Articles

Freeports – where are we now?

Picture of Brian Hitchcock

By Brian Hitchcock, Jake Christophersen, Lily Mincher, Harry Hawkey

19 Nov 2024 | 3 minute read

Freeports are designated areas (often focussed on and around major infrastructure such as ports or airports) which have been given special economic status in order to stimulate trade and attract investment. Back in 2022, we published an article which looked at what freeports are, how they work and the potential benefits which businesses might derive from them. In this update, we consider:

  • The expansion of freeports since 2022 and actions taken by the Conservative and Labour governments over the past couple of years;
  • What we are seeing in the way existing freeports are operating; and
  • The impact freeports might have on business going forward.

Expansion of freeports since 2022

Since 2022, the UK continued its operational expansion of the freeport regime and the majority of newly-declared English & Welsh freeports became operational.

  • Teesside Freeport, Plymouth & South Devon Freeport and Solent Freeport became fully operational in 2022.
  • They were followed by Liverpool City Region Freeport, Freeport East (Felixstowe/Harwich), Thames Freeport, and East Midlands Freeport in 2023.
  • The previous Conservative government also announced in March 2023 the creation of two Welsh freeports: Celtic Freeport (Milford Haven and Port Talbot) which became operational in October 2024 and Anglesey (outline business case yet to be approved).

By April 2024, the Department for Levelling Up, Housing and Communities had spent £41.8 million to establish these freeports under the Conservatives.

Government action on freeports

In 2022, the UK Freeports Annual Report estimated that freeports would create 214,000 additional jobs, 131,000 of these would be directly related to the freeport, the remaining 83,000 would be created indirectly. In April 2024, the publication of the “Performance of investment zones and freeports in England” stated that the employment estimates will come to fruition over the next 20 years and that so far 4% of the target had been achieved. As of February 2024, freeports attracted £2.855 billion of investment of which £2.155 billion is direct foreign investment and £700 million domestic investment.

Since then, the English Freeport tax benefits extension window went into law late in May 2024. The previously agreed five-year window now extends until September 2031.

Having inherited the Conservatives’ freeport policy when they took office in early July 2024, the Labour government announced in this year’s Autumn Budget that they will work with the current programme to align the future of freeports to their own policy priorities. Despite media noise suggesting that more freeports would be announced in the Budget, along with changes to the freeports model, no new freeports, nor any specific models were announced. The government has announced that it will “work with partners to ensure the freeports policy model aligns” with the new industrial strategy.

However, Labour did announce that five new customs sites are to be designated across three existing freeports in the north of England and Scotland. The new customs sites will offer benefits such as:

  • the suspension of VAT on the supply of goods;
  • the deferment of import duties until the goods enter the UK market;
  • the option to elect whether to pay import duties on component parts or output products; and
  • duty exemptions for goods that are imported and re-exported.

A major theme of Labour’s Autumn Budget was growth. Their re-affirmation of the inherited freeport policy is an indication that they maintain faith that freeports will stimulate trade and encourage investment.

To help Central Government and Local Authorities explore how to drive wider economic growth centred on freeports some interesting financial models are now coming into play, in particular those suggested by Connected Places Catapult in their report Unlocking the Potential for Business Rates Retention in Freeport and Investment Zones.

What are existing freeports doing now?

Freeports across the United Kingdom seek to drive the economy across the regions in which they are based. Each freeport will be tailored to their local workforce, infrastructure and businesses to make sure they deliver the best results. Below, we take a look at some of the freeports, and what they do:

Plymouth and South Devon Freeport

The Plymouth and South Devon Freeport (“PASDF”) has a unique focus on the marine, defence and space industries and is seeking to promote innovation in these areas by encouraging businesses to grasp the benefits offered by freeports. In early 2024, Associated British Ports received £1.3 million in investment from PASDF’s seed capital programme, with a view to doubling the freight capacity of Millbay Docks and enhancing supply chain infrastructure. PASDF is an interesting example in that it breaks the misconception of what a freeport is. Freeports are often viewed as purely maritime entities focussed on freight traffic. PASDF does not have a large scope for freight traffic (although the project above is looking to improve its capabilities) but instead is focussed on developing and promoting business ventures in a specific area. Smart Sound Plymouth is an example of an organisation taking advantage of the freeports drive for innovation in its focus sectors, by developing the World’s first ocean-focussed 5G network.

Celtic Freeport

The Celtic Freeport builds on the industrial foundation of South Wales, the focus of Celtic Freeport will be to support new manufacturing facilities and major port infrastructure upgrades to support the roll-out of floating offshore wind (“FLOW”) in the Celtic Sea. The Celtic Freeport plans to draw in substantial investment into two new energy ports in South Wales (Milford Haven and Port Talbot) to secure first-mover advantage in the FLOW market and to harness the natural capital of the South-West coastline.

Teeside Freeport

The Teeside Freeport will also support FLOW, as well as the biomanufacturing and chemical sector. £21.5 million has been invested in developing the Teesside Freeport as of April 2024 and some major projects have already begun, including a £650 million investment by SeAH Wind who will be developing a first of its kind offshore wind facility which Teeside Freeport will service. Separately, Teesside Freeport boasts the UK’s premier carbon capture project (Net Zero Teesside) as well as Circular Fuels’ £150 million fuel-from-waste plant.

Solent Freeport

The Solent Freeport has a specific focus on innovation and research and development (including in the maritime, aviation, aerospace, and artificial intelligence industries) and is a world leader in the promotion of maritime education and training, thanks to its collaboration with three significant higher education institutions (University of Portsmouth, University of Southampton and Solent University). Ocean Infinity, UoP, Airborne Robotics and Bentley Telecom have collaboratively worked on state-of-the-art remote control robotic vessels and the collection of maritime data (including offshore wind farms) out of Solent Freeport, which is clearly well placed to service companies in these industries.

What do freeports mean for you as a business?

The case studies above clearly show that there are a variety of benefits available to businesses operating within the UK's freeport network. The benefits offered by the freeports according to the structure and strategies of the specific freeport operators provide regional hubs for specific industries. So, what might it mean for you?

Developers and commercial business

With freeports' role being to boost the economy in their respective regions, there are clear benefits for those clients operating a business within a freeport. Clients acquiring non-residential property and employing people within these zones can benefit from tax reliefs including on Stamp Duty Land Tax, business rate relief and relief in relation to National Insurance Contributions, making freeports attractive spots from which to run your business.

In addition to this, there is potential for Enhanced Structures & Buildings as well as Enhanced Capital Allowances available for businesses constructing, renovating and adapting premises, as well as for qualifying expenditure on plant and machinery.

As mentioned above, these tax reliefs have been extended to 30 September 2031 and any updates are awaited from the Labour government.

Supply chain

Businesses involved in the import and export of goods are well-suited for setup within freeport zones, due to the customs and planning reliefs on offer. As discussed above, freeports provide simplified import procedures, along with certain reliefs in the way of duty payments and VAT. In addition, and relevant to any business operating within these economic zones, there tends to be a supportive planning environment with active engagement from local planning authorities.

In light of the supply chain price volatility we have seen over the last few years, freeports offer good opportunities to keep costs lower than would be possible when operating outside of these customs sites.

Closing remarks

Renewable energy is clearly a focus of many of the established freeports, particularly the offshore wind industry where freeports offer opportunities for the testing and development of the equipment used in that sector. However, it goes beyond this, with green hydrogen plants and other clean energy sources being established within these areas.

The focus on renewables seems largely to be a result of the established infrastructure and strategic location of many of the freeports. These strategic locations are beneficial to businesses in themselves in offering smoother supply chains, but the combination of these benefits with those associated with freeports offers a real opportunity for businesses across the UK.

At Foot Anstey, our Ports & Marine team are advising clients across a wide range of issues, including planning, property and construction. If you would like to know more or are looking for support in relation to freeports, please do get in touch with our team.

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