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The Freeport Debate

When Teesside (the largest of eight freeports opened in November 2021) Ben Houchen, Mayor of Teesside, claimed it would bring "better wages for local people" and “create 18,000 new jobs over and add £3 billion to the local economy” in the next five years.

Teesside Freeport (Darlington and Stockton Times)

See: https://www.teessidefreeport.com

In all there are plans for eight freeports in England (East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth & South Devon, Solent, Teesside and Thames) together a further two planned for Scotland (see below).

Location of Freeports

The term freeport refers to Special Economic Zones which benefit from reduced import tariffs, reduced taxes, simplified customs procedures, and relaxation of planning laws. They are intended:

to be national hubs for global trade and investment across the UK.
to become hotbeds for innovation.
to promote regeneration and job creation as part of the Government’s policy to level up communities.

"Freeports will help to generate prosperity and spread opportunity by driving trade and innovation as we level up in every corner of the United Kingdom.”

Neil O'Brien - Minister for Levelling Up

So say the government. But will they? Not everyone agrees.

For a start, the idea is not a new one. The UK set up seven freeports after 1984, including at Liverpool and Southampton, but they were phased out in 2012. Interesting that the current government should seek to revive the idea now.

What are the main concerns?

To have the expected impact, freeports would need to generate new jobs for local communities. If a freeport mainly attracts new employees who travel there for work from outside of the local area, and return home after their shift, it is hard to argue that the local area will benefit much from the initiative.
In addition, freeports are unlikely to attract industries away from London and the South East. Instead a freeport like Teesside is more likely to attract industry from Sunderland and Newcastle, to take advantage of the tax benefits on offer. This simply relocates the problem from one area to another, without increasing the overall size of the economy.

"Given historical and international evidence, we have assumed that the main effect of the freeports will be to alter the location rather than the volume of economic activity."
(Office of Budget Responsibility).
For the area around a freeport to reap its benefits, local people must possess the skills that the new jobs require. Without those skills or the potential to acquire them quickly, they will struggle to get hired. This lack of the required skills is exactly the problem for areas in need of levelling up.
There is a real concern around the types of jobs created. Recent research carried out by Centre for Cities (CfC) concluded that free ports are unlikely to promote high skill jobs that would create future growth. Instead they would promote low value added warehousing jobs. Research found that the gross impact of Enterprise Zones has been far below promises (e.g. Humberside). A total of 13,000 jobs were ‘created’ between 2012 and 2017 as opposed to the 54,000 predicted, and these are gross rather than net. Most of these jobs were in warehousing and similar, and could make little contribution to long-term regeneration. Whilst this might lift families out of reliance on universal credit it doesn’t result in levelling up.
It is unlikely that freeports will attract companies in Research and Development, Professional services and Software development (the drivers of upskilling in the labour market), because they don’t import parts and components, don’t need to be near a break of bulk point and are less likely to be interested in tariff removals.
De-regulation:

a) Will lead to a relaxation in environmental and could lead to negative environmental effects in terms of atmospheric and water borne pollution and increasing pressure on valued ecosystems.
b) On a separate note, the European Parliament and other commentators have noted that free zones encourage money laundering activity, tax evasion and possibly the harbouring of illegal items.

In addition, the EU could respond to what are effectively UK subsidies by introducing tariffs on some UK goods deemed to be damaging EU trade or investment. And the UK will still be subject to World Trade Organization rules, which say you can't introduce subsidies linked just to export performance.

Will Freeports Level Up the UK?

Firstly, even a cursory glance at the location of freeports calls into question whether the right areas are being targeted (see below).

An Index of Left Behind Communities in the UK (Institute of Fiscal Studies)

There is, certainly, a case to be made for Teesside, Liverpool and possibly Humberside. However, four of them (Thamesport, East Midlands Solent, and arguably Felixstowe) are not located in the less well-off regions of the UK. So how will they help to “Level Up” the UK?

Secondly, there is real doubt that economic development zones address the deeper problems of a lack of skills and infrastructure, boost housing, education, and health inequalities which have been thrown into sharp relief by the COVID-19 pandemic, and which exists as pockets of deprivation across the UK.

Another top down policy

The issue of inequality in the UK is complex. Policies focussing on economic regeneration address just one aspect of the problem. Further, they are top down solutions. There is an in-built assumption that by pumping money into a local area increased wealth will trickle down to benefit all sections of the community. There is very little attention paid to the views and the needs of those communities that are left behind.

In short it is unlikely to offer solutions to the problems of deprivation outlined above. It didn’t work in the past; if anything, deprivation has worsened for some sections of population.

Governments and Government policy has a key role to play in reducing inequality and regional disparities, as well as in the regeneration of declining regions. Levelling Up is just such a policy but there is real doubt that one of its key policy initiatives will have the desired effect. Instead critics are beginning to question why the government is committed to a policy which failed in the past and, they argue, is doomed to fail again.

Could it be that its motives are less to do with reducing inequality and more to do with using government spending to swing votes in areas hard won from Labour at the last election? Time will tell.

Note: The Government published their White Paper “Levelling Up the UK” in February 2022. An explanatory article, Levelling Up: A Guide will be included in the September 2022 edition of GeoFactsheets.