With political uncertainty ahead in the run-up to the next general election, will the politics surrounding freeports be put aside in favour of waiting out the initial tax incentive time limits, to really understand the return on the Exchequer’s investment in these special tax sites?

Sarah Cardew

Sarah Cardew

In its February 2020 consultation document, the UK government set out that it intended that the new freeports in the UK should: boost trade, jobs and investment; act as a ‘hotbed’ of innovation; and be a cornerstone of the government’s plans to ‘level up’.

Building on the freeport initiatives, the government confirmed as part of its mini-Budget the creation of 12 Investment Zones, benefiting from near-identical time-limited tax incentives, similar to those discussed in this article for freeports. The government’s aims seem to boost economic activity in specific geographical locations, and then more broadly across the UK.

A freeport is essentially a geographically distinct area benefiting from generous customs duties and tax benefits. In the 2021 Budget, the government announced eight English freeports: East Midlands; Felixstowe and Harwich; Humber, the Liverpool city region; Plymouth and South Devon; Solent; Teesside; and Thames. There are also a further two freeports in Scotland with County Firth and Forth; and two in Wales with Celtic and Anglesey. There have been no further plans announced to create additional freeports in the time since.

By way of a brief recap, the six main tax reliefs cover: stamp duty land tax (SDLT); enhanced structures and buildings allowances; enhanced capital allowances; employer National Insurance contributions; business rates relief; local retention of business rates; and customs sites benefiting from various customs reliefs and facilitations.

The government published an annual report in December 2022 in which it cited several new investments.

The Humber region will see multi-million-pound investment to establish Europe’s first rare earth processing hub and in Teesside there will be investment into a multi-million-pound offshore wind manufacturing facility. Additionally, the East Midlands is expecting to expand the Maritime Rail Freight Terminal and the Solent will see the delivery of a Solent Maritime Innovation Hub.

While these examples demonstrate that there has been take-up from business, and the government has tried to raise awareness surrounding freeports by highlighting opportunities for investment, there is still arguably more to do. Businesses and their advisers would do well to be aware of the available tax incentives for investment in freeports locations and to continue to monitor developments with government policy.

There are certainly those critics who argue against freeport sites saying that because the tax benefits focus on a specific geographic area, only certain businesses can access those benefits, and therefore there is no levelling up. Will these voices be listened to if there is a change of government? Certainly freeports will continue to be the subject of ongoing political debate.

Where does that leave businesses in deciding to invest if the future of the tax incentives are unclear? The Institute for Fiscal Studies highlighted in its March 2023 report entitled ‘Freeports: what are they, what do we know and what will we know?’ that while there was strong evidence that tax incentives did affect investment, they were far from the only incentive for investment. Not letting the tax tail wag the dog is the term we tax lawyers like to use.

So, will freeports survive a change of government and be given an opportunity to deliver a return on the taxpayer’s investment beyond the initial tax incentives? That is uncertain and depends on government policy. Tax advisers and businesses looking to start up or relocate to a freeport site or Investment Zone would be well advised to keep a keen eye on the upcoming Autumn Statement on 22 November 2023 and beyond.

Sarah Cardew is a partner at Stevens & Bolton