Freeports

Robert Jenrick Excerpts

Thursday 11th October 2018 Westminster Hall

[The Exchequer Secretary to the Treasury (Robert Jenrick)]

It is a pleasure to respond to the debate. Like my hon. Friend the Member for North East Derbyshire (Lee Rowley), I represent one of the most landlocked constituencies in the country, although the River Trent is still tidal when it reaches Newark, so perhaps there is potential for a freeport in Newark one day.

I thank my hon. Friend the Member for Middlesbrough South and East Cleveland (Mr Clarke) and the right hon. Member for Birkenhead (Frank Field), who sadly could not be with us, for raising an important issue. This issue interests me a great deal. I engaged with it before I became a Minister, when I was involved in a proposal for a freeport around East Midlands airport, and in my business career before being elected to Parliament, when I visited and engaged with freeports in Geneva and Shanghai. I have seen both the advantages and the disadvantages of some of the freeports around the world.

I support the goals that underpin many of the arguments we have heard: increasing global trade at a pivotal moment for our country’s future; increasing economic development in all parts of the United Kingdom and inward investment in those parts that have seen less of it in recent years; supporting manufacturing and particularly advanced manufacturing that takes advantage of the new technologies that are transforming the way we produce products—we want to ensure the UK is at the heart of those new processes; and seeking new free market approaches to growing our economy. Those are a good thing in themselves and send positive signals about our country, our openness and our willingness to create a business-friendly environment for investment. We have had a positive debate along all those lines.

I reassure Members that the Treasury has engaged actively with stakeholders on this topic. We have already heard that my right hon. Friend the Chief Secretary to the Treasury visited my hon. Friend the Member for Cleethorpes (Martin Vickers) in Immingham. She and I also visited the Tees Valley Mayor in the constituency of the hon. Member for Redcar (Anna Turley) to hear the proposals there, and we later met my hon. Friend the Member for Middlesbrough South and East Cleveland.

I held a roundtable at the Treasury earlier this year with the ports sector and the Minister with responsibility for ports. I listened to people’s ideas and enthusiasm about freeports and invited them to gather their thoughts and come back to us with substantive proposals, and I committed to giving those proposals the consideration they deserve. I remain keen to receive such proposals and to see what we might be able to achieve together.

Let me begin along the same lines as my hon. Friend the Member for Middlesbrough South and East Cleveland. There seem to be two principal advantages to a freeport—the first on the customs side, and the second around the regulatory changes and supply-side reforms that could flow alongside that. Let me dwell for a moment on the customs aspect, which is perhaps the most important from the Treasury’s perspective and in the current debates about Brexit.

As we heard, it is already possible for a private operator to apply to become a free zone. We have ensured that that will still be possible after we leave the European Union, under any scenario. The hon. Member for Redcar asked whether, under the current legislation, she would be able to apply for one with respect to Teesside and the South Tees Development Corporation. Yes, that is possible under the law as it is today, and as it will be in any scenario after we leave the European Union, but she or other stakeholders would need to come to us with substantive proposals. That is how people would expect the Treasury to behave when making important long-term decisions about the tax system—they would not expect us simply to act on a whim.

The Treasury will continue to have the power to designate free zones under the Customs and Excise Management Act 1979 and the Taxation (Cross-border Trade) Act 2018, which I appreciate everyone is familiar with and which will enable HMRC to set requirements for goods within free zones. Whether to apply for designation as a free zone will continue to be a commercial decision for the private operators of a port—in discussion with HMRC and the Treasury, clearly—and we are open to applications.

I want to be very clear as we discuss the customs benefits that most, if not all, of the customs benefits of a free zone are available today. We heard about the two most significant facilitations that we as a country provide for business in this respect—customs warehousing and inward processing relief. Those allow imported goods to be stored and to undergo value-adding processes, with duty being paid only when the goods are released into free circulation, or never if they are re-exported elsewhere in the world. I will explain that in more detail in a moment.

Those benefits are not limited to particular locations, so they do not provide the region-specific targeted boost that certain hon. Members present would like. However, they are available to any business anywhere in the country, which is an important freedom in itself. More than 8,500 companies across the United Kingdom benefit from customs facilitations every year and are able to pass those benefits down through their supply chain, potentially to smaller businesses. Those benefits will continue regardless of the outcome of our negotiations with the EU and our exit from the EU next year.

Let me use Liverpool as an example—I hope the right hon. Member for Birkenhead reads the report of the debate when he emerges in the coming days. Liverpool was one of the five areas of the UK with a free zone under the EU scheme, which we heard about from my hon. Friend the Member for Middlesbrough South and East Cleveland. As we heard, those zones were not redesignated in 2012, partly due to concerns about customs assurance around the type of free zone. Much though many of us would like to support free zones, it must be said that there was very little negative reaction to that. We understand that many of the companies that operated in those free zones now benefit in almost exactly the same way as they did before from customs facilitations the UK already offers. We have not received substantive proposals to revisit that.

Let me return to the example of Liverpool. Today, a manufacturer in Liverpool is able to gain all the benefits of a free zone without being constrained to locating within the free zone site. Setting aside large sites such as the south Tees site, some sites, including the one in Liverpool, are quite constrained and do not have the ability to become vast sites such as the one in Dubai we heard about.

If there was a ship manufacturer, for instance, in Liverpool or Birkenhead, materials for its vessels could be imported and stored in a customs warehouse somewhere in the Liverpool area, or anywhere else in the country, without duties being paid on them. The manufacturer or its supply chain could then use those materials in the manufacturing process under inward processing relief, and the finished ships could be exported without any UK customs duty ever having to be paid. That avoids the distortions and perverse geographical outcomes that would undoubtedly arise with free zones, where a manufacturer or its supply chain would feel the need to locate on the same site, although I appreciate that would be beneficial to those locations, some of which require urgent inward investment.

The UK’s current customs facilitations offer broadly the same benefits that attract businesses to free zones in other developed countries, such as the United States. For example, two thirds of goods imported to US foreign trade zones are brought in to enjoy the same tariff-free manufacturing benefits offered by inward processing relief. The other third are stored in those zones, gaining the same cash-flow benefits offered by customs warehousing. From a customs perspective, the UK model compares favourably with the model in the United States—arguably more so because it does not force or encourage a company to locate in a particular place, but gives it the freedom to operate and trade wherever it wishes throughout the United Kingdom.

However, as Members would expect, we want to ensure we have an even more business-friendly environment, particularly as we leave the European Union. I am sure there are ways we can improve those customs arrangements, and we are actively engaged in identifying how we might do that now or post Brexit. We are open to suggestions from hon. Members, such as my hon. Friend the Member for Middlesbrough South and East Cleveland, who is very engaged with this issue. We are also actively engaged with people in some communities, including the Tees Valley Mayor and the hon. Member for Redcar, about how we might make those arrangements place-specific. That certainly could be taken forward.

As my hon. Friend said, if one agrees that the customs benefits are more limited because we have a fairly favourable customs arrangement—I have already described that—the wider question is how we can improve supply-side reforms and the business-friendly environment in the whole country or in particular places. In that regard, I draw Members’ attention to a couple of things on which we are focusing heavily.

Like many of those who have contributed to the debate, I want to see supply-side reforms to boost growth and support business. With the Chancellor and Chief Secretary, I have been highly engaged in efforts to increase productivity and regional growth in that way.

As the hon. Member for Redcar said, we should exercise caution because we do not want to propose ideas, whether in a freeport or another setting, that would lower environmental standards or indeed workers’ rights. We have been clear that we see leaving the European Union as an opportunity to not only protect those rights but enhance them. No proposals should be at the expense of the environment, workers’ rights or other things in our regulatory framework that we are proud of as a country and want to see continued or enhanced.

We are, however, highly engaged in how we can increase economic growth in particular places, either because they require it more than others, having received less investment in recent years, or because there is a significant national economic opportunity for growth that requires Government support. In that regard, we have made a number of interventions that build on a long history, to which my hon. Friend the Member for Middlesbrough South and East Cleveland referred, going back to the 1980s and the Thatcher revolution. They include locally led or mayoral development corporations—that power is available to the Mayor of Tees Valley. They also include enterprise zones, which the Government have expanded since 2010, creating many more in different combinations, including those linked to universities, which provide particular opportunities to help universities orientate themselves towards the local and regional economy, commercialise research and development, and help start-ups to scale up and achieve their potential. In some cases, those approaches have had the benefits that my hon. Friend described. Again, we are open to further conversations on how we might deliver them.

Development corporations empower places to overcome local barriers to growth and have provided a sharper commercial focus to large-scale Government investments to help develop local areas. In the Tees Valley, the first mayoral development corporation outside of London has been set up by the excellent local Mayor, Ben Houchen, whom I met only yesterday to discuss his future proposals.

At the Conservative party conference, we announced funding to boost growth and development in the east midlands between Nottingham and Leicester, creating a new locally led delivery model—potentially a development corporation—around Toton. Again, that is an area of significant economic potential, and we want to use the levers available to us in central Government, working closely with local leadership and the business community, to take that forward at pace. The funding will support the area to move on with those announced proposals.

We are supporting local businesses particularly through enterprise zones—since 2012, we have established a further 48 of them—in all regions of the United Kingdom, including most of those represented here today, and certainly in the Tees Valley. In those zones, businesses benefit from tax and regulatory incentives. We have piloted other models, including, at the Budget last year, an east midlands-focused manufacturing zone to provide a more business-friendly environment for manufacturing businesses.

We are open to further conversations in that regard. We want to see more locally led models and development corporations and, as my hon. Friend the Member for Hornchurch and Upminster (Julia Lopez) said, more Canary Wharf-style opportunities to transform local areas and drive the economy forward at pace, with a particular focus on planning, where there is growing consensus for further liberalisation. There may be great opportunities to do so in these places if there is strong support from the local community, Mayors and the locally elected democratic leadership of councils.

As I told the ports when I met them earlier in the year, and as was said in the conversations the Chief Secretary has had with others, we believe there may be opportunities for some levers to be pulled with respect to ports. If they wish to take advantage of opportunities for locally led development corporations or those with a central Government component, we are happy to discuss that and see that moved forward as fast as possible.

We want to see further business-friendly customs arrangements put in place. Proposals for freeports would need to prove that they will genuinely attract inward investment into the United Kingdom and not simply displace growth that might have happened in other parts of the country. It must be an additive policy that makes the country more prosperous and does not simply move jobs and investment from other parts of the United Kingdom.

We are aware of the risks of free zones we see around the world relating to money laundering and other illicit activities—I saw that when I visited freeports, particularly with respect to the art market, which I worked in before being elected. We take note of the G7’s Financial Action Task Force. There are important questions that need to be explored and understood, and we must be sure that we overcome those risks before going further.

I thank my hon. Friend the Member for Middlesbrough South and East Cleveland for raising an important issue. Personally, I am highly engaged in it, along with the Chief Secretary. We want to see substantive proposals brought forward for us to consider, which can inform the debate and answer some of the questions that I and other Members have raised. How would free zones genuinely be additive and drive forward the prosperity of the whole United Kingdom? How can we overcome some of the disadvantages in terms of criminality and illicit trade that we have seen around the world? From a customs perspective, how would a freeport add something to our business-friendly customs environment that we do not have already, bearing in mind the analysis and comments I have laid out? How can that play a part in our wider strategy to use devices such as development corporations or enterprise zones to help areas seize economic opportunities, liberalise planning, build a business-friendly vision and attract business leadership to take forward their communities and economies?

This is an interesting and exciting opportunity worthy of further thought and consideration. I look forward to working with colleagues on both sides of the Chamber on it in the future.