Chancellor Sunak announces the future of trade

March 04, 2021

chancellor sunak

Chancellor Sunak announces the future of trade

Chancellor Sunak is already experiencing some immediate kick-back from various dissenting sources after his mildly revolutionary and somewhat controversial policy changes for the 2021 Budget.

Amongst these new controversial policies is the news that English ports are to become freeports with the creation of new low-tax zones. The chancellor claims that the creation of these zones will be the key to achieving future economic success and unlocking billions in investment, trade and jobs. Essentially, businesses operating within these low-tax zones will benefit from tax breaks including no stamp duty, full rebates for construction, machinery and investment, five years of new business rates and lower tariffs and customs obligations. The majority of these zones will be located around England’s largest coastal cargo ports including, but not limited to, Felixstowe, Liverpool, Hull, Southampton and London Gateway. Plymouth, Teesside and an area around the East Midlands airport will also be a designated low-tax zone.

The freeport plan was presented to parliament as a vital tool in the elevation agenda to attract more capital and jobs to deprived regions. The Members of Parliament that supported and lobbied for this plan were those representing the North Eastern region of England. The Chancellor further commented that the freedom to implement such substantial change to trade is a policy that could only be successfully pursued since Britain’s exit from the European Union. Despite the existence of approximately 80 freeports within the EU, it is important to note that although these areas have different custom rules they are far more restricted; in many ways, they do not operate as a ‘free’ port in this sense of the word. According to a comment from Rishi Sunak in 2019, the operation of freeports within the UK is a significant benefit of Britain’s exit from the EU that has been long anticipated.

A freeport is an area that is located within the geographic boundary of one country, but which is legally considered to be beyond the jurisdiction of this country for customs purposes. Goods that are imported into the freeport area will not be taxed with import tariffs. Although, it is worth noting that once these goods are distributed throughout the country they will then be taxed accordingly.

Besides the attractive nature of the lower import tax, there are other incentives that would encourage companies to operate within a freeport such as lower corporate tax brackets. For instance, the Canary Islands Free Zone has a corporate tax rate of 4%, comparatively very competitive with the rest of Spain which is 25%. However, the reason for the increased restrictions on the freeports within the EU zone are due to the misuse of their tax benefits for laundering activity and tax evasion.

A significant advantage of freeports is that they can boost manufacturing. The process of both the acquisition of materials and the assembly of products, if completed within the boundaries of a freeport, will make for a considerable saving on tax. Likely, this is the corporate incentive that the Chancellor refers to when he predicts the increase to the volume of employment opportunities within the freeport areas.

A considerable amount of the concern surrounding this tax change is its largely ineffective use in 2012, yet Chancellor Sunak attributes this previous inefficacy to the scale of the plan. Furthermore, he affirms that this revised freeport plan is to a much larger and never-seen-before scale that will initiate positive change. The idea is to create special economic zones that are well-established internationally but with a unique approach for the UK to maximise its benefit. Whilst the government would like to implement other freeports throughout the UK, confirmation must first be received from the devolved authorities. The first of which to comment is the Scottish government who has modified this idea and suggested the implementation of ‘green ports’, which will serve a similar purpose.

The detailed budget plan which discusses the implementation of these various ports may be accessed here.


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