Richard Murphy: The SNP may regret lending UK its support on freeports

Freeports are not the wondrous things that the name makes them sound like. In fact, the name is totally misleading, like so much about the tax haven world. That is why fourteen years ago I wrote a paper to explain just what the language of tax havens really meant, in the process explaining what they are all about. 

That paper had a big impact: it brought the term 'secrecy jurisdiction' into use as an alternative to the previously preferred 'tax haven' in much international discussion by making clear that tax abuse is harmful, but that the secrecy that tax havens facilitate can be just as bad.

And it is for that reason that I am worried that the SNP has gone along with UK government policy on this issue and allowed so-called freeports (which are tax havens in all but name) in Scotland when its coalition allies, the Greens, have stood out against them.

Freeports are classic tax havens, or secrecy jurisdictions, in a great many ways. They designate a limited geographic area as being subject to exemptions from taxes and other regulations not available elsewhere. In the process what they also create is what I describe as a 'veil of secrecy' around the operation of these locations.

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That is particularly important, because, as is commonplace in a lot of secrecy jurisdiction activity, the operation of the scaled down regulation that the government permits within freeports is dependent upon the proper governance of those places by the commercial companies to whom the operation of that reduced regulation is devolved. As is already becoming clear in the case of some new English freeports, the reality is that finding out what is happening in these locations is hard.

Tireless journalism by Private Eye magazine is, for example, failing to find out just what is happening within the Teeside freeport that is located around Middlesbrough. This is of special concern there because there are already suggestions that the operation of that freeport may be causing significant local environmental damage. 

No one knows if the allegations in this case are justified, or not. The problem is, working out who has to even answer the allegation is difficult when the activities in the area are controlled by a private company that is quite clearly dedicated to maintaining secrecy around its operations. What we do, however, know is that around the world there is evidence that freeports have been associated with tax and labour law abuses, environmental deregulation and abuse, and criminal activity.

As the OECD has suggested, transparency is key to ending this abuse, but it looks unlikely that this requirement is going to be built into Scottish freeports. This matters most especially in the case of the freeports planned across the UK, because unlike most freeports around the world each of these locations will not be confined to a specific and quite small area around a port itself, but will instead be capable of spreading its activities across a large number of sites over a significant geographic area, loosely based on the hubs in the Forth and Cromarty.

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In that case, warehouse more than twenty miles apart both operated by one company might both be capable of being designated parts of the freeport, even though all the space between them will not be. I hope the problems that might arise from this might be apparent.

For example, how can effective checks on goods entering and leaving the freeport be made when they are spread far and wide with a multitude of boundaries, none of which will be visibly advertised if the Teeside freeport provides a precedent on this issue.

How too can checks really be made on whether or not employees qualify for the reduced rates of national insurance that will apply in freeports when they are in operation when they could quite easily spend part of their time working both in and out of these locations?

And how are transfers between locations considered to be freeport to be checked if that proves to be necessary? The answer as far as I can see is that no one really knows. But what we do know is that deregulation is permitted within freeports, nonetheless.

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And that is their danger, because once this deregulation comes to be accepted and it then inevitably acknowledged that it cannot be effectively policed then what happens is that demands will be made for this deregulation to become universal. That is the way tax havens (of which freeports are just a special form) really work.

They exist to promote the ideas of far-right politicians who hate the idea of regulations and tax, and who want to profit from their removal. Saying this I stress that there is no convincing evidence that freeports create new jobs or prosperity: at best they just move jobs in to freeports from neighbouring areas.

But this relocation of jobs is not 'free' as the name freeport might imply. It comes at a considerable cost, which is the undermining of the law and regulation of the spaces around the freeport elsewhere in Scotland, which is exactly what their promoters want. Freeports are part of a tax haven narrative that should have been consigned to history decades ago because of the harm that they cause.

The SNP might live to regret the day that it provided operation to Westminster on this issue.