Freeports are the government’s flagship economic programme. From Teesside to Plymouth, the eight designated sites exist alongside a number of university innovation projects but what will they do, and should the sector care?
Freeports are more interesting than you might imagine. As the name suggests, freeports are designated economic zones usually around ports which are free of some taxes, regulations, and usual planning constraints. Their most-talked-about feature is that they often provide a benefit to business through tariff inversion on the import of goods. As the House of Commons Library puts it:
Under these circumstances, there is an advantage in importing components tariff-free into the freeport, processing them into the final product and then exporting to the domestic market, paying the lower tariff on the final product.
Effectively, if a business imports components of a product into a port and the final product is sold for greater than the sum of the component parts owing to the tax relief, the business will make a profit.
However, as detailed work by the University of Sussex makes clear, the customs benefit of freeports are likely to be minimal as tariffs in the UK tend to be low to begin with.
The second proposed benefit of freeports is in tax relief. This includes a mixture of both incentives for capital investment and relief from national insurance to encourage employment in the port.
Focus on innovation
There is mixed evidence on whether enterprise zones, such as freeports, genuinely stimulate new economic activity or displace pre-existing activity. It is less than a decade since the UK’s final freeport finished operation so it is neither a new idea nor part of a new post-Brexit settlement.
Working within the innovation ecosystem, the risk is that the freeport regime diverts attention and effort towards rearranging existing activity rather than pushing the boundaries for ever more innovative economies. The recognition of innovation as a separate plank of freeport activity could abrogate some of this risk; but not without careful planning.
For a start, a regime which is aimed primarily at offsetting the costs of exiting the European Union will not in itself drive innovation.
Using the example of Nissan in Sunderland, Paul Swinney at the Centre for Cities makes the compelling case that innovation is both intensely geographically dependent and reliant on existing skills basis, and activities such as the transfer of IP are not tariff dependent.
A number of bids focussed on innovation within existing port activity, including maritime, decarbonisation, and logistics. Clearly, building on existing assets with a new innovation focus is sensible but the only real benefit will be if this is activity that otherwise couldn’t have happened without the freeport.
Boosting R&D outcomes
Given successful innovation projects often either attract new assets or exploit existing ones, a key consideration is how can a freeport crowd in R&D projects.
In combining capital reliefs with an innovation focus, freeports should consider the opportunity to develop new laboratory spaces. Capturing the proposed R&D uplift, in combination with lab pressures arising from Covid-19, and emergent technologies in lab efficiencies, could mean that freeports provide a one-off scalable opportunity in national lab capacity.
As part of their freeport consultation, the government rejected the opportunity to introduce specific R&D tax credits around the port. However, that does not mean there is not a wider scope for incentives around innovation within freeports.
For example, the Connected Places Catapult highlights the constellation of net-zero aspirations and maritime ambitions as an opportunity to leverage in investment to port innovations. Again, this will spur innovation where freeports are used as an opportunity to attract new investors and new partnerships.
Similarly, local and combined authorities can develop their own incentive schemes to encourage universities to place assets within the port, and develop collaborations within them.
It is likely the upcoming levelling-up white paper will shake up devolved governance but if place-based growth is to mean anything, it requires combining economic projects such as freeports, with existing anchor institutions including universities, with a devolved settlement which supports local leaders to develop collaborative sustainability-based R&D projects around freeports.
There is a role for universities in shaping freeports. They will not be an economic panacea to deliver levelling up but the opportunity should not be overlooked to attract new investment, develop new collaborations, and work with local leaders in shaping R&D projects. It will not be tax arrangements which make freeports a success but place-based innovation policies.