Your support keeps us publishing. Follow this link to subscribe to our print magazine.

The Free Port Fantasy

Deregulated tax havens which suck up public resources while providing few if any new jobs: Boris Johnson's free ports would be a disaster for Britain's economy.

Dive into the sparkling waters of Lake Tanganyika, and keep heading into the deep. There, rootling around in the sticky mud at the lake’s bottom, you will find the synodontis multipunctatus, the cuckoo catfish. Laying its eggs amongst the broods of other catfish, the cuckoo catfish’s offspring are incubated by other, unsuspecting species as if they were their own. This can prove fatal: in a horror-story twist of the kind evolution delights in, the cuckoo catfish larvae hatch first, and eat their brood companions. It’s a brood parasite adaptation that puts the catfish’s avian namesake to shame. 

As with bottom-feeding catfish, so with Boris Johnson. Bestriding the country like a great bloated creature of the slime, the new Prime Minister’s first Big Idea is to spawn free ports the length and breadth of this troubled land. The idea behind a free port is simple: a specific area of a country is placed outside of its “customs border,” meaning the usual duties on imports don’t apply, and often other regulations are deliberately relaxed. The idea is that encouraged by the low-tax, laissez-faire environment, businesses flock to establish themselves in the designated port area. A veritable economic boom erupts, in theory, with PM Johnson promising “thousands of high-skilled jobs in left behind areas.” Rishi Sunak, the new Chief Secretary to the Treasury, effectively deputy to Chancellor Sajid Javid, wrote a Centre for Policy Studies paper singing their praises as a means of regeneration back in 2016.

It’s quite an appealing image, in its way: the “left behind” or perhaps “desolate” (thank you, Tory peer Lord Horwell of Guildford) areas of the North reinvented as exotic entrepots, the mild frisson of unregulated trade sitting alongside faded seafaring glamour. It’s 2020s Teeside (cited as a possible location by Johnson) recreated as 1920s Tangiers. If Global Britain is your thing, and it certainly used to be Boris Johnson’s, this is a better story to tell than vague assurances about “adequate” food supply post-Brexit.

The Brexit pixiedust magic here is that the claim, made by Sunak, that the EU prevents the formation of free ports because the EU means Britain, like other EU members, does not have “sovereignty over its trade and customs policy.” Any “Free Trade Zones” (there are presently over 80) inside the EU are “pale imitation[s] of their international counterparts.” Freed from Brussels shackles, we will, once again, be able to live up to our buccaneering past. Manufacturers, Sunak further claims, will find the zero import duties particularly attractive, since they can bring in raw materials and parts at minimal cost before exporting finished (or part-finished) products. 

The United States has 420,000 people employed in Free Trade Zones, up 66% since 2009, mostly in manufacturing. On leaving the EU, Britain, too, will be able to set up similar low-tax manufacturing hotspots. And as a final sweetener, Sunak points out that the UK will then no longer be subject to the EU’s State Aid restrictions on support for industries. Overall, he estimates 86,000 new jobs could be created with free ports on the US model. Consultants Mace, in a paper last year on “Supercharged Free Ports,” forecast 150,000 new jobs due significantly to the boost from more industries locating closer together. 

You can see the communications appeal: free ports look like a policy that neatly ties a hard Brexit with a boost to manufacturing in those “left behind” areas. Tory Metro Mayor for the Tees Valley, Ben Houcher, has been talking up the prospects of a freeport in the North East for some time. There’s even a nod towards the left argument that the EU’s State Aid rules get in the way of restoring domestic industry. With manufacturing bosses’ organisations themselves, from the Engineering Employer’s Federation (“economic lunacy”) to the Society of Motor Manufacturers and Traders (“existential threat”) shouting from the rooftops about the risks of a no-deal Brexit, the government needed a counterargument. 

The glaring problem is that there is little evidence free ports in developed economies actually create new jobs. For sure, manufacturers may well locate there to exploit the low tax environment. But whether these are actually new jobs, or relocated jobs from somewhere else, isn’t demonstrated by the Tory free port enthusiasts. The sober analysis from trade experts at Sussex University’s Trade Policy Observatory, predictably, suggests otherwise. Congressional reports into the US free port experience found limited evidence that the Free Trade Zones created any new jobs, rather than taking them from elsewhere. The main benefits of US Free Trade Zones has been to simply allow the import of more goods at lower tariff rates. And the forecast UK jobs boost claimed by Mace is based on a comparison with widely dispersed industry in the US. As Neil Lee at the LSE points out, the UK is small in comparison, so “everything is closer together” and any economic benefits are limited.

In other words, what free ports largely do is shuffle jobs and activity around. In a classic zero-sum game, jobs emerge in one place at the expense of another. And by creating a space in which the benefits of public spending—from the roads and railways to the well-educated local workforce—are not paid for by companies exploiting them, free ports are a sponge on the system. A recent European Union report found that free ports, with their deliberately weakened regulations, were a magnet for tax avoidance and money laundering. Like any other brood parasite, free ports demand care from their hosts, but contribute little in return. 

But in the UK context it is hard not to detect something more sinister lurking here. There is little doubt that we face a government of the hard Right: from the “Britannia Unchained” enthusiasts in the Cabinet, to the appointment of Nietzschean creative destruction fan Dominic Cummings as advisor to the Prime Minister, this is a government that would dearly love to apply its slash-and-burn economic principles in the creation of new, leaner, meaner Britain stripped of its sloppy attachments to the welfare state and its egalitarian leanings. It would be a “national neoliberalism,” cut for a world in which the global structures are disintegrating but red in tooth and claw British capitalism survives.

Alas, like those on the cutting edge of neoliberalism before them, Britons remain attached to the notion that there is “such a thing as society”. Despite the best efforts of Thatcher and her successors over forty years, we have never lost our collective commitment to the NHS, public spending, or broadly redistributive taxation. Cynicism about big business prevails, whilst public service—even public ownership—is popular. To simply remove all this would invite a confrontation that a frankly weak government, in a weak body politic, would not want to take on. So instead of a direct assault on these deeply-entrenched values, other routes to the same destination are taken. Make a “success” of free ports, do so on a grand scale, have it talked up by a press that may not ask too many questions, and you can start to chew away at the social support for social provision in Britain. 

Lurking in the deep, the cuckoo catfish doesn’t only demand care for its children from its hosts. When the eggs hatch, its larvae will eat their young.