The Chancellor’s budget announcement last week included a few big surprises, including the creation of a new freeport in the East – but what exactly is a freeport?
Freeports are essentially free trade zones, where a country’s usual tax and tariff rules do not apply.
There are already around 3,500 of these zones dotted across the globe, employing more than 60 million people worldwide.
Here, Nick Marshall, Director at Beatons Group, looks at what the creation of a freeport in Felixstowe and Harwich could mean for the East.
What is a freeport?
Freeports are areas where normal tax and customs do not apply, usually situated at a shipping port or airport.
There are currently no freeports in the UK, although there is one in the Isle of Man.
At a freeport, imports can enter the zone using simplified customs documents and without paying tariffs.
However, if the goods are moved out of the freeport zone and into another part of the UK, they will face the usual customs rules.
They are similar to ‘enterprise zones’, which are subject to their own special regulatory requirements, but are aimed at encouraging businesses in the import and export sectors.
Last week, the Chancellor announced eight locations in England where freeports will be created – including Freeport East in Felixstowe and Harwich.
What are the benefits of freeports?
The creation of eight new freeports seeks to bring in extra investment, create jobs, grow trade and stimulate economic activity in their respective areas.
Those in support of freeports argue they stimulate business through the available tax breaks and government support as well as driving growth by concentrating certain sectors in one economic area.
The main advantage is that they encourage imports, promoting import businesses through the lower duty costs and stripped-down paperwork.
What are the criticisms?
Detractors argue that rather than boosting the economy in a certain area, freeports attract economic activity that would otherwise be spread out through the nearby region.
They essentially concentrate the economic boost an area gets from a freeport to just those businesses in the freeport zone.
We will have to wait to see exactly what the impact will be for business in the East – the government says the new freeports will be in operation later in the year.
I hope they will bring the benefits the government has boasted – but we will have to see.