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UK chancellor Rachel Reeves will announce plans for five new freeports in the Budget on Wednesday as the Labour government takes up the contentious Conservative policy to boost investment.
Boris Johnson, former Tory prime minister, introduced freeports as a flagship post-Brexit policy under which companies operating in selected areas would receive fiscal benefits and potential tariff exemptions.
There have been eight freeports opened in England and two each in Scotland and Wales since 2021, with each port focusing on areas of specialisation, backed by tax breaks for investment in building and the hiring of staff.
Reeves will announce five new freeports in her statement on October 30, according to government officials, saying that freeports have already attracted £2.9bn of investment and created an estimated 6,000 jobs.
However, the tax-free import scheme has proved controversial with economic analysis showing that freeports tend to shift investment away from other parts of the country, rather than generating new inward investment.
While many businesses have taken advantage of the tax breaks in the new freeports for hiring staff and investing in buildings and machinery, only six companies have taken up the specific customs advantages of being in a freeport, under which they can import materials tariff-free from abroad.
The meagre take-up of the customs sites has raised questions in Whitehall about why the Treasury is continuing to support freeport tax breaks while demanding unprotected government departments find savings ahead of the Budget.
The value of freeports has been a contentious issue since Brexit, with former prime ministers Johnson and Rishi Sunak saying the special custom zones were key to boosting economic growth after the UK left the EU single market.
However, the Office for Budget Responsibility, the independent fiscal watchdog, said that when the policy was launched in 2021, it expected the impact of freeports on UK GDP to be so small that it would be “difficult to discern even in retrospect”.
When Labour was in opposition, the shadow cabinet under Sir Keir Starmer did not take a firm position on UK freeports. But the policy was criticised by unions before it was launched.
In 2020, the Trades Union Congress warned that the plan risked eroding workers’ rights and hitting some councils’ finances because of a loss of business rates revenue and, in some cases, deepening regional inequalities.
Starmer, asked about the plan to extend the scheme with five new sites, said he did not want to take an “ideological” approach to investment.
The prime minister said he believed that freeports could help deliver well-paid, secure jobs and therefore should be expanded further.
“Freeports were introduced by the last government . . . I didn’t want to take the ideological view that just because they are introduced by the last government we would stand them down,” he said.
“We looked at them, they are working well, I think they can work better . . . we are going to make some improvements, so they work even better,” he added.
Starmer said he would tweak the existing freeport model by aligning the zones more closely with the government’s impending “industrial strategy”, while also giving more scrutiny and oversight of the ports to councils and mayors.
Reeves will also announce a new investment zone in the East Midlands, again building on a Tory initiative. There are a dozen existing investment zones, areas offering reliefs and other flexible grants to support strategic sectors, in the UK.
Currently, the Humber freeport is intended as a rare earth metals processing hub, Teesside freeport to be a new offshore wind turbine manufacturing facility; and Plymouth and South Devon Freeport is looking at testing autonomous maritime vehicles.
