Free ports – or sleaze ports? Rishi Sunak’s dream of tax-free zones about to become reality
Five years ago a young, unknown MP wrote a pamphlet for a Thatcherite thinktank extolling the benefits of free ports. Now that Rishi Sunak is chancellor, his dream for Britain is – for good or ill – fast becoming reality.
This week, alliances of port owners, businesses and local authorities must submit their bids to establish free ports, competing to set up zones exempt from normal tax and regulation.
Proponents say free ports can attract investment to areas that have been left woefully short, bringing jobs and prosperity to deprived regions as part of the “levelling up” agenda, helping prioritise greener industry, and breathing new life into, say, the former Redcar steelworks site, or the Grimsby docks.
But others fear the move signals the creation of “mini-tax havens” and a race to the bottom on regulation, keeping revenues from councils and the Treasury to line the pockets of business and landowners, with profits sent offshore rather than reinvested in the UK.
Support is found predominantly among those who voted – and campaigned – to leave the EU; backers call it a Brexit dividend enabled by the final deal. The EU has started to clamp down on the 80-odd free zones within its jurisdiction, over tax evasion, corruption and crime concerns.
Most of the big coastal ports, as well as some inland airports and accompanying industrial zones, are throwing their hats into the ring. In the north-east, the Conservative mayor of the Tees Valley combined authority, Ben Houchen, has championed a policy he says could create thousands of jobs in the region.
Deprived areas will be given priority, and bids are expected from around England by Friday’s deadline – from Humberside to Liverpool and London to Bristol. The devolved governments in Wales and Scotland are expected to follow – with caveats – and invite bids at a later date.
Within designated zones, stretching up to 45km from ports, the government’s free ports prospectus describes how usual customs, planning and tax measures will not apply. Goods and components will, in effect, remain offshore, allowing, say, a new factory to be built, processing raw materials and components without customs paperwork or tariffs, to re-export as more valuable goods.
For the first five to 10 years of that factory’s life, the government proposes, it would pay no stamp duty on its land or property purchase and enhanced tax breaks would be given for construction or machinery costs.
Behind the zone’s fences – physical and virtual – business rates would be waived, and employers would not pay national insurance contributions for up to three years for staff members earning less than £25,000. The government says it will “ensure it has the power” to prevent access to national insurance relief for employers who abuse it, for example by dismissing staff after three years.
Modelling by the consultancy Vivid Economics for a Teesside free port said the kind of package proposed could create up to 32,000 jobs and boost the regional economy by £2bn over the next 25 years, although “deadweight and displacement” – firms relocating rather than reinvesting – could cut those benefits in half.
It projected that the Treasury would lose about 40% of £960m in tax and revenues due in Teesside if free port firms were subject to usual rules, although it argued that the zones would create enough investment to produce a net positive for the exchequer. However, the projection suggested that to be competitive with the likes of Singapore, the UK would need complete exemption from business rates and other taxes.
Unsurprisingly, many people are alarmed. Paul Monaghan, chief executive of the Fair Tax Mark scheme, says: “These ‘sleaze ports’ are very much mini-tax havens domiciled within the UK. It’s going to leak out into the wider economy – it will result in a massively reduced contribution from business to the Treasury. Businesses which are rooted in communities wish to stay and play a part in society and pay fair tax – why should they be undercut by hot capital and flighty businesses that can exploit these zones?”
A Treasury spokesperson said: “The government is committed to combating abusive tax practices, such as avoidance and evasion – these have been a consideration throughout the design of the free ports tax offer.”
Monaghan says the zones have proved magnets for illicit financial flows and criminal activity, adding: “One of the reasons for them existing is the absence of regulations and checks – it’s a consequence of what they are.”
One of the world’s biggest free zones, Dubai’s Jebel Ali, has been identified by tobacco companies as a major source of contraband cigarettes, while the US last year blacklisted two aviation businesses in the zone for trading with Iranian airlines designated as supporting terrorism or as a threat to US national security.
Its operator, DP World, which runs the London Gateway and 70 other ports worldwide, is hoping to transform it into a free port. A spokesperson for DP World said customs officers in Dubai were “praised” by HMRC for helping to stop cigarettes entering the UK black market, adding: “DP World has operations on every continent and moves 10% of the world’s container trade. We have a zero-tolerance policy towards illicit activity anywhere in the world and work closely with the customs and taxation authorities.”
Labour has attacked the principles of the scheme, although some MPs in affected constituencies have broken ranks. The SNP is no longer in outright opposition, with Scotland suggesting a middle way – “green ports”, linking tax incentives to sustainable business.
Britain’s main maritime union, the RMT, says it supports green job creation but fears free ports could result in workers in some of the poorest communities signing away their rights. Its general secretary, Mick Cash, says: “Without strong employment rights, automatic trade union recognition and tax laws that make sure international owners of UK ports contribute, free ports are doomed to fail the communities they are designed to help.”
Ports have moved to allay fears, with a joint declaration by the biggest owning groups – including Associated British Ports, DP World, Hutchison, PD Ports and Peel Ports – that the free ports would be environmentally, socially and economically sustainable and pledging that they “are not seeking to diminish or dilute employment rights”.
The Treasury said “no part of the freeport policy would explicitly or implicitly affect” workers’ rights.
The government has said it will name the chosen free ports in England, likely a maximum of eight, in the spring. These ports are expected to bid:
A free zone that would cover London Gateway, opened in 2013 by DP World, and the older and smaller Tilbury, owned by Forth Ports. Backers say it could create 25,000 jobs along the deprived Thames Estuary region, with green investment at Ford Dagenham and in Thurrock. DP World is owned by the state of Dubai. Its chair, Sultan Ahmed bin Sulayem, wields extraordinary power as commercial chief and regulator. He is chair of the Ports, Customs & Free Zone Corporation, a government department that includes the Dubai customs workforce, and leader of the Jebel Ali free zone authority, where companies can incorporate and operate untaxed. DP says the chair’s roles are “regularly audited” by the UAE government.
The Freeport East bid joins local authorities in Essex and Suffolk with two Hutchison-owned ports: Felixstowe, Britain’s biggest container port, and Harwich. As well as taking in major road and rail freight hubs, the free port would link to offshore wind and Cambridge University research programmes. Hutchison Ports Europe, part of the telecoms and infrastructure empire built by the Hong Kong tycoon Li Ka-shing, made headlines last year by hiring the former transport secretary Chris Grayling on £100,000 a year for seven hours’ work a week. Grayling has assured parliamentary standards committees he will not be advising on “post-Brexit opportunities” and is being kept away from the bid.
Liverpool city region combined authority has been leading a bid that would combine Peel Port’s Liverpool hub and its operations Manchester and Heysham in one big free zone. Peel says it is considering bids with regional stakeholders across all of its port locations, which include Great Yarmouth and Clydeport in Scotland. Peel Group, the parent company established and part-owned by an Isle of Man resident, John Whittaker, also has a large land and property division in the north-west. The increase in land value alone could produce a huge windfall for one of Britain’s biggest landowners.
The bid is being led by the West of England combined authority. Boris Johnson visited Bristol in the autumn and declared the port a “strong contender”. A number of proposed inland “free port zones” are linked by road and or rail to Bristol port. The Bristol Port company is owned by Terence Mordaunt and David Ord, who bought the port from the city council in 1991. Between them, they have donated £1.9m to the Conservatives, £25,000 to Johnson’s leadership campaign and £50,000 to Vote Leave. Mordaunt chairs the climate sceptic Global Warming Policy Forum, whose trustees include the former Daily Telegraph editor Charles Moore.