52

103 Decarbonisation, Freeport delivery plan, Department for Levelling Up, Housing and Communities, December 2023.

104 No Stone Unturned: in Pursuit of Growth, Rt Hon the Lord Heseltine of Thenford, October 2012

105 Previously, most of these powers lay either with individual local authorities, such as planning or local transport decisions, or with national decision makers, such as the adult skills budget administered through the Skills Funding Agency. Source: Everything you need to know about Metro Mayors, Centre for Cities, February 2024

106 Ibid

107 Q171

108 Q111

109 Q109

110 Q197

111 Representatives of Investment Zones told the Committee further details on specifics of Investment Zone governance are still in the “early stages” of development and thus cannot be scrutinised in further detail. Q117

112 The number of local authorities involved varies from three to nine, the type of local authority involved varies between combined authorities, city councils, county councils and district councils; and the legal model varies from company by guarantee to public-private partnerships. (PIZ0004)

113 Interested parties include local authorities, landowners, private sector representation and, where relevant, port operators and universities. A representative from DLUHC, called a “relationship manager” is also present at board meetings. Department for Levelling Up, Housing and Communities (PIZ0009)

114 Dr Peter Holmes (Emeritus Reader in Economics at the University of Sussex Business School at UK Trade Policy Observatory (UKTPO)); Dr Patrick Holden (Associate Professor of International Relations and Politics at University of Plymouth); Dr Nichola Harmer (Lecturer in Human Geography at University of Plymouth); Guillermo Larbalestier (Research Assistant in International Trade at UK Trade Policy Observatory (UKTPO)) (PIZ0004)

115 Department for Levelling Up, Housing and Communities (PIZ0009) gave examples of terms of reference, recruitment and renumeration policies, a conflict-of-interest policy and a diversity and inclusion statement are some of the key documents that Freeports were required to provide.

116 UK Freeports Annual Report 2022, Published December 2022, Accessed December 2023. Further, Plymouth and South Devon Freeport (PIZ0014) provided examples of the Nolan principles, such as Conflict of Interests policies and Codes of Conduct.

117 UK Freeports Annual Report 2022, Assurance, Published December 2022, Accessed December 2023

118 Ibid

119 Six of Eight English Freeports submitted evidence to the Committee, with the exceptions of Teesside Freeport and Humber Freeport.

120 Q112

121 Richard Brooks (Journalist at Private Eye) (PIZ0016)

122 Tees Valley Mayor (PIZ0017)

123 Q261

124 Terms of Reference, Independent Review into Tees Valley Combined Authority oversight of South Tees Development Corporation, June 2023

125 Independent review report: South Tees Development Corporation and Teesworks Joint Venture

126 Letter to the Chair of the Independent Review Panel on Teesworks, 18 March 2024

127 Letter from the Chair of the Independent Review Panel on Teesworks relating to the review, 28 March 2024

128 Letter from Mayor of Tees Valley Combined Authority to the Secretary of State for Levelling Up, Housing and Communities on 28 February 2024

129 Letter from the Secretary of State for LUHC relating to Freeports and investment zones, 7 February 2024

130 Timeliness of local auditor reporting, House of Commons Committee of Public Accounts, Sixtieth Report of Session 2022–23, HC 995, Published on 23 June 2023

131 Local audit delays: Joint statement on update to proposals to clear the backlog and embed timely audit, Department for Levelling Up, Housing and Communities, 8 February 2024

132 How metro mayors can help level up England, Institute for Government, p.52, June 2022

133 Ibid

134 Ibid

135 Dr Peter Holmes (Emeritus Reader in Economics at the University of Sussex Business School at UK Trade Policy Observatory (UKTPO)); Dr Patrick Holden (Associate Professor of International Relations and Politics at University of Plymouth); Dr Nichola Harmer (Lecturer in Human Geography at University of Plymouth); Guillermo Larbalestier (Research Assistant in International Trade at UK Trade Policy Observatory (UKTPO)) (PIZ0004)

136 Letter from the Secretary of State for LUHC relating to Freeports and investment zones, 7 February 2024

137 Ibid

138 Ibid

139 Ibid, We note that the Government reserves the right to apply sanctions in line with the freeports performance management framework, if a freeport is falling short on transparency.

140 Letter from the Minister for Levelling Up to the International Trade Committee, December 2022

141 About Teesside Freeport

142 Q261

143 About Teesworks, Teesworks - Teesside Freeport

144 Department for Levelling Up, Housing and Communities (PIZ0009)

145 Independent review report:: South Tees Development Corporation and Teesworks Joint Venture, 1.2

146 Richard Brooks (Journalist at Private Eye) (PIZ0016)

147 Terms of reference: Independent Review into the Tees Valley Combined Authority’s oversight of the South Tees Development Corporation and Teesworks Joint Venture

148 Independent review report:: South Tees Development Corporation and Teesworks Joint Venture,

149 Independent review report:: South Tees Development Corporation and Teesworks Joint Venture, 1.7

150 A Mayoral Development Corporation is a statutory body created to bring forward the regeneration of a defined area. They have powers to acquire, develop, hold and dispose of land and property and have powers to facilitate the provision of infrastructure. The Tees Valley Combined Authority (TVCA) requested that the Secretary of State of Levelling Up, Housing and Communities create STDC, which was granted on 1st August 2017. Independent review report: South Tees Development Corporation and Teesworks Joint Venture, 3.5

151 Compulsory purchase is a legal mechanism by which certain bodies (known as ‘acquiring authorities’) can acquire land without the consent of the owner. Compulsory purchase and compensation: guide, Department for Levelling Up, Housing and Communities, December 2021

152 Two local businessmen: Chris Musgrave and Martin Corney.

153 This was agreed by the STDC Board in February 2020, with the TVCA Cabinet delegating powers to STDC to enable them to complete the transaction in March 2020.

154 Independent review report: South Tees Development Corporation and Teesworks Joint Venture, 14.1

155 Independent review report: South Tees Development Corporation and Teesworks Joint Venture, 10.13

156 Independent review report: South Tees Development Corporation and Teesworks Joint Venture, 3.13

157 Independent review report: South Tees Development Corporation and Teesworks Joint Venture, 17.2–17.4

158 Independent review report:: South Tees Development Corporation and Teesworks Joint Venture, 17.14

159 Independent review report: South Tees Development Corporation and Teesworks Joint Venture, 6.14

160 Independent review report: South Tees Development Corporation and Teesworks Joint Venture, 17.2

161 Independent review report: South Tees Development Corporation and Teesworks Joint Venture, 17.4

162 Independent review report: South Tees Development Corporation and Teesworks Joint Venture, 17.8

163 Independent review report: South Tees Development Corporation and Teesworks Joint Venture, 12.8

164 Independent review report: South Tees Development Corporation and Teesworks Joint Venture, 9.7

165 Independent review report: South Tees Development Corporation and Teesworks Joint Venture, 6.8

166 Independent review report: South Tees Development Corporation and Teesworks Joint Venture, 6.10

167 Independent review report: South Tees Development Corporation and Teesworks Joint Venture,6.12

168 Independent review report: South Tees Development Corporation and Teesworks Joint Venture,6.13

169 Independent review report: South Tees Development Corporation and Teesworks Joint Venture,11.1

170 Ibid

171 Independent review report: South Tees Development Corporation and Teesworks Joint Venture,11.1–2

172 Independent review report: South Tees Development Corporation and Teesworks Joint Venture,12.16

173 Final Full Business Case, V2 September 2022, Teesside Freeport

174 Board - Teesside Freeport

175 Department for Levelling Up, Housing and Communities (PIZ0009)

176 Letter from the Secretary of State for LUHC relating to Freeports and investment zones, 7 February 2024