Freeports aren’t about ‘levelling up’ – they’re a cover for tax cuts and deregulation

Has the government learned the lessons of past policy failure, and is it genuinely committed to reducing regional inequalities? I’m not convinced

By Andrew Fisher, published in i news on April 22

The UK has higher levels of regional inequality than any other large wealthy country. For a long time, governments of various hues have recognised that fact and sought to address it. And they have all failed.

There have been a raft of initiatives and slogans that paid lip service to the widely held view that the UK economy needed a more broad-based growth. The “Northern Powerhouse”, the “Midlands Engine”, regional development agencies and enterprise zones have all been tried and all been mothballed.

Now it is Rishi Sunak’s turn, and in his Budget last month the Chancellor announced a policy of “freeports” to create “special economic zones with different rules to make it easier and cheaper to do business”.

So, will it work this time? The evidence doesn’t bode well.

Freeports are essentially a re-branding of Michael Heseltine’s Enterprise Zones in the mid-1980s, which themselves were revived by George Osborne in 2011, before failing and yes, being consigned to the great policy graveyard in the sky.

On Monday, freeports moved a step closer to becoming law. Treasury minister Jesse Norman told the House of Commons that freeports will be targeted in the areas of greatest deprivation in order to “level up”.

Michael Heseltine made the same claim for the enterprise zones in the 1980s. The most iconic enterprise zone was the London Docklands. But despite the huge amounts of wealth and profits that pass through that area today, the London borough of Tower Hamlets has the highest rate of child poverty of any local authority area in England.

The Work Foundation looked at the effectiveness of Heseltine’s zones and concluded that up to 80 per cent of jobs “created” were in fact displaced from other areas – in other words they were relocated, rather then created.

The Centre for Cities think-tank found that the jobs created in the Osborne-era were “overwhelmingly low skilled” and therefore low-paid. The Public Accounts Committee was even more scathing in its May 2014 report, describing them as “particularly underwhelming” and lamented the “over-optimistic” claims (which failed to materialise) from the Government around job creation.

The Government recently admitted to shadow chancellor Anneliese Dodds that they had not calculated the cost of the proposed tax reliefs in freeports, and in their analysis of the Chancellor’s Budget, the Office for Budget Responsibility said the policy was announced too late for them to analyse. So the flagship “levelling-up” policy will soon become law with no economic analysis and no assessment of the impact on tax revenues.

The former shadow chancellor, John McDonnell, described the policy as a “leap in the dark” and laid an amendment asking for the policy to be delayed so that such an analysis could take place. The Government rejected it.

The freeports policy raises two questions. Practically, has the government learned the lessons of past policy failure and, ideologically, has this Conservative party changed – is it genuinely committed to a industrial strategy and reducing regional inequalities? I’m not convinced.

Amendments making tax reliefs eligible based on climate criteria, and a separate amendment compelling companies in freeport areas to pay their workers the living wage and recognise trade unions were dismissed by the Government as “burdensome” to business.

One of those appointed to the Government’s freeports advisory panel is Dr Eamonn Butler of the Adam Smith Institute, who welcomed Osborne’s enterprise zones policy in 2011, but thought he should go further: “The aim should be to turn the whole country into an enterprise zone, with easier planning rules… and lighter regulation”.

The UK Trade Policy Observatory, based at the University of Sussex, points out that as UK import tariffs are low any tariff reduction would “have next to no benefits”. They also highlight that “the UK is already one of the least-regulated economies in the world”, so any benefits (to businesses) would be reducing taxation.

And this is the point. The purpose of freeports is not to level up. They are, as they were for Heseltine and Osborne, a means of deregulating the UK economy. As Tax Justice UK says, freeports are “glorified business parks, offering bad jobs and undermining our tax system”.

If the Government was serious about reducing regional inequalities it would make that central to the freeport policy. Instead, this is the same tired formula: deregulate, liberalise and cut taxes – the laissez-faire economics that have caused the problems in the first place.

Andrew Fisher was Executive Director of Policy for the Labour Party from 2016 to 2019. He is the author of The Failed Experiment – a book about UK economic policy and the financial crash of 2007/08.

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