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by Andrew Learmonth
02 March 2022
Freeports and green freeports explained

Freeports and green freeports explained

What did the governments agree?

In the middle of February, after much discussion, wrangling and negotiation the Scottish and UK governments agreed to establish two freeports in Scotland. Eight have already been established in England, with the first in Teeside operating since November last year. They were championed by Boris Johnson in his first speech as Prime Minister as a boon of no longer being in the EU. What makes the Scottish ones a little bit different is that they are green freeports. 

What is a freeport? 

Basically, it’s a place where the normal rules on tax and customs don’t apply. The definition varies depending on what part of the world you’re in. By and large, they tend to be duty-free areas within a country where any goods introduced are outside the customs territory and the exchequer forgoes the collection of custom duties. They can be rail or air hubs as well as seaports. An example given by Edinburgh University academic Dr Filippo Fontanelli in a paper for Spice, is that the UK normally applies a tariff of €172 per tonne on non-EU wheat flour. In a UK freeport, wheat flour could enter freely and leave freely. The owner of the flour would only have to pay tariffs when entering the rest of the UK. The freeports up and running in England offer tax relief, such as enhanced capital allowances, relief from stamp duty and employer national insurance contributions for additional employees. They also receive business rates retention and incentives on planning, regeneration, innovation and trade and investment support. The UK Government has also offered up to £25m of seed capital to each port. 

Why would anyone want to be based in a freeport? 

Businesses operating inside designated areas in the freeport can use the imports for manufacturing. It becomes a lot cheaper to make things when you don’t have to pay import or export duties on your raw materials. It’s also convenient for asset-parking, essentially putting your stuff in a warehouse, which is effectively what the freeports in Luxembourg and Geneva are. 

Why haven't we done this before? 

We have! Although without the same constraints over subsidies that come from being in the EU. Seven freeports operated in the UK at various points between the 1980s and early 2010s, including Prestwick Airport. The UK Government decided not to renew the legislation governing them in 2012. 

So, what's the difference between a green freeport and a freeport? 

It partly comes down to the fact that some policy areas touched by the free zones are reserved. While, for example, most customs are in the hands of the Treasury, checks on animal, food and plant products are devolved. So too are some taxes, including business rates and land tax. Planning, meanwhile, is entirely devolved. Scottish ministers initially resisted the idea of freeports, saying that instead, Scotland should have greenports. After much discussion, and talk of possible rival proposals, a compromise was reached. Scotland won’t have freeports or greenports, but green freeports. Unlike in England, applicants here will need to show that they’re committed to reaching net-zero, and will offer high-quality employment paying at least the real living wage. 

Not everyone's happy? 

No. It was the first real public split between the SNP and their partners in government, the Scottish Greens. Finance spokesperson Ross Greer said that the policy was “yet another way of handing tax breaks and public money to rich corporations, despite no evidence that it will create real economic prosperity”. It should be pointed out that “the future of green ports” was in the “excluded matters” section of the cooperation agreement signed between the two parties. 

What happens next? 

A prospectus is expected in March 2022, with winning bids announced in the summer and the first freeport operational by next year. Ministers from both the Scottish and UK governments will have a say in the assessment and selection process. In July last year the Scottish Government named nine areas being considered - Shetland, Orkney, Aberdeen with Peterhead, Montrose, Dundee, Cairnryan, the Firth of Forth and Glasgow city region. A Cromarty Firth consortium is also understood to be interested. It’s thought the first Scottish freeport could be up and running by 2023. 

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