These Tory ‘free port’ plans are just another handout to corporations and tax dodgers

The UK economy is stagnant. Wages are depressed,
and the number of workers living in poverty has risen for third consecutive year. Some 14 million Brits
are in poverty
– more than one in five of the population, including four million children and two
million pensioners. The
government’s response is not to end wage freezes, control rents and
profiteering, restore local authority cuts or shackle tax avoidance by
corporations and the rich. It has instead opted for deregulation – and is
proposing to create 10 so-called free ports across the UK. Free
ports – similar to free trade zones or enterprise zone – are geographical
locations, usually closer to seaports, riverports and airports, within the jurisdiction
of a country, but outside the normal application of laws about customs duties, import/export,
planning, construction, tax, business rates and labour. The
claim is that tax concessions, deregulation and lower standards of rights/laws
would attract investment, especially manufacturing, create high-skilled jobs
and stimulate the economy by facilitating exports. There are approximately
3,500 freeports worldwide, employing 66 million people across 135 countries. Free
ports effectively function as a state within a state, and are supported by the
Rishi Sunak. Prime
Minister Boris Johnson has claimed that the
EU somehow prevented the UK from having free ports. This is untrue. The EU permits freeports
within defined parameters so that they do not fall foul of the state-aid rules
and fuel a race-to-the-bottom. There are about 80 free ports in EU member states. The
UK government has been able to create free ports under section 100A of the Customs and Excise
Management Act 1979 .
Seven free ports operated in the UK at various points between 1984 and 2012. In
2011, the government created 24 new enterprise zones , which became
operational in 2012. Then in July 2012, the government let the enabling Statutory Instrument
lapse .
Currently, the UK has 61 enterprise zones . After Brexit, the UK can set its own rules on free ports, but these will be circumscribed by trade agreements as no country will permit another to undermine its economic base through unfair state-aid. The UK may trade in accordance with the World Trade Organization (WTO) obligations, but they too impose rules to limit state-aid. Considerable
claims are made about the creation of new jobs, but the Centre for Cities notes that by 2017,
the total new jobs in the enterprise zones were only around one-quarter of the
estimates produced by the Treasury. At least one-third of the jobs created came
as a result of the move of businesses from elsewhere, rather than the creation
of new posts in new businesses. Some 95% of the net new private sector jobs
were low-skilled. So free ports and enterprise zones did not transform the UK economy
into a higher-skilled economy. Free
ports are not exactly a bonanza for new inward investment either. Investment
tends to get shifted from elsewhere to take advantage of discounts, low taxes
and regulation. It is possible for individuals and companies resident in the UK
to route investment into freeports via offshore entities to exploit tax laws
and retain anonymity. Despite the existence of ‘enterprise zones’, the UK has
languished near the bottom of the EU table for investment in productive assets . The
lax checks on the movement of money and goods make freeports a haven for
smuggling, forgery, tax dodging and money laundering.  An EU report noted that “Free ports
are conducive to secrecy. With their preferential treatment, they resemble
offshore financial centres, offering both high security and discretion and allowing
transactions to be made without attracting the attention of regulators or direct
tax authorities.” The
report added: “Goods entering free ports are not subject to customs duties.
Goods sold in the free ports are not subject to value added tax. No withholding
tax is collected on capital gains, though sellers may need to report to the tax
authority in the country where they are tax resident”. Free
ports create huge cross-subsidisation. Individuals and businesses located
outside free ports pay taxes which fund the social infrastructure such as
roads, railways, education, healthcare, pensions, security, legal system and
clean air. But the entities located within the free ports pay little or nothing
towards the use of such infrastructure. Unsurprisingly, free ports are
attractive to corporations. And
they lead to unfair competition. The entities residing in free ports benefit
from subsidies whilst their competitors located in the main economy do not
receive the same inducements. Free ports are part of the government’s obsession with deregulation and are unlikely to deliver durable economic stability or prosperity. They deflect attention away from the need to invest in all regions and sections of the economy. Given the Tories’ record, it’s no surprise that many fear a Johnson administration would use free ports to erode workers’ rights. Prem Sikka is Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex. He is a Contributing Editor to LFF and tweets  here .

2020-02-14 | Left Foot Forward, Public Services, corporations | English |