In its March 2021 Budget, the UK government set out plans for eight new freeports to be created across England. Carter Jonas Partners Charles Hardcastle and Dermot Scanlon explain the opportunities and challenges presented.
As the UK settles into its new global economic position outside of the European Union, key air and sea ports across England have been encouraged by government to apply for Freeport status. Backed by the businesses and communities that surround them, it is hoped that these new development zones will form the backbone of a new Global Britain.
The Freeports strategy is a key strand of the government’s post-Brexit plan as set out in its 2019 election manifesto. The plan is to seize the opportunity of major internal and international investment by transforming the nation’s historic sea, air and rail ports into key national hubs for our industrial heartlands that will spearhead the wider post-Covid goal of levelling up the economy and building back better.
By offering attractive tax breaks and fewer restraints on planning consent, investment and development in these critical ports and transport hubs should be accelerated, driving trade, innovation, commerce and regeneration into the communities and industries that surround them. Following a consultation in early 2020 and a round of bidding in November 2020 by 18 potential Freeports, eight locations were selected in England to take forward for development with others expected across the rest of the UK. The first eight are:
- East Midlands Airport
- Felixstowe and Harwich
- Humber region
- Liverpool City Region
These new areas will now be established, each up to 45km wide, as new hubs of business and enterprise. Backed and driven by a range of consortia including Local Authorities, Local Enterprise Partnerships, key businesses and of course the actual existing port, airport or rail operators themselves, the goal is to create thousands of jobs to regenerate communities and, as government puts it, “turbocharge Britain’s post-Brexit growth.”
Each Freeport area will be granted a major package of tax reliefs, simplified customs procedures, and a streamlined planning process to help accelerate development. Central government grants will also be available to support regeneration and innovation.
All of which sounds an extremely attractive proposition for these port operators, local authorities and potential developers and for the communities which depend upon them.
The question is whether they are, in reality, too good to be true? To assess the proposition, we take a closer look at some of the opportunities on offer and, of course, identify some of the challenges that lie ahead.
FREEPORTS: THE OPPORTUNITIES
1. Beyond business as usual
It is unquestionable that Freeports present a development opportunity which is more than just business as usual; they are an opportunity to think outside the norms of traditional commercial development and to introduce new ideas and business models that can engage new stakeholders and begin to tackle wider community issues.
An example might be to combine a port development with a floating fabrication plant, power station or perhaps even temporary worker accommodation – encouraging the quick incorporation of new technology and new sectors, skills and opportunities into the development zone. In the air freight sector, the success of Geneva Airport’s storage and strongroom facilities might point to the need to develop a niche market to attract international airfreight, rather than developing more of the same.
Therefore, as a means to present something new and a genuine new reason for businesses and investors to think and act beyond business as usual, Freeports offer a clear and highly attractive proposition.
2. Development and investment
The UK’s complex and often longwinded planning system has long been a major blocker to potentially transformational investment proposals, with schemes and funding too often held in limbo while communities exercise their democratic right to scrutinise potential developments.
It would appear that Local Development Orders and the recent widening of the scope of permitted development rights will be the principal means to reduce the potential planning delays for these Freeport proposals. However, the Planning Act 2008 and Nationally Significant Infrastructure Programme regime will still apply for large scale projects and, it should be noted, a review of the national policy statement for ports has been promised this year.
If Freeports are to provide the kind of accelerated development desired to stimulate the UK’s post Brexit economy, it is clear that there will be a need to fast-track development consent. This will require simplification to galvanise the complex relationships and ways of working between local authorities, developers, local enterprise partnerships and communities around the Freeport.
The opportunity, therefore, is to drive this Freeport strategy with genuine reform of planning so as to see an acceleration of investment not only in facilities underpinning the Freeport operation, but also in the wider local and national infrastructure which supports access and growth in the area.
3. Attracting new business
While precise strategic details of the government’s levelling up agenda remain unclear, the need to boost the attractiveness of the nation’s regions to local, national and international businesses it unquestioned. This new development model does provide a clear opportunity to encourage businesses to set up not only inside the Freeports, but also in regions around them and so, as such, are an important strand of the UK’s wider economic development plan.
The example of East Midlands Airport demonstrates the value of bringing together potentially disparate transport, freight, communication and commercial businesses and activities in the wider area, to the greater benefit of the region beyond the Freeport. By creating a hub, businesses that ordinarily would have no reason to set up in an area suddenly see genuine value in relocating.
In the ports sector, new logistics patterns and facilities, which involve transhipment and transloading facilities to take freight off roads, are now being actively developed. The new ‘short sea terminal’ at the Port of Gothenburg, which includes provision for coastal and inland shipping, may be a pointer to the future for short distance sea freight within Europe.
4. Skills and talent
The Freeport strategy is rooted in the government’s longer-term goal of seeking to develop new skills and talents in specific areas, many of which, such as engineering and manufacturing, have a poor skills base and history of industrial decline. This plan seeks to reverse this trend by investing to place and develop talent closer to the market.
As the Government’s bidding prospectus sets out, Freeport operators need to reflect on how they will ‘…align the skills available in the local labour market to the needs of the firms and sectors being targeted by the Freeport, including support for upskilling in line with local skills strategies.’ Given the lead-in times to prepare and deliver such strategies, a flexible, up-to-date (and costed) skills and labour strategy with buy-in from relevant sectors would appear to be a good starting point in delivering a successful Freeport.
Such a plan will inevitably also need endorsement from the Education & Skills Funding Agency. However, there are a number of good examples and initiatives from around the country which can be drawn upon to help drive forward this strategy.
Overall, the creation of this new round of Freeports should be seen as a means to create a platform for local authorities and businesses to invest in a long-term plan for skills development in the region. It should be a plan that is underpinned by substantial inward multi-sector investment, that can also encourage talent and develop expertise to meet the specific local needs and development aspirations.
5. Levelling up
Freeports should play a significant role in helping to deliver the UK’s Government’s much discussed Levelling Up agenda to spread economic wealth and growth beyond London and the South East.
Despite the on-going lack of clarity over precisely how the government intends to roll out, encourage and maintain this levelling up strategy, it is clear that by establishing destinations for domestic and inward investment, Freeports will provide a focus for industry, commerce and communities to develop faster and more effectively.
One of the critical elements will be to ensure that the development of the Freeport is not stifled or constrained by poor land-side transport links. It may be that this is where some innovative thinking may come to the fore, for example in relation to new logistics patterns and multi-modal operations, such as the Gothenburg example.
FREEPORTS: THE CHALLENGES
1. Benefits displacement
While there is clear evidence that the introduction of Freeports can generate significant new business opportunities, economic growth and jobs in the regions that they are developed, there are also well-founded fears from past examples that many of these benefits come at the expense of other regions.
Overcoming this so-called benefits displacement is critical to ensuring that taxpayer investment in new Freeports does not undermine economic activity and investment elsewhere. What is sought for the UK economy is long term investment and growth to underpin a new post-Covid, post-Brexit global Britain. A short term reshuffling of fortunes across the regions is likely to undermine rather than support this objective.
2. Time limit
The tax incentives offered to Freeports are strictly time limited, leading to fears that development and business investment into these regions may not be sustainable over the longer term.
In particular, given that the development of innovative new industries or products can require substantial investment over many years or even decades, there are question marks over whether these tax breaks would even last long enough to secure the necessary investment.
Delivering this Freeports strategy must go hand in hand with reforms of the UK’s planning and consent regimes to ensure that this critical element of development does not prevent investors and developers from taking advantage of the opportunities presented around these new Freeports.
Establishing and maintaining robust and effective relationships across multiple local authority borders and between often competing businesses and industrial sectors is crucial to the success of a diversified Freeport proposition.
Tackling this issue is not something that can be left to chance. Experience suggests that these relationships are often driven by short term political need rather than longer term community benefit. Each Freeport delivery strategy must have the need for deep collaboration and cooperation built into its planning and procurement regime so as to set out clear routes to deliver mutual benefits across the parties and communities involved.
Considering both the potential opportunities and challenges, on balance it appears that the opportunities would outweigh the challenges, particularly given the momentum now being put behind the need for economic recovery across the country.
The key challenge now for Freeports, as we see it, is to ensure that stakeholders come together for mutual long-term benefit rather than for individual short-term gain.