Freeports undermine devolution and should be reconsidered for Scotland

Freeports grant tax exempt status to the companies involved. It is claimed that they will encourage economic activity in the surrounding area, but evidence suggests that the money will go elsewhere. Internationally, such “special investment zones” have been notorious for money laundering, smuggling, people trafficking and the dumping of surplus goods.

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My concerns regarding this policy for Scotland, which was overwhelmingly rejected by the SNP Conference in 2021, are based on evidence worldwide and considerable personal experience in this area. A core problem is that the Scottish Government lacks the guaranteed legal powers over freeports to enforce the safeguards it says it wants. Without effective controls in the host jurisdiction, how can we protect environmental and health standards? Who pays when there is an accident on site?

The freeports announced for Scotland are not just a single port or an airport, but many sites over a wide geographical area. What happens if goods go missing between sites? Without import/export controls on goods coming in, how do we protect trademark and copyright laws? How do we ensure the safety of products?

What if goods are counterfeit or substandard? How will economic loss to local trade and the rest of the local economy be avoided? How are established job creating companies supposed to build or maintain their businesses when those operating through a freeport pays no tax or VAT? How are workers to be protected with regards to pensions and Health and Safety? Crucially, will unions be formally recognised? (They will not.)

Let us be clear. Freeports are essentially tax havens. Businesses operating within them use tax concessions to reduce their overheads by operating outwith the normal commercial environment. Unless the companies involved are UK registered, all monies will flow offshore. What happens to workers’ pension, health and employment rights in the UK with a foreign registered company? A recent example would be P&O ferries owned by DPP Ports of Dubai.

All the trade deals signed by the UK since leaving the EU, which benefit from normal excise/tariff waivers, cannot be realised within a freeport. The UK Government failed to do its homework (again). When exporting from freeports, such tariffs will be payable to those nations which are subject to existing trade deals.

Moreover, employment matters are reserved to the UK. So there is real distrust from workers, and the likelihood of their rights being eroded as the UK Government attempts to refill its coffers at their expense, while the owners of businesses are permitted to benefit from tax breaks and engage in a race to the bottom on pay and conditions. This will not be able to be policed within freeports, as they are effectively offshore havens outside the normal regulatory framework.

There will also be a magnet effect, as businesses are sucked into these new zones. Where the work goes, workers will have to follow. This will cause further depopulation in rural areas already suffering from increased inequality and post-pandemic economic hardship.

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Under current legislation, utilising Import Processing Relief (IPR), goods can be imported into the EU for processing, with import duties and VAT suspended. These processed products can either be re-exported or released to free circulation where duties and tax are charged. So what is proposed for freeports is already available, with significant work and environmental controls. The existing legislation also prevents counterfeit or substandard goods being used. Freeports do not. The system is similar for enterprise zones.

There are no proposals to ensure that companies operating in freeports are UK registered and administered. This is an obvious route for money laundering and tax avoidance in offshore companies and jurisdictions. Indeed, the EU and other jurisdictions are closing freeports and applying stricter legislation precisely because of these and other loopholes, dangers and abuses. Historically they have been a haven for criminality. Most of the stolen art in Europe has been discovered in freeports.

The UK Government is likely using freeports as part of an agenda to undermine devolution, and the burden on under-resourced local government is another serious concern. Freeport requirements cannot be sustained without significant investment. With relaxation of planning rules, how can local authorities control them? With no payment of rates or council tax, where is the benefit? Who ends up paying if there is an environmental accident?

At present none of the wild claims about economic benefit to Scotland and its communities have been substantiated. Research on this carried out within the UK and elsewhere has shown no net benefits. By contrast, the record of freeports as black holes in an economy and sites of tax evasion and criminality are legion. With Scotland effectively falling for the UK bait on this, the job now is to scrutinise the deals that are being put together as rigorously as possible, and to challenge them wherever necessary.

Peter Henderson is leader of the SNP group on South Ayrshire Council, a former Director General of Customs and Revenue for British Overseas Territories, and a member of the executive committee of the SNP Trade Union Group.