Brexit is going to finally happen on the 31st October and 67% of Hull voters are going to get their wish. So, both candidates in the race to be the next prime minister have promised amongst many other policy pledges for a post-Brexit Britain. One that caught our eye was Boris Johnson’s support for Belfast – and some of Britain’s other major ports including Hull – to become a so-called ‘free port’. Johnson was quoted in The Guardian as saying,
“That’s the sort of thing we can do, we could do free ports, it would be a massive boost to the country but can only do when we can come out,”
Now election promises are often about as watertight as a sieve, but what if Hull could become a free port? High-profile politicians such as Liz Truss and Dr Liam Fox have voiced their support for bringing them back after they came to an end in the UK in 2012. But what would be the economic benefits of doing so and would they outweigh the effects of leaving the EU?
In this latest blog from Coversure Hull – Hull’s leading business insurance brokers – we’ll look at the pros and cons of Hull becoming a Singapore-style free port and consider its future from the 1st November 2019.
What Is A Free Port?
A free port is a government designated port or area which is tax free zone. Whilst they remain physically and legal under the control of the government, they effectively occupy a space beyond its borders for tax purposes. Companies operating within free ports can benefit from deferring payment of taxes on goods until their products are moved elsewhere. They can even avoid paying them altogether if they bring in goods to store or manufacture on site before exporting them again.
Advantages of Hull as a Free Port
As with all things Brexit-related, opinions on the pros and cons of this idea are subjects of fierce debate. Proponents of them would point to the following:
• 86,000 new jobs – this figure has been offered by the leading (pro-Brexit) thinktank, the Centre for Policy Studied (CPS). They argue that free ports would attract trade – as amply evidenced by Singapore – and so create jobs and wealth
• Technology boost – many consider them to be a way to boost technological skills – something that Hull with its plans to become a ‘smart city’ could obviously benefit from
• Manufacturing boost – by freeing goods that are manufactured on site and re-exported, free ports can give a boost manufacturing business – something the local economy would clearly welcome. The United States has over 250 free ports, which handle over $750bn of merchandise and have played a major role in retaining, attracting and growing domestic manufacturing
• Empowering the Northern Powerhouse – by having an area where a variety of goods can be brought in tax free and manufactured goods exported on the same basis businesses would be drawn in. Everyone knows the north-south divide in the UK is serious economic problem and giving companies an incentive such as this could significantly ease the issue
Disadvantages of Hull as a Free Port
Free ports are no free lunch and their establishment often isn’t plain sailing. The most often cited disadvantages include:
• Loss of tax revenue – many argue that the business boost of having a free port would be more than outweighed by the loss of income to the Treasury. Speaking out of self-interest, London’s loss could be Hull’s gain
• EU incompatibility – within the EU’s customs union large industrial free zones have limited use. You still have to pay customs taxes when bringing the goods into the EU from the free zone. Of course, come the 1st November its likely that we won’t be in the customs union but there could still be stipulations with any trade deal that these ports could not be created
• National tariff cut – opponents of the scheme for Teesside’s port point out that it would be far more effective to cut tariffs for the whole country rather than abolish them for one small part of it. This is certainly the model that Ireland has adopted in relation to corporation tax, one that has been it enjoy significant, if controversial, growth
• WTO issues – for supporters of no deal, the idea of reverting to WTO rules is just what the doctor ordered. However, those same rules could make free ports illegal. If the government created them with particularly aggressive benefits equivalent to tax havens, other nations could still object to the World Trade Organisation
• Delay tax, not avoid tax – it might simply defer the point when taxes are paid, as imports would still need to reach final customers across the country
• Fraud and financial security – one of the risks of a free port is that it could facilitate money laundering and tax evasion, as goods are usually not subject to checks that are standard elsewhere. While everyone would welcome greater growth for the port, doing so by developing a black market isn’t the way people want to come by it
The Port and Hull
Hull would not be Hull – or even here in all likelihood– were it not for the Port, so securing its future outside of the EU really matters. In the last few years its growth has returned in a big way. The recent deal between ABP and Maersk will see 12,000 containers will come in and out every year as Hull’s Container Terminal will have deep-sea connections to the rest of the world for the first time in its history. ABP’s £60m investment will make Hull one of Europe’s key container ports and will open it up to a global market.
Brexit uncertainty and fears over congestion at the port of Dover has already seen demand for Hull’s services boom. Increased demand for goods from cities such as Birmingham and Leeds has made Hull an ideal docking space. Couple this with the area’s extensive truck and haulage businesses – which we know well as we insure so many trucks – and the port’s future looks rosy, free or otherwise.
Whether the vision of a free port becomes a reality will probably hinge on whether we can agree a deal with the EU or not. Leaving with no deal would certainly make the idea more appealing – necessary even – but that would come at the cost of losing our largest trading partner. Leave with a deal and the likelihood is that there would be restrictions on the establishment of one.
Worrying as all this uncertainty is, one thing does look clear: That Hull’s port is enjoying a renaissance and that the glory days are returning. And that is something we can all be grateful for.
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