Introduce Full-Fat Freeports to Boost Economic Growth

Create light-touch planning regimes, provide local investment and implement tax and regulatory reforms designed for growth in geographically defined areas, says think-tank

• Some academic economists are skeptical of the ability of freeports to add value to the British economy, arguing that they primarily divert (rather than create) economic activity;

• This does not need to be risked. Freeports offer an exciting opportunity to create growth by addressing inefficiencies within the British economy; 

• Freeports do not have to be literal ‘ports’- it is perfectly feasible to place freeports within the country in areas with sufficiently good transport links;

• This paper sets out four ways this can be achieved:

1. Create a light-touch planning regime, providing fast and certain planning for high value economic activities within the freeport;

2. Provide significant packages of local investment to alleviate concerns about crowing of public services and infrastructure, with short run disruption smoothed by offering payments linked to the freeport’s success;

3. Implement a tax regime designed for growth, including full expensing for capital investment, the simplification of customs processes, and the elimination of property taxes;

4. Establish a regulatory sandpit, allowing the Government to trial regulatory changes across a sample of freeports, testing policy alternatives against one another and getting real world feedback on their performance;

A new report from the Adam Smith Institute (ASI), Seeing it Through: A Plan for Full-Fat Freeports, argues that freeports offer an exciting opportunity to create growth by addressing inefficiencies within the British economy.

Some academic economists are skeptical of the ability of freeports to add value to the British economy, arguing that they primarily divert (rather than create) economic activity. It is true that the UK is already focused on lowering barriers to trade, has policy levers for significantly reducing the distortions created by tariffs which mean that the pure benefits in customs terms to locating businesses in new UK freeports are likely to be slim. However, freeports could still play a role in generating genuine growth by targeting the UK’s own domestic policy inefficiencies. 

Report author, Sam Ashworth Hayes, identifies four policy areas where a noticeable difference could be made:

1. Create a light-touch planning regime within the freeport to remove a major barrier of growth. This would both benefit areas which are already successful, such as Oxford, Cambridge and London, and left-behind areas.

2. Provide significant packages of local investment to alleviate concerns about crowing of public services and infrastructure, with short run disruption smoothed by offering payments linked to the freeport’s success. 

3. Implement a tax regime within the freeport which is laser-focused on growth, in order to justify the cost to the exchequer. This should include introducing full expensinging for capital investment, simplifying customs processes and eliminating property taxes.

4. Establish a regulatory sandbox, under which the Government can alter regulation within geographically defined locations. The key benefit to this policy is not the creation of a loophole in regulation for small clusters of firms scattered across the country, but the generation of evidence on the success or failure of these policies that is then used to inform decision-making for the country as a whole. 

Sam Ashworth-Hayes, report author and economist, said:

“Freeports offer Britain a chance to boost growth by addressing inefficiencies in our economy, punching through red tape and government restrictions. Tariffs on trade are low and the government’s ambition is to get them lower still; some academic economists think this makes freeports less useful than they are elsewhere in the world. But this just means they need to target different problems facing our own economy. 

By liberalising planning, providing a focus point for local investment, and a tax regime engineered at driving investment, freeports can drive growth in their local areas. And for the country as a whole, freeports offer the government a sort of regulatory sandbox for testing policies, giving it a chance to see how they work on the ground.”

Daniel Pryor, Head of Research at the Adam Smith Institute said: 

“If we unleash the full potential of freeports, the entire British economy stands to benefit. The Government should grasp the opportunity to go beyond low tariffs and use freeports as a proof-of-concept for pro-growth planning reform, a tax system that encourages investment and a sensible regulatory regime. Done properly, freeports won’t just make local residents richer—they’ll boost living standards across the country.”

-ENDS- 

Notes to editors:  

For further comments or to arrange an interview, contact John Macdonald, john@adamsmith.org | 0758 477 8207.

Sam Ashworth-Hayes is an economist and writer. He has previously co-founded a start-up using machine learning to measure biodiversity, and worked as a senior economist at a consultancy. He holds an MPhil in Economics from the University of Oxford, and a BSc. from York in the same.

The report is live on the Adam Smith Institute website and is available here. 

The Adam Smith Institute is a free market, neoliberal think tank based in London. It advocates classically liberal public policies to create a richer, freer world.