Freeports – a good or bad plan for manufacturing?
In the last Budget, Rishi Sunak announced plans to build eight freeports across England to help “level up” the country’s economy.
Freeports are secure customs zones located at ports where business can be carried out inside a country’s land border, but where different customs rules apply.
We asked our Customs Duty Consultant, Andrew Thurston what benefits these planned freeports could bring to UK manufacturers or businesses looking to set up production operations in the United Kingdom.
What do you think of the UK freeports plan, and will it be good or bad for manufacturers?
The UK’s plan to create eight freeports is ambitious and there are good intentions behind the policy to encourage manufacturing in the UK. However, it’s uncertain whether there will be sufficient benefits to encourage both UK and non-UK businesses to move their manufacturing operations into or via a UK freeport, and the customs-related benefits are certainly less than before 1January 2021.
There is a concern that freeports may not create the level of investment in England that is hoped for by the government, rather manufacturers may simply move their production to freeports to have the tax benefits. There also remains uncertainty over the controls to be imposed on manufacturers operating within a freeport and whether these will be financially viable as well as cause potential administrative burdens for both HMRC and ports.
What types of manufacturers (e.g. pharma, heavy, food and drink, other) will this affect most, in your view?
Manufacturers of high-tariff goods, such as those in the alcoholic drinks, textile, confectionery and food-processing industries, would benefit the most from using a freeport as these good have tariffs of over 8% and possible incurrence of excise duty. In contrast, reported changes in certain UK trade agreements may minimise the benefits with the agri-foods sector as the raw materials need to meet highly limiting preferential rules.
Will it benefit UK manufacturers specifically?
It would not just benefit manufacturers, but also companies who supply those manufacturers as they will be able to hold goods in a freeport without being subject to customs formalities, and can potentially then sell those good to the manufacturer without being subject to customs duties. This would reduce costs in the supply chain but would require all parties to hold a HMRC Freeport Licence and maintain satisfactory records – causing an additional administrative burden.
Time will tell whether the freeport policy will meet its objectives, but it is another positive step, like the UK Global Tariff, towards increasing the UK’s manufacturing base by making the UK a competitive place for the production of goods.
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If you would like further guidance or to discuss in more detail the impact of freeports on your business, please get in touch