Freeports will open up another gap in Britain's already over-stretched defences against economic crime
The freedom from customs duties coupled with light-touch regulation will enable freeports to become onshore tax havens for criminals, kleptocrats and tax avoiders who all want to hide their ill-gotten gains.
Rishi Sunak confidently declared that freeports were the “big idea” in his Budget last week. He previously claimed they would create 86,000 new jobs in areas where the government wanted to level up living standards. But all the evidence suggests that he is wrong and that the venture is little more than a personal vanity project pursued at the expense of the taxpayer. It will cost us millions, it will create very few genuinely additional jobs, and it will open new risks for yet more money laundering and financial crime.
Freeports are geographical zones designed to boost investment and jobs through localised cuts to tariffs, taxes and regulations. The businesses that operate out of these areas will not pay business rates or national insurance for their workers. They will be entitled to enhanced capital allowances and goods coming into their areas will be free of import duties until and if they are finally brought into the rest of the country.
Sunak claims that he could only introduce freeports because we had left the EU. Wrong. There are already 80 free zones in EU member states. Indeed, Britain had designated freeports in Birmingham, Liverpool, Southampton and Tilbury as recently as 2012, when the government decided not to renew their licences - presumably because George Osborne decided the policy wasn’t working.
Indeed, Treasury evidence tells us that only a quarter of the predicted jobs ever materialised and that these were mainly low skilled and low paid.
Shifting jobs, rock-bottom taxes and dirty money are no way to 'level up' struggling areas
The enterprise zones introduced by Margaret Thatcher in the 1980s are similar to the freeports of today. There is plenty of research and evidence showing that the policy was flawed. For instance, over 40% of the jobs were simply relocated from other parts of Britain and the cost to the taxpayer (at today’s prices) came to nearly £40,000 per job. Similarly cuts in business rates often meant that landlords simply increased rents, so the landlords gained at the expense of new investment and jobs.
Today’s freeports will let businesses off paying import duties. The idea is that if you import components for products manufactured in the freeport areas, you will not have to absorb high tariffs. The reality for the UK is that our tariffs on components are already low, so they don’t create a barrier for UK manufacturers. The UK Trade Policy Observatory says that the only industry that stands to gain from slashed tariffs is pet food manufacturers. That’s hardly a strong basis for our economic recovery – but it does show that the Chancellor is making a dog’s dinner out of this initiative!
More importantly, the freedom from customs duties coupled with light-touch regulation will enable freeports to become onshore tax havens for criminals, kleptocrats and tax avoiders who all want to hide their ill-gotten gains.
A freeport in Geneva houses over one million works of art; Malta freeport had three containers that were said to hold generators, but in fact they contained TVs, air conditioning units and computer monitors; individuals who have developed and run freeports include people facing serious international fraud charges and people with close links to corrupt regimes, like Azerbaijan. Britain is already the jurisdiction of choice for too many villains. Freeports will simply open up another gap in our over-stretched defences against economic crime.
Of course I want to see our economy thrive, but freeports are not the way to go about it. Shifting jobs, rock-bottom taxes and dirty money are no way to 'level up' struggling areas. Freeports are a bad idea. The Chancellor should not pursue the policy and he should think again.
Dame Margaret Hodge is the Labour MP for Barking and chair of the APPG on Anti-Corruption & Responsible Tax.