Freeports — [David Hanson in the Chair]

Backbench Business – in Westminster Hall at 1:30 pm on 11th October 2018.

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Photo of Simon Clarke Simon Clarke Conservative, Middlesbrough South and East Cleveland 1:30 pm, 11th October 2018

I beg to move,

This this House has considered the establishment of freeports in the UK.

It is a pleasure to serve under your chairmanship, Mr Hanson. I thank the Backbench Business Committee, chaired by Ian Mearns, for granting this timely debate, and the many supporters who helped to secure it, in particular Frank Field. He is a great champion of both Brexit and the north of England, and is held in the highest regard on both sides of the House. He has asked me to pass on his apologies today; he is unfortunately detained on Merseyside.

What is the issue that unites us, and what is a freeport? At its simplest, a freeport is an area that is physically within a country but legally outside it for customs purposes. Consequently, goods that enter a freeport do not incur import duty. Instead, import duty is paid only if and when goods pass from the freeport into the domestic economy. That offers a number of advantages, as, for example, goods can be imported, processed and then re-exported without incurring any duty. That incentivises international businesses to use the freeport as part of their supply chain, thereby stimulating domestic manufacturing and creating jobs in the process. The deferral of duty also enables goods to be stored or processed in the freeport before entering the domestic economy. That allows businesses to better control their cash flow and, again, encourages domestic manufacturing, as import tariffs on processed goods are often less than those on the individual component parts.

In addition to the benefits accrued through duty-free status, freeports often offer their users a number of additional advantages, including tax reliefs and a simplified regulatory environment. It is important to stress that there is no one model of freeport. All freeports are different in the mix of advantages that they offer and the physical form that they take—I think we will hear from colleagues today about issues ranging from seaports to airports. The debate, therefore, is about not only whether the UK should establish freeports, but what form they should take. I will begin, however, by briefly describing the case for freeports in general.

Freeports are not a new idea; indeed, approximately 3,500 freeports are now operating in more than 135 countries. The UK is unusual in that we have no operational freeports. If we are to compete seriously in the global trading system once we leave the EU, that has to change, as my hon. Friend the Member for Richmond (Yorks) (Rishi Sunak) pointed out in his excellent paper for the Centre for Policy Studies.

Wherever freeports have been implemented properly around the world they have had that effect. Just look at how quickly and impressively the Jebel Ali free zone in the United Arab Emirates has transformed Dubai. In the space of a few decades, that free zone has brought unimaginable wealth to that country. The free zone alone now hosts 7,000 global companies, employs 145,000 people and accounts for around 40% of the UAE’s total direct foreign investment.

Jebel Ali is the most unique and dramatic example, but freeports have demonstrated their worth in highly developed and mature economies as well. The growth in freeports in the US, for example, has outperformed the US economy as a whole. One report predicts that if freeports in the UK were as successful as those in the US, we would create an additional 86,000 jobs. There is every indication that freeports in the UK would be just as successful as those around the world—perhaps even more so, given our excellent links with the United States, Europe and the Commonwealth.

A report commissioned from Mace Group by my fellow Conservative, Tees Valley Mayor Ben Houchen, looked at what a programme of supercharged freeports in the north of England might mean for our economy. It found that such a programme, once established, would boost UK trade by nearly £12 billion a year, create 150,000 extra jobs across the north, including 17,500 in Tees and Hartlepool, and provide a boost to northern powerhouse GDP of £9 billion a year—equivalent to £1,500 a year for every household in the north.

Although the jobs created by freeports would extend to the service sector as well, the vast majority would be in manufacturing. That in itself would be another huge advantage for the UK economy. Although manufacturing as a share of our economy has declined from 32% of gross value added in 1970 to 10% today, it still accounts for 13% of business investment, 50% of UK exports and 70% of business research and development. It also creates high-paying jobs, with the average worker in manufacturing earning £3,400 more than those in the rest of the economy.

Increasing the size of our manufacturing sector is also central to boosting the stagnant levels of productivity that the Government have rightly identified as a key structural challenge for the UK economy. As the Government’s industrial strategy White Paper points out:

“The productivity of the sector has increased four times faster than the rest of the economy”.

By boosting the share of manufacturing in the UK economy, freeports would have positive effects on productivity, wage levels, the current account deficit, investment, and research and development.

Although I would love to see freeports dotted around the entire UK coastline, like giant magnets pulling in container ships from all around the world, I also want to fly the flag particularly for Teesport, and I am delighted to see my friend Anna Turley here to make that case. Situated immediately adjacent to the site of the former Sahaviriya Steel Industries steelworks—now the centre of the largest regeneration project anywhere in the UK—Teesport is undergoing huge investment to prepare it to rival the major ports in Europe. It handles more than 5,000 vessels each year and around 40 million tonnes of cargo, on an estate covering almost 800 acres. Teesport has all the qualities that will allow it to prosper as an international hub for trade and supply chain processing: deep water access that allows volumes to be maximised, the availability of extensive brownfield land surrounding the port, excellent transport links to the rest of the country, a ready supply of skilled workers, and a local economy that has so much unrealised potential.

For all the reasons that I have set out, I strongly believe that freeports could transform the economic growth and prosperity of the north-east, as well as the wider UK economy. However, as I have mentioned, freeports come in many forms, and it matters a great deal for the success of a freeport that it consists of the right features. Members may be aware that the UK has experimented with freeports once before. My researcher dredged out a wonderful report from the 1980s by the Adam Smith Institute, setting out the experiment that was launched in 1984, giving six ports around the UK freeport status: Belfast, Birmingham, Cardiff, Liverpool, Prestwick airport and Southampton. All those freeports, however, failed to achieve the success that we have witnessed in others around the world, because they did not offer anything like the advantages that could be acquired in many other freeports outside Europe. That was partly due to an uncharacteristic lack of ambition by the Thatcher Government, but mostly due to the regulatory constraints placed on them by the EU.

It is therefore crucial that, if and when we reintroduce freeports to the UK, we allow them the oxygen that they need to breathe and come to life. That is where I take issue with the Government’s current position. In his reply to a written question from me earlier this week, the Financial Secretary to the Treasury emphasised that the Customs and Excise Management Act 1979, which I am sure we all know well, already provides a legal basis for the designation of free zones, and will continue to do so following our departure from the EU.

I am a great admirer of the Minister, and I know that he is deeply committed to boosting our economy. I am also genuinely grateful for the supportive conversations that I have had with other Treasury Ministers about how we could aim to deliver a new generation of freeports. However, if we are not prepared to go further than we did in the 1980s, the results will be the same. During that first freeport experiment, Dr Eamonn Butler and Dr Madsen Pirie, by surveying the characteristics of freeports around the world, produced a list of the advantages that freeports need to succeed, and I will mention a few of them now.

At the macro level, freeports must be able to offer lower levels of taxation and less burdensome regulations than exist outside. Those conditions are crucial for attracting new business, creating jobs, and encouraging start-ups. Freeports also need to be able to curb bureaucratic administration by having both automatic concessions and collective processing. Automatic concessions would mean that freeport users do not have to undertake the costly and lengthy process of applying for individual concessions, such as for inward processing relief. Collective processing would also reduce paperwork, as the freeport operators would deal directly with customs documentation on behalf of all, or a number of, their tenants.

Successful freeports must also offer their users security. The heightened security around freeports is often perceived as a necessary burden, required to prevent smuggling. However, the existence of a highly secure customs perimeter affords freeport users huge cost savings in the form of lower insurance premiums. High-value stock is also more secure, and the insurance need cover only the duty-free, rather than duty-paid, value of the stock.

The final advantage that all freeports must be able to offer businesses is improved cash flow. To an extent, it will arise naturally because of the ability to defer duty payments until the goods actually leave the freeport, but additional measures can be taken. Ideally, VAT should be scrapped on transactions within the freeport so that businesses are not required to wait for needless VAT refunds.

In summary, we should not aim to establish the type of insipid freeport that one finds across the European continent. Instead, we should aspire to construct supercharged freeports like those found in China, the US and the middle east.

Photo of Michael Tomlinson Michael Tomlinson Conservative, Mid Dorset and North Poole

My hon. Friend makes a powerful and compelling case. He mentioned that freeports come in all shapes and sizes. Does he agree that the UK’s regional airports present an opportunity to expand freeports or free zones? It is good to see the Minister in his place; does my hon. Friend, like me, look forward to a positive answer from him to the call for freeports, not only in the north-east but in our regional airports?

Photo of Simon Clarke Simon Clarke Conservative, Middlesbrough South and East Cleveland

I agree completely that the opportunities are not restricted to Teesport or even to seaports. Airports could be a logical centre for such innovation; I know of freeport zones in Tennessee that are centred around local airports and that keep spreading prosperity to areas that are not naturally at the centre of current economic success. That is the point: freeports can really diversify the benefits of a liberalised economy into areas that have struggled to attract the levels of inward investment that other cities or areas have enjoyed. Regional airports should absolutely be part of the strategy. I think the Government would broadly agree that if the idea is taken forward, it will not be in any way restricted to seaports.

Why are freeports back on the agenda now after a three-decade hibernation? The answer, of course, is Brexit. Leaving the European Union is the perfect opportunity to establish supercharged freeports, for three reasons. First, we will be free from EU regulatory restraint and will therefore have the freedom to create something meaningful, rather than just glorified bonded warehouses. Secondly, as we pivot from Europe to the rest of the world, we will need to be even more competitive to attract new business. I cannot emphasise enough that if we accept a looser economic relationship with Europe, we will have to establish better ways of enhancing our trade relationships with the rest of the world or the exercise will lose all economic meaning. Thirdly, in the event that we end up with no preferential trading relationship with the EU, freeports will help us to maintain frictionless trade, especially for just-in-time supply chains.

That brings me to my final point, which is about our future relationship with the EU. The type of freeport that we can introduce post Brexit is inextricably linked to the type of relationship that we forge with our European partners. At the heart of the question lies state aid, on which the EU has much more stringent rules than the World Trade Organisation. The most fundamental difference is that under WTO rules, only “financial contributions” count as subsidies, whereas the European Commission defines state aid as

“an advantage in any form whatsoever”.

Although setting up a freeport is possible within the EU, the state aid restrictions make it impossible to set up the type of successful freeports that we want and need, with power to attract meaningful levels of foreign investment and incentivise the onshoring of jobs. Crucially, members of the European economic area are automatically bound by all EU state aid rules, while Canada, in its new comprehensive trade agreement with the EU, applies none of them. If we are serious about establishing freeports in the UK, our future relationship with the EU will therefore need to look a lot more like Canada plus than like EEA minus.

From the proposals in the Chequers White Paper, it looks as if the freeport opportunity will die without a shot fired. The White Paper pledges that

“the UK would make an upfront commitment to maintain a common rulebook with the EU on state aid”.

That makes really depressing reading. By committing to apply the entire EU state aid rulebook, we are tying our hands and sapping our ability to attract foreign investment, boost international trade and ultimately create thousands of jobs in the UK, mostly in manufacturing.

To avoid any misunderstanding by the Government, I want it to be crystal clear that, for me, that is not good enough. The whole Chequers approach is characterised by the desire to split the difference between being a member of the EU and being an independent country, but it ends up delivering the benefits of neither. Along with the wider democratic deficit involved in our voting to leave the EU, but then accepting being a rule taker, that is why I must end my speech by emphasising that I am deadly serious that I cannot and will not support the Chequers proposals if they form the basis of an agreement with the EU in a few weeks’ time.

Freeports are one demonstration of why we would fare far better in a looser trading relationship with the EU based on a super-Canada deal. The remaining negotiating time should be spent in practical engagement on the Irish border, to which very clear solutions have been suggested and which I believe is much more about a political than a practical obstacle. It is very simple: time—both for freeports and for a proper Brexit—is running out.

Photo of Anna Turley Anna Turley Labour/Co-operative, Redcar 1:45 pm, 11th October 2018

As always, Mr Hanson, it is a pleasure to serve under your chairmanship. I congratulate my right hon. Friend Frank Field and my near neighbour Mr Clarke on securing the debate. It is great to come together across the party divide to champion our area, because the hon. Gentleman and I both recognise how freeport status for Teesport could help and support our constituents.

My constituency lies at the mouth of the River Tees, where the North sea brings its cargo from around the world and ships queue to bring their goods to the third-largest port in the UK. It is from that port that steel from Redcar’s blast furnaces once sailed forth to build the world. Today, sadly, the site is desolate; the steelworks is now closed, and the 3,000 jobs it sustained are gone. But the land sits waiting, ready to drive a new industrial renaissance for Teesside. A freeport could be the key to unlocking the site’s huge value and delivering thousands more jobs. It could create employment and economic activity in an area where the need is high.

The same is true across the UK, as the hon. Gentleman said. Of the country’s 30 largest ports, 17, including my own, are in the bottom quartile of local authorities in the index of multiple deprivation. They are crying out for the inward investment that a freeport could draw in, so we must take a radical look at proposals to support their economies.

Like the hon. Gentleman, I make no apology for lobbying for freeport status on behalf of the port in my constituency. Teesport has strong structural advantages that should make it favoured for freeport status, including a deep-water facility that provides lock-free access to the sea and strong road and rail services. The facility already handles 5,000 vessels and 40 million tonnes of cargo a year. The port is integral to the Teesside manufacturing complex, incorporating chemicals, engineering, renewable energy and agritech.

The South Tees development corporation is overseeing the former SSI site, the biggest industrial opportunity that the UK has seen since the second world war. The development corporation—the only one of its kind outside London—has set out its ambition to create 20,000 additional jobs in high-value manufacturing over 25 years, with £1 billion in gross value added for the local economy. That programme would be substantially enhanced by the creation of a freeport. Incorporating the development corporation area into a freeport area, together with the Teesport facility, and in conjunction with adjacent industrial sites such as Wilton and North Shore, could help the region to build on its strengths in chemicals, steel, energy and logistics and realise our vision to become the most attractive place in the country for high-value manufacturing.

With the North East of England Process Industry Cluster leading the way, Teesside is the location for the largest integrated chemical complex in the UK—the second largest in western Europe in manufacturing capacity. The sector has inputs to a range of other key industries such as aerospace, automotive and life sciences. It is highly productive and competitive but faces a number of challenges, such as increasing global competition, high operating costs and skills shortages. A freeport could be part of a range of policy solutions to maintain and enhance the attractiveness of investment in the chemical sector in the UK and on Teesside. Freeport status for Teesside could make the area the gateway of the north, rebalancing the economy and making the region’s manufacturing base more competitive and attractive.

As the hon. Member for Middlesbrough South and East Cleveland noted, a study commissioned this year by the global construction company Mace Group shows that a freeport in Tees Valley could create more than 17,500 jobs and contribute more than £1 billion to the local economy—more than enough to offset any loss to the Treasury in import tax revenue. That should be considered when we weigh up the economic advantages. For an area in which unemployment is above the national average and many in work have to travel further afield or take insecure jobs, the proposal could be transformative.

As I mentioned, there are many areas similar to mine that have suffered deprivation and industrial decline, and that could see an economic boost delivered by a freeport. A Freeport could also future-proof many of our other industries, which are battling to stay increasingly competitive in turbulent world markets. We only have to look around the world to see how our competitors are taking full advantage of freeports. Approximately 3,500 freeport zones exist, employing 66 million people across 135 countries. We are clearly lagging behind the rest of the world in this area.

Freeport zones are recognised around the world as playing a major role in retaining, reshoring and growing domestic manufacturing activity and boosting trade. There are 250 free trade zones in the US, and Freeport zones also play a major role in the economies of Singapore, Hong Kong, Indonesia and the United Arab Emirates. However, I would urge caution when we are developing the model, to ensure that there is no erosion of employment rights, environmental rights or health and safety rights. It is really important that we look at the models that are being used around the world if we come to develop our own.

My view diverges slightly from that of the hon. Member for Middlesbrough South and East Cleveland, who said the advantages of freeports are dependent on being outside the EU. We could be taking advantage of them right now—indeed, he mentioned the legislation that we had in the past for models in the UK. Other member states already have freeports, including the ports of Bremerhaven in Germany, Le Verdon in France, and Shannon in the Republic of Ireland. In fact, there are currently over 85 freeport zones in the European Union. There are no barriers, but there is a lack of political will.

While this is the first debate that we have dedicated to the benefits of freeports, it is not the first time we have made this case in the House. Many Members, including myself and my neighbour, the hon. Member for Middlesbrough South and East Cleveland, have championed freeports for our own areas; indeed, I tabled amendments to the Taxation (Cross-border Trade) Bill that would have established the legislative basis for free zones to return to the UK. Until 2012, we had the legislation in place for five freeports, but unfortunately the statutory instruments creating them expired, and freeports were never fully explored. Moreover, the Secretary of State is already empowered to designate any freeport by statutory instrument under section 100A of the Customs and Excise Management Act 1979, which was referred to earlier and which is still in force.

I say to the Minister that the Government have an opportunity here to deliver transformative change to deprived areas across the UK, including my own. There could be no better expression of the northern powerhouse than delivering a freeport boost to northern ports and ports across the country, stimulating manufacturing, rebalancing the economy and creating jobs. I beg the Government to give serious consideration to this issue without delay.

Photo of Martin Vickers Martin Vickers Conservative, Cleethorpes 1:52 pm, 11th October 2018

It is always a pleasure to serve under your chairmanship, Mr Hanson, and I congratulate my hon. Friend Mr Clarke on securing this important debate at a particularly opportune time. The UK is an island nation and has always been very dependent on our ports; indeed, 90% of all our trade by volume, and 75% of our trade by value, passes through UK ports. Post Brexit, we have an opportunity to capitalise on this and to open up the country to world markets at a level never previously seen as possible.

I take note of the slight differences between the two previous speakers’ views on whether membership of the EU restricts us in doing that; my understanding is that it certainly does, and it is worth noting that the Mace report referred to previously says that leaving the EU and the customs union can be seized on as an opportunity to enhance the UK’s ability to achieve these things. Let us ignore whether they are, strictly speaking, allowable at the moment; the fact is that Brexit is going to happen, and it provides the window of opportunity that we need.

Taking certain areas around a port or an airport and putting them outside the domestic customs area, as my hon. Friend the Member for Middlesbrough South and East Cleveland said, is good for business. It is also worth noting that the designated freeport need not be entirely adjacent to the port estate. In my constituency, there is an industrial estate called Europarc, which straddles the Grimsby and Cleethorpes constituencies. In discussions I have had with operators there, they can see great value in designating that as a part of the freeport zone.

As has been outlined, freeports allow us to import goods from abroad, and goods leaving the area can be sent abroad, without the usual duties—it incentivises domestic manufacturing. Around the world, there are something like 3,500 freeports, but sadly there is none here in the UK. That puts us at a considerable disadvantage and poses a serious risk of us slipping behind some of our trading partners and competitors.

The Chief Secretary recently visited my constituency. On that occasion, I hosted a discussion on freeports, which included Associated British Ports—the port operators of Grimsby and Immingham—Humberside Airport, Young’s Seafood, the Humber local enterprise partnership and the Hull and Humber chamber of commerce. It was highly encouraging to hear the strong levels of support from those organisations, which encompass both the public and private sectors. On the day, the Chief Secretary tweeted that freeports for the north could give the UK a £9 million boost. I say to the Minister that an even more senior Minister than his good self has already committed to the fact that freeports will give us a £9 million boost. Since the Treasury says so, we know it must be true.

ABP, which owns and controls much of the port infrastructure in my constituency and the surrounding area, is incredibly positive about the prospect of freeports being rolled out across the country. If done properly, there is absolutely no doubt that there could be numerous benefits for this major port operator and, more importantly, for local businesses that feed into the area around our major ports. When I took Simon Bird, the port director for the Humber ports, to see Brexit Ministers some months ago, he outlined the concept of a freeport corridor between the various ports, perhaps on the east and west coasts. I know Ministers were enthusiastic about it at that stage, and it is something that could be looked at in the future.

By exempting products from import tariffs, businesses can process and manufacture goods to be exported to a third country. That reduces costs, increases profitability and leads to greater local investment. By allowing products to enter the zone and have duty paid when they leave it later, businesses can warehouse and process goods and improve cash-flow cycles and efficiency. That is especially beneficial for sectors that depend on just-in-time management, such as the fishing and fresh food sectors—that is of particular importance to my constituency, where 5,000 people are employed in fish processing.

Another reason to support freeports is tariff inversion. Finished products generally face lower tariffs than the parts that make them. If the Humber were to be made a freeport, cars could be brought into Immingham and Grimsby, as they are today, along with additional upgrade components. There are also tax incentives: we can incentivise companies to generate new economic activity within freeport zones, and this can be done by a range of methods, such as offering reduced rates of corporation tax, rewarding job creation with lower levels of employment rates, or by setting a lower rate of VAT on goods brought in through the zone. I fully agree with Anna Turley that it is absolutely vital that we do not use the freeport concept to reduce employee standards in the workplace.

Many tangible benefits would be felt quickly by local businesses and communities where freeports are implemented. Some of our best ports are in the northern coastal communities that have been run down over the years, as referred to previously. Freeports would enable regeneration in these communities through private enterprise rather than at the expense of the taxpayer. Freeports are an opportunity that can be seized on to ensure that businesses are attracted to those northern communities that have been left behind, and to make the most of competitive global trading markets.

It is for that reason that I launched the all-party parliamentary group on freeports a few months ago, and I thank my colleagues for electing me as the group’s chairman. I hope the APPG can keep this issue on the political agenda—I appreciate Ministers are rather bogged down at the moment with the details of Brexit. Perhaps we need to concentrate more on the opportunities of Brexit.

The areas around the ports, including my own—the Grimsby-Cleethorpes-Immingham area—have been ranked in the bottom quartile for deprived areas. A policy that leads to a boost in investment has got to be welcomed. Five of the UK’s major ports are located in the north. Together, they handle more than 10 million tonnes of goods and contribute £5 billion of economic value each year. By tonnage, the Grimsby and Immingham docks complex is the largest in the country. It ranks first in the UK for trade in coal, second for metal ores and third for oil products. The port of Immingham alone is responsible for providing fuel for 10% of the UK’s energy production. Clearly, it is vital for the UK’s energy strategy that freeport status further unlocks that potential.

In the Humber, there is a strategic focus on energy—specifically renewables. The continuing investment in the renewable energy sector is another example of the investment and job opportunities in Immingham and the surrounding area. As coal declines, biomass has grown, and Immingham is crucial for the import of the biomass that is supplied to the Drax power station near Selby.

We talk a great deal about rebalancing the economy and ending the north-south divide. That is a mission of every Government, but we have yet to achieve it in any meaningful way. In 2016, the northern economy created £330 billion of economic output, but had the north and south been balanced, it would have been about £400 billion. That is £70 billion more—equivalent to £15,000 per household in the north of England. If the Government are serious about addressing that imbalance—and I know they are—freeports are a logical means to that end.

Hon. Members have already referred to the report from the consultancy company Mace, which puts forward the idea of freeport status for seven northern ports. It states:

“The successes of the Humber—the ‘Energy Estuary’—demonstrate the sheer scale of sector-specific successes that can be achieved”.

Freeports would be a sensible way to expand that success, for not just the north of England but the whole country.

There is also the possibility of combining freeports with existing enterprise zones to create supercharged freeports, which would be a powerful force for economic growth and job creation. Mace calculated that declaring those seven ports across the north as supercharged would boost trade by £12 billion and create 150,000 jobs in the north. That would be a momentous step for the northern powerhouse and would prove beyond doubt that the idea is more than just a slogan. Projections show that the supercharged freeports could close the north UK productivity gap by 15%, which would be another welcome step in rebalancing the economy.

Freeports are inextricably linked to Brexit. The success of this policy requires the UK to have full control of its trade policy and customs arrangements. Freeports can be properly implemented only in a post-Brexit world. Although technically possible within the EU, red tape and restrictions from Brussels would make them somewhat ineffective and would seriously hinder our ability to become a truly global Britain. The Shannon free trade zone, set up in the Republic of Ireland in 1959, has been decimated by the Republic’s membership of the EU. Having discussed the matter with industry experts, I am convinced that the current plans for our relationship with the EU, as outlined in the White Paper, would be insufficient to make a success of freeports. I fully concur with the comments of my hon. Friend the Member for Middlesbrough South and East Cleveland about the Chequers deal. We have got to establish full control over our trade and economic policies. That crucial message was delivered during the referendum campaign, and we need to deliver on it properly.

Cleethorpes, Grimsby and Immingham make up the North East Lincolnshire Council area, which voted 70% for Brexit. As one of the MPs for that area, I am determined to press the Government on every possible occasion to ensure that what those people voted for is delivered. A freeports policy would instantly end the criticism that the Brexit decision was about being little England. This is an opportunity to broaden our trading capacity and look to the growing economies in India, China, the far east, South America and so on, rather than solely focus on the EU economies, which are static at best.

I urge the Minister to be brave, break out from his brief, go along with the Chief Secretary and give us a real boost. Let us talk about the opportunities of Brexit, rather than the problems of getting there. Over to you, Minister.

Photo of Julia Lopez Julia Lopez Conservative, Hornchurch and Upminster 2:05 pm, 11th October 2018

It is a pleasure to serve under your chairmanship, Mr Hanson. I appreciate the fact that my hon. Friend Mr Clarke has injected some much needed energy into post-Brexit planning.

Brexit should be a moment of creative opportunity, when we begin to tailor our nation better to fit our citizens’ needs and ambitions. Leaving the EU was never going to be easy—I am not naive—but we in this House have spent two years engaged in a series of infertile, factional war dances, unable to unify around a vision that would allow us to plan properly for the future. Let us have more debates like this in which we set out fresh ideas that can deliver results for the people we represent.

Freeports, as other hon. Members have said, are special trading zones that are considered to be outside a country for customs purposes. Goods can enter and exit a freeport without incurring tariffs and the need for import procedures. That makes way for the import of semi-finished products, such as car parts, from other countries into the UK on special terms. Such parts can be modified or stored, to be re-exported as UK products. By themselves, initiatives such as freeports will not spark a manufacturing renaissance, but when integrated with local enterprise zones, they can help to create the conditions for manufacturing to thrive—particularly in northern towns, which for too long have lived in the shadow of our industrial heritage. The idea deserves consideration as part of a dynamic new trade strategy.

However, let us be truthful: we cannot have a meaningful, independent trade strategy if we remain in a de facto customs union with the EU. The notion that we can sign trade agreements worth having while contained within an indefinite backstop arrangement is, I fear, misguided. Time and again in the International Trade Committee, of which I am a member, and in meetings, international partners have expressed a genuine eagerness to engage in new trading arrangements and initiatives with the UK. They are excited about the re-entry of a major G7 player as an independent trading nation that can push an agenda on global standards and free trade. However, they advise us that it is impossible to start much of that work without a clear sense of the UK’s future trading arrangements with the EU.

Meanwhile, businesses tell us clearly that they simply want clarity, and then they will deal with whatever new arrangements come to pass. The outcome of our withdrawal negotiations must not leave us in a state of perpetual uncertainty. That would be hugely damaging to our nation’s economic interests, and I dare not contemplate how the public would feel if we advised that we had delivered on the referendum result while subcontracting regulatory policy making to our EU competitors. Contempt for the political class would surely deepen, with consequences for our democracy.

The EU has been criticised for vigorously protecting its own interests in this negotiation. Of course, it does not want a more dynamic competitor on its doorstep—I understand that—but we should be equally vigorous in defending our own interests. Freeports, free trade agreements, regulation and trade facilitation measures should all be part of a modern global trade strategy, but infrastructure investment and the manner in which we connect it coherently is also critical.

It may not be fashionable to champion investment in London in a Chamber full of non-London MPs, but the capital should be understood not as one rich haven but as a collection of very different regions, not all of which are thriving and not all of which have seen sustained investment over the years. Before containerisation and offshoring, London’s docks and manufacturers provided east Londoners with a range of opportunities for blue-collar work. By the ’60s, however, the docks began to close, leaving in their wake high levels of unemployment and the depopulation of docking boroughs. The redevelopment of the Isle of Dogs into London’s second financial hub, Canary Wharf, has been a staggering success, but many communities to Canary Wharf’s east still see the glittering office blocks as something very distant from their lives.

Today in Barking and Dagenham, one third of people are paid less than the London living wage. Meanwhile, parts of my own borough of Havering have a very low skills base. More than half of the adults in the borough do not have A-level-equivalent qualifications. Ford in Dagenham, which was once London’s biggest employer, stopped car production in 2002, and a workforce that was 40,000 at its height has diminished to 1,830.

Exciting things are happening in east London and the Thames Gateway, including the newish London Gateway port, Chinese investment in the Royal Albert dock, planned film studios in Dagenham and the arrival of the Barking continental freight railway. All these developments require a catalyst to bring them together and help the region and its people fulfil their huge potential. Perversely, although it is west London’s airport, that catalyst could be Heathrow, which is the UK’s biggest port by value, handling over £106 billion-worth of goods each year. Now that its expansion has been given the green light in Parliament, the airport’s executives want to build large chunks of the new expanded airport offsite at so-called logistics hubs, and then transport those components of the third runway to the site as and when they are required. With infrastructure projects like HS2 and Sizewell contemplating sharing those hubs, the bid that makes the final cut can expect an influx of cutting-edge engineering, research and manufacturing jobs to the area.

Havering has put together an exciting plan for a logistics hub at an 86-acre brownfield site next to the Ford Dagenham plant, which is a stone’s throw from Canary Wharf. As one of the borough’s three MPs, I am extremely excited by the opportunity that the plan presents for reigniting manufacturing in the capital. Superbly connected by river, rail, road and air, the site is next to an industrial estate with 70 logistics companies already there. It is near the ports of Tilbury and London Gateway, as well as the Barking terminus of the intercontinental railway, which, as I have said before, is part of China’s belt and road initiative. A housing zone is planned nearby and the adjacent Centre for Engineering and Manufacturing Excellence, as well as Havering College’s expanding construction campus, could train up local jobseekers.

The Havering-Heathrow hub could therefore have a profound impact in tackling deprivation, crime and unemployment in an area that has struggled to replace the kinds of blue-collar jobs that were formerly provided by the docks and the motor industry. Once the runway is built, the logistics hub could become a cargo processing centre.

We need to do imaginative things which will rapidly and effectively signal what kind of nation we seek to be as we leave the European Union. For instance, could a Havering hub be turned into an east London check-in point for Heathrow itself, taking thousands of car journeys away from the M25 and removing luggage from tube trains as passengers catch organised shuttles or dedicated rail services to the main terminals? A rail line already connects Ford’s Dagenham plant to Stratford, and the Abbey Wood branch of Crossrail could be extended by one stop to provide a direct route to the airport. The Thames could reclaim its glory days of transporting cargo—taking countless lorries off the roads—and acting as a link between air and sea freight terminals. All this would help reduce pressure on the communities around Heathrow airport. We could even explore the creation of a free trade zone from the cargo processing hub at Beam Reach—the logistics hub site—to the ports at Tilbury and Thurrock, which would finally unlock the regeneration aspirations of the Thames Gateway and supercharge the eastern region as a global trading portal that links London and the UK to the rest of the world.

The capital may have been thriving for those working in the service industries, but that has not been the case for many in blue-collar professions. As we leave the European Union, why not use the opportunity of the expansion of our biggest port, Heathrow, to restore east London’s illustrious heritage as a cutting-edge manufacturing centre?

No one aspect of our trading policy can be a panacea in diversifying our economy and making it deliver for people who feel left behind. Realigning our country to global ambitions will take time and cannot be done through free trade agreements alone—it is about infrastructure investment, trade facilitation measures, tax policy, regulation, freeports and other ideas coming together in one coherent strategy. But to maximise that strategy, we need control of our own regulatory and customs tax policy. Please, let us not pretend otherwise.

Photo of Lee Rowley Lee Rowley Conservative, North East Derbyshire 2:13 pm, 11th October 2018

It is a pleasure to serve under your chairmanship, Mr Hanson, and thank you for the opportunity to contribute.

I congratulate my hon. Friend Mr Clarke, and other hon. Members present, on being the driving force behind this debate, to which it is a pleasure to contribute. In the year and a half that my hon. Friend the Member for Middlesbrough South and East Cleveland and I have been in Parliament, he has been a doughty campaigner on this issue, and has sent me and other new MPs many letters, pieces of information and general perorations telling us about the wonderful opportunity of freeports. I am grateful to have the opportunity to agree with him officially and on the record.

I came here to listen as much as to speak, because this is an area of interest to me but not one that I know a huge amount about. Some of the speeches have been incredibly useful in helping somebody who is new to the subject understand it. People may ask why a Member of Parliament for one of the most landlocked constituencies in the country—roughly 70 miles away from either coast—is talking about freeports, and while other Members have been speaking, I have been trying to work out a way in which I could make a connection. I attended Transport questions earlier, and we received the extremely good news that the go-ahead has been given for the regeneration and connection of the final stretch of the 250-year-old Chesterfield canal, which links to the River Trent at Stockwith, near the constituency of my hon. Friend Martin Vickers, before reaching the North sea at Hull. The canal was threatened for years and years because of the potential for High Speed 2 to rip it up. Hopefully, we can push for a freeport at the end of the Chesterfield canal at some point in the next couple of decades, when that regeneration occurs.

The real reason I am here is that it is so pleasing to see a debate in this place about the power and the opportunity that economic capitalism and liberalism could unleash on populations such as those in the constituencies of the hon. Members who have spoken, before spreading to other constituencies like my own. In the year and a half that I have been here, I have looked over the Order Paper every single day. Often, it seems to be a never ending set of requests for more activity and more intervention, and for more to be done by the state. Sometimes, it is incumbent upon Members to stand back and realise that some of the wider powers and bigger forces that actually improve lives in this country can only act when we let government get out of the way and let people and commerce thrive in the way that freeports would allow if instituted properly, as my hon. Friends have outlined. I am extremely pleased that we are all agreeing that the forces of liberalism and capitalism—much-maligned in recent years—have the power to do good, make our areas richer, put money in people’s pockets and drive our country forward.

Secondly, I want to speak about the opportunities arising from Brexit, which have already been touched on. It is so refreshing to be in a debate in which we do not necessarily talk much about Brexit—although I am going to touch on it in a moment—but about the opportunities that it can bring. This being one of the first debates in the new term, I hope that it is a turning point, and that we can now look beyond Brexit rather than being completely consumed by the seemingly interminable process of it, which I fear will require us to go through significant time, energy and tears yet.

I concur with my hon. Friends the Members for Cleethorpes, for Middlesbrough South and East Cleveland, and for Hornchurch and Upminster (Julia Lopez), that if we are to leave the EU—we are leaving; my constituents voted 63% to leave—we need to leave in a way that gives us the most flexibility, the most opportunity and the most ability to innovate in the coming months, years and decades. That is the prize and the opportunity that our country needs to grasp. If we do not do that—if we fall between two stools and fail to recognise that we have the power to stand on our own two feet independently, while remaining hugely friendly with our European friends and allies—we will not be delivering the Brexit that people voted for in 2016 and, more importantly, we will not be obtaining the opportunities or the value that could come from Brexit. I wholeheartedly endorse the comments made by my hon. Friends: Chequers in its current form does not work and it does not give us the opportunities we have been talking about today, and I will not support it if it is put to a vote in the House.

The third reason for my speech is that this is an opportunity for us to innovate, to change, to look at how our regulations do or not work, and to boost our commerce. The most nimble and most independent countries will thrive in the next few decades, and innovations such as freeports offer us the opportunity to do so. As my hon. Friend the Member for Middlesbrough South and East Cleveland outlined, examples such as Jebel Ali in the United Arab Emirates, which has 140,000 people working there and receives nearly a fifth of all direct investment in the UAE, demonstrates the kind of opportunities that we may be able to grasp if we take them.

There are also manufacturing opportunities. My constituency is an old manufacturing area, as well as an old mining area, and it still has a significant amount of manufacturing. If freeports can contribute in any way to bringing back some manufacturing, with a focus on high-skill manufacturing, building on what we have, we should all welcome that.

In summary, I am still trying to work out how to get a freeport 70 miles away from a coast. I will continue to think that through at my leisure. Divergence is sometimes an opportunity, as this is. I hope that we, as a Government and a country, will take up such opportunities, because if we do we can be extremely successful in the years to come.

Photo of David Hanson David Hanson Labour, Delyn

We have an abundance of time for the Front-Bench speakers, so there is no need for them to restrict themselves to the normal 10 minutes each.

Photo of Douglas Chapman Douglas Chapman Shadow SNP Spokesperson (Defence Procurement & Nuclear Disarmament) 2:20 pm, 11th October 2018

Thank you, Mr Hanson, and it is a pleasure to serve under your chairmanship. I warmly thank Mr Clarke for bringing the debate to the Chamber.

Lee Rowley said early on that he was present to listen rather than to speak. Given some of the comments we have heard and will continue to hear about Brexit, clearly we need to start listening a lot more, because we need to learn new tricks if we want our economy to survive and to be a real success.

I do not want to detract from the cross-party consensus, but Brexit takes away the European Union customs union—or is likely to—which in effect is a huge economic free trade zone, with no costs from borders or additional taxation in each individual member state of the EU. In the absence of the customs union, therefore, we will have to invent or reinvent a freeport or free zone area in our own country to compensate.

Even so, many EU countries have freeport or free zone areas—22 countries have such arrangements, I think. In Spain, for example, elements of free trade zones are found on the Mediterranean coast in the ports of Barcelona and Cadiz; in the north, on the Atlantic coast, in Vigo; and in the airport area in Madrid, which was fairly landlocked last time I looked—though perhaps not as much as eastern Derbyshire. Closer to home, the Isle of Man has a free zone, as do other countries in the EU. From my perspective, the great bonus of freeports is the boost to economic activity in areas where trading conditions need a shot in the arm to increase jobs, economic vibrancy, trade and exports.

According to many reports, Brexit will have a more detrimental effect in Northern Ireland, north-east England, Wales and Scotland than elsewhere. In Scotland, according to a fairly recent report, we are looking at a 9% reduction in gross domestic product if we go into Brexit under World Trade Organisation rules. If there is a no-deal Brexit, the GDP of north-east England is expected to drop by some 16%, and 80,000 jobs in my country will be at risk. I hope that we do not get to that stage, but the warning signals are clearly there.

To have the most impact, free trade or freeport zones are best placed outside London and the south-east. If someone is determined—as I am sure the Minister is—to address economic inequality throughout the UK, we need to consider how to boost the economy in other parts of the UK—the parts that will be worst affected by Brexit. The British Ports Association has said that freeports would be most beneficial where a port has plenty of land so that value-adding economic activity can also take place.

All Members who have spoken in the debate have made a case for their own neck of the woods, and I am delighted to let everyone know a little about my constituency. Our local port, Rosyth, has all the ingredients necessary for the successful operation of a freeport: a lot of available land, much of it on brownfield sites; a rail link that is greatly underutilised but nevertheless only a mile from the main east coast line; and a motorway system that includes the new, iconic Queensferry crossing, providing a 15-minute corridor between the port of Rosyth and Edinburgh airport. We also have a talented workforce—the usual situation in Scotland, as I think every Member would accept—and the desire to become the beating heart of the Scottish economy, ready to take on opportunities wherever they may appear.

An opportunity that no one has yet mentioned is an unwanted feature of climate change: more and more sea routes are being created to the north and through the Arctic. Ships can now move along the northern coast of Norway, past Russia and to China, with a number of months in the year seeing more seaborne activity. In a northern port such as Rosyth, with easy access to those waters, we see that as a bonus.

We also have to take care. As Anna Turley pointed out, freeports cannot be introduced to push along a low-wage economy or to act as a centre for illegal trade just because some of the rules have been softened or relaxed. They might also be disrespectful of the environment—even in a freeport, the “polluter pays” principle must still apply.

The British Ports Association briefing, which I think we all received, made for some encouraging reading: 95% of trade is carried by sea, whether imports or exports, container traffic or bulk goods; 60 million passenger journeys are made between the UK and the rest of Europe every year; and 500 million tonnes of freight pass through all ports in the UK, which employ almost 100,000 people. We have a really good ports sector on which to build, and that is a real feather in our cap, a real hand-up and a great start in developing our port facilities.

I am a member of the all-party group on freeports, under the chairmanship of Martin Vickers, and I believe that we will be able to highlight some of the pros and cons of freeports. We are all determined to grow our economy, to create jobs and to deal with some of the vagaries of Brexit in the parts of the country that will be hardest hit. The hon. Gentleman mentioned the possibility of creating a super-freeport zone. If that included a specific focus on inward investment and a wider economic corridor, we could gain different benefits from a wide range of enterprises, and perhaps bring in an innovation hub linking universities and colleges in whichever area the freeport might sit.

I look forward to hearing the Minister’s views. An early announcement on freeports and how they will be financed will be very welcome.

Photo of Judith Cummins Judith Cummins Shadow Minister (International Trade) 2:28 pm, 11th October 2018

It is a pleasure to serve under your chairmanship, Mr Hanson. I congratulate Mr Clarke and my right hon. Friend Frank Field on securing this important and timely debate.

We have heard how our ports play a vital role in facilitating our global trade, and about their importance to coastal communities and regional economies. However, 95% of our goods trade passes through our ports, which is significantly higher than the EU and international averages. Our businesses depend on our ports to get their goods to overseas markets. Our ports handle an estimated 500 million tonnes of freight each year, making our port industry the second largest in the EU, with more than 100,000 people in towns and cities around our coast employed directly, and many thousands more in supporting and related businesses. In 2015, the maritime sector accounted for approximately £4.7 billion in tax revenues—some 0.7% of the total tax take that year, with the port and shipping industries being the largest contributors.

I welcome the renewed focus on the maritime sector in the wake of Brexit. Although it is right that we consider the role that ports play, we must also consider that role in the context of Brexit. The Department for Transport estimates that in 2017, 55% of international tonnage passing through UK major ports was to or from the EU. It is still our largest trading partner, accounting for 44% of our exports and 53% of our imports.

The Government’s chaotic handling of Brexit could cause tariffs to be imposed on exported goods, along with increased paperwork, inspections, audits and so forth. It could cause bottlenecks at ports here and on the continent. Security or customs delays could cause substantial tailbacks leading up to our ports as freight lorries are forced to pool while waiting for ports in France or the Netherlands to clear any backlogs that build up there.

The impact on ports such as Dover, where 99% of through trade is to or from the EU, will be substantial. Other ports, such as those that are members of the UK Major Ports Group, have suggested that they are investing substantially in infrastructure and capacity expansion, to be prepared for any eventuality. Sadly, it seems that the Government have yet to adequately prepare for the same. Towards the end of last year, at a hearing of the Public Accounts Committee, Her Majesty’s Revenue and Customs told Members of Parliament that the new customs declaration system would not be fully up and running in time for Brexit and that the system had not been designed with any increased customs processing in mind.

That is precisely why Labour has repeatedly called for a new customs agreement with the EU, to ensure that our businesses can continue to export tariff-free and without friction at the border. Today’s debate should perhaps have focused on that and the Government’s complete failure to ensure that our ports are supported in the event of any change to our current trade relationship with the EU. Nevertheless, we are here to debate the reintroduction of freeports. I say reintroduction because, as many Members have alluded to and will remember, the UK has already experimented with freeports at the ports of Liverpool, Southampton, Tilbury, Sheerness and Prestwick airport. Those freeports, established while we were a member of the European Union, were freeports in the true sense of the term: a defined area outside our customs territory, where goods could enter without attracting taxes or tariffs.

If the Government are considering whether to re-establish such a model, will the Minister tell us why, under the coalition Government, it was decided in 2012 that the freeports would not continue? Are we really talking about not a freeport per se, but a free trade or free enterprise zone, where goods can be manufactured and services rendered without being subject to the ordinary tax and/or legal regimes of this country?

Ministers, including the Under-Secretary of State for Housing, Communities and Local Government, the hon. Member for Richmond (Yorks) (Rishi Sunak), have suggested that the Government should consider adopting the American model of free trade zones, in which businesses would be given tax incentives to relocate. Although there may be evidence to demonstrate that such a model creates employment and attracts investment, very rarely is any assessment made of the extent to which those jobs and that investment are displaced, resulting in job losses and business closures elsewhere.

There is evidence around the world to suggest that such free trade zones are exploited by investors and businesses that seek to take advantage of general tax holidays and lax employment laws, while failing to produce the economic benefits promised.

Photo of Simon Clarke Simon Clarke Conservative, Middlesbrough South and East Cleveland

I thank the hon. Lady for highlighting the importance of EU trade, with which I completely agree. On displacing business from elsewhere, which is really important, I know from conversations with Ministers that that is at the heart of the Treasury’s concern to ensure that we do not just end up shifting jobs from part of our country to another. This is about winning business from outside the UK for the UK that otherwise would not be here. I do not believe, for example, that if we had a string of freeports around our country they would take jobs away from other port areas in the UK. It would be about winning new businesses and jobs.

Photo of Judith Cummins Judith Cummins Shadow Minister (International Trade)

I will come on to the importance of defining what is a freeport. A 2011 review of special economic zones by the World Bank suggested that many such models had become white elephants, with the cost of revenue lost to the Exchequer outweighing the benefits. At the same time, The Economist reported that they create distortions in economies and that many fail, leaving a long trail of failed zones that either never got going, were poorly run or in which investors gladly took tax breaks without producing substantial employment or export earnings.

Reports have repeatedly surfaced from free enterprise or free trade zones around the world that demonstrate lax enforcement of labour laws. Polish workers have been sacked for an illegal strike against poor working conditions at a business located in a special economic zone. There are similar examples in China, Cambodia and elsewhere. The European Parliament’s director general for external policies found that often in such zones

“the governance of labour rights may differ from the rest of the country and fall below international legal standards”.

If the Government are considering such a model, will they tell us how they intend to ensure that workers’ rights are protected and enforced? Will the Minister tell us what discussions he has had with trade unions?

Serious concerns have been raised about how a combination of tax incentives and relaxed monitoring and supervision, even by competent regulators, has resulted in a reduction in finance and trade controls and enforcement, creating opportunities for money laundering and the financing of terrorism. The intergovernmental Financial Action Task Force raised precisely those concerns in the inaugural review of free trade zones in 2015. It noted that

“the same characteristics that make FTZs attractive to legitimate business also attract abuse by illicit actors”.

The Financial Action Task Force also noted that FTZs have been used in the transport and production of weapons of mass destruction.

Photo of Lee Rowley Lee Rowley Conservative, North East Derbyshire

I am grateful to the hon. Lady for outlining all the potential issues, but does that mean we should not have freeports because those things may happen?

Photo of Judith Cummins Judith Cummins Shadow Minister (International Trade)

I said at the beginning of my speech that this is a timely debate, because these things need to be said. However, until we get the deal we cannot rule anything in or out, because the devil is always in the detail.

The United Kingdom must not be allowed to become a bargain basement tax haven off the coast of Europe. That includes not allowing any schemes that would allow the abuse of workers’ rights, financial checks, export licencing regimes or money laundering checks. Although we recognise the various calls for a freeport review from industry groups, from the Key Cities group to the British Ports Association and the British Hospitality Association, we must note that it is only one aspect of their much larger call for coastal communities to have a strategy to ensure that investment and growth are facilitated across the UK. That includes investing in transport and infrastructure and improving port connectivity.

Today’s debate must not be used to mask failures by this Government: a failure to bring forward any coherent proposal for our future trading relationship with the EU; a failure to give our exporters any clarity about what their future trade environment looks like; a failure to adequately prepare for Brexit at our ports; a failure to properly invest in transport infrastructure; and a failure to develop any coherent plan to support economic growth and investment in our coastal communities.

I look forward to the Minister’s response to the points that other hon. Members and I have raised. My hon. Friend Anna Turley spoke eloquently of her local community; she shared her ambition for a freeport to unleash the economic potential in her area. All Members spoke about the importance of defining what we mean when we speak about freeports and the importance of rebalancing our economy. Crucially, I urge the Minister to commit today to consult properly with all Members of Parliament who represent potentially affected areas, because they deserve to be heard.

Photo of Robert Jenrick Robert Jenrick The Exchequer Secretary 2:39 pm, 11th October 2018

It is a pleasure to respond to the debate. Like my hon. Friend Lee Rowley, I represent one of the most landlocked constituencies in the country, although the River Trent is still tidal when it reaches Newark, so perhaps there is potential for a freeport in Newark one day.

I thank my hon. Friend Mr Clarke and Frank Field, who sadly could not be with us, for raising an important issue. This issue interests me a great deal. I engaged with it before I became a Minister, when I was involved in a proposal for a freeport around East Midlands airport, and in my business career before being elected to Parliament, when I visited and engaged with freeports in Geneva and Shanghai. I have seen both the advantages and the disadvantages of some of the freeports around the world.

I support the goals that underpin many of the arguments we have heard: increasing global trade at a pivotal moment for our country’s future; increasing economic development in all parts of the United Kingdom and inward investment in those parts that have seen less of it in recent years; supporting manufacturing and particularly advanced manufacturing that takes advantage of the new technologies that are transforming the way we produce products—we want to ensure the UK is at the heart of those new processes; and seeking new free market approaches to growing our economy. Those are a good thing in themselves and send positive signals about our country, our openness and our willingness to create a business-friendly environment for investment. We have had a positive debate along all those lines.

I reassure Members that the Treasury has engaged actively with stakeholders on this topic. We have already heard that my right hon. Friend the Chief Secretary to the Treasury visited my hon. Friend Martin Vickers in Immingham. She and I also visited the Tees Valley Mayor in the constituency of Anna Turley to hear the proposals there, and we later met my hon. Friend the Member for Middlesbrough South and East Cleveland.

I held a roundtable at the Treasury earlier this year with the ports sector and the Minister with responsibility for ports. I listened to people’s ideas and enthusiasm about freeports and invited them to gather their thoughts and come back to us with substantive proposals, and I committed to giving those proposals the consideration they deserve. I remain keen to receive such proposals and to see what we might be able to achieve together.

Let me begin along the same lines as my hon. Friend the Member for Middlesbrough South and East Cleveland. There seem to be two principal advantages to a freeport—the first on the customs side, and the second around the regulatory changes and supply-side reforms that could flow alongside that. Let me dwell for a moment on the customs aspect, which is perhaps the most important from the Treasury’s perspective and in the current debates about Brexit.

As we heard, it is already possible for a private operator to apply to become a free zone. We have ensured that that will still be possible after we leave the European Union, under any scenario. The hon. Member for Redcar asked whether, under the current legislation, she would be able to apply for one with respect to Teesside and the South Tees Development Corporation. Yes, that is possible under the law as it is today, and as it will be in any scenario after we leave the European Union, but she or other stakeholders would need to come to us with substantive proposals. That is how people would expect the Treasury to behave when making important long-term decisions about the tax system—they would not expect us simply to act on a whim.

The Treasury will continue to have the power to designate free zones under the Customs and Excise Management Act 1979 and the Taxation (Cross-border Trade) Act 2018, which I appreciate everyone is familiar with and which will enable HMRC to set requirements for goods within free zones. Whether to apply for designation as a free zone will continue to be a commercial decision for the private operators of a port—in discussion with HMRC and the Treasury, clearly—and we are open to applications.

I want to be very clear as we discuss the customs benefits that most, if not all, of the customs benefits of a free zone are available today. We heard about the two most significant facilitations that we as a country provide for business in this respect—customs warehousing and inward processing relief. Those allow imported goods to be stored and to undergo value-adding processes, with duty being paid only when the goods are released into free circulation, or never if they are re-exported elsewhere in the world. I will explain that in more detail in a moment.

Those benefits are not limited to particular locations, so they do not provide the region-specific targeted boost that certain hon. Members present would like. However, they are available to any business anywhere in the country, which is an important freedom in itself. More than 8,500 companies across the United Kingdom benefit from customs facilitations every year and are able to pass those benefits down through their supply chain, potentially to smaller businesses. Those benefits will continue regardless of the outcome of our negotiations with the EU and our exit from the EU next year.

Let me use Liverpool as an example—I hope the right hon. Member for Birkenhead reads the report of the debate when he emerges in the coming days. Liverpool was one of the five areas of the UK with a free zone under the EU scheme, which we heard about from my hon. Friend the Member for Middlesbrough South and East Cleveland. As we heard, those zones were not redesignated in 2012, partly due to concerns about customs assurance around the type of free zone. Much though many of us would like to support free zones, it must be said that there was very little negative reaction to that. We understand that many of the companies that operated in those free zones now benefit in almost exactly the same way as they did before from customs facilitations the UK already offers. We have not received substantive proposals to revisit that.

Let me return to the example of Liverpool. Today, a manufacturer in Liverpool is able to gain all the benefits of a free zone without being constrained to locating within the free zone site. Setting aside large sites such as the south Tees site, some sites, including the one in Liverpool, are quite constrained and do not have the ability to become vast sites such as the one in Dubai we heard about.

If there was a ship manufacturer, for instance, in Liverpool or Birkenhead, materials for its vessels could be imported and stored in a customs warehouse somewhere in the Liverpool area, or anywhere else in the country, without duties being paid on them. The manufacturer or its supply chain could then use those materials in the manufacturing process under inward processing relief, and the finished ships could be exported without any UK customs duty ever having to be paid. That avoids the distortions and perverse geographical outcomes that would undoubtedly arise with free zones, where a manufacturer or its supply chain would feel the need to locate on the same site, although I appreciate that would be beneficial to those locations, some of which require urgent inward investment.

The UK’s current customs facilitations offer broadly the same benefits that attract businesses to free zones in other developed countries, such as the United States. For example, two thirds of goods imported to US foreign trade zones are brought in to enjoy the same tariff-free manufacturing benefits offered by inward processing relief. The other third are stored in those zones, gaining the same cash-flow benefits offered by customs warehousing. From a customs perspective, the UK model compares favourably with the model in the United States—arguably more so because it does not force or encourage a company to locate in a particular place, but gives it the freedom to operate and trade wherever it wishes throughout the United Kingdom.

However, as Members would expect, we want to ensure we have an even more business-friendly environment, particularly as we leave the European Union. I am sure there are ways we can improve those customs arrangements, and we are actively engaged in identifying how we might do that now or post Brexit. We are open to suggestions from hon. Members, such as my hon. Friend the Member for Middlesbrough South and East Cleveland, who is very engaged with this issue. We are also actively engaged with people in some communities, including the Tees Valley Mayor and the hon. Member for Redcar, about how we might make those arrangements place-specific. That certainly could be taken forward.

As my hon. Friend said, if one agrees that the customs benefits are more limited because we have a fairly favourable customs arrangement—I have already described that—the wider question is how we can improve supply-side reforms and the business-friendly environment in the whole country or in particular places. In that regard, I draw Members’ attention to a couple of things on which we are focusing heavily.

Like many of those who have contributed to the debate, I want to see supply-side reforms to boost growth and support business. With the Chancellor and Chief Secretary, I have been highly engaged in efforts to increase productivity and regional growth in that way.

As the hon. Member for Redcar said, we should exercise caution because we do not want to propose ideas, whether in a freeport or another setting, that would lower environmental standards or indeed workers’ rights. We have been clear that we see leaving the European Union as an opportunity to not only protect those rights but enhance them. No proposals should be at the expense of the environment, workers’ rights or other things in our regulatory framework that we are proud of as a country and want to see continued or enhanced.

We are, however, highly engaged in how we can increase economic growth in particular places, either because they require it more than others, having received less investment in recent years, or because there is a significant national economic opportunity for growth that requires Government support. In that regard, we have made a number of interventions that build on a long history, to which my hon. Friend the Member for Middlesbrough South and East Cleveland referred, going back to the 1980s and the Thatcher revolution. They include locally led or mayoral development corporations—that power is available to the Mayor of Tees Valley. They also include enterprise zones, which the Government have expanded since 2010, creating many more in different combinations, including those linked to universities, which provide particular opportunities to help universities orientate themselves towards the local and regional economy, commercialise research and development, and help start-ups to scale up and achieve their potential. In some cases, those approaches have had the benefits that my hon. Friend described. Again, we are open to further conversations on how we might deliver them.

Development corporations empower places to overcome local barriers to growth and have provided a sharper commercial focus to large-scale Government investments to help develop local areas. In the Tees Valley, the first mayoral development corporation outside of London has been set up by the excellent local Mayor, Ben Houchen, whom I met only yesterday to discuss his future proposals.

At the Conservative party conference, we announced funding to boost growth and development in the east midlands between Nottingham and Leicester, creating a new locally led delivery model—potentially a development corporation—around Toton. Again, that is an area of significant economic potential, and we want to use the levers available to us in central Government, working closely with local leadership and the business community, to take that forward at pace. The funding will support the area to move on with those announced proposals.

We are supporting local businesses particularly through enterprise zones—since 2012, we have established a further 48 of them—in all regions of the United Kingdom, including most of those represented here today, and certainly in the Tees Valley. In those zones, businesses benefit from tax and regulatory incentives. We have piloted other models, including, at the Budget last year, an east midlands-focused manufacturing zone to provide some greater business-friendly environment for manufacturing businesses.

We are open to further conversations in that regard. We want to see more locally led models and development corporations and, as my hon. Friend Julia Lopez said, more Canary Wharf-style opportunities to transform local areas and drive the economy forward at pace, with a particular focus on planning, where there is growing consensus for further liberalisation. There may be great opportunities to do so in these places if there is strong support from the local community, Mayors and the locally elected democratic leadership of councils.

As I told the ports when I met them earlier in the year, and as was said in the conversations the Chief Secretary has had with others, we believe there may be opportunities for some levers to be pulled with respect to ports. If they wish to take advantage of opportunities for locally led development corporations or those with a central Government component, we are happy to discuss that and see that moved forward as fast as possible.

We want to see further business-friendly customs arrangements put in place. Proposals for freeports would need to prove that they will genuinely attract inward investment into the United Kingdom and not simply displace growth that might have happened in other parts of the country. It must be an additive policy that makes the country more prosperous and does not simply move jobs and investment from other parts of the United Kingdom.

We are aware of the risks of free zones we see around the world relating to money laundering and other illicit activities—I saw that when I visited freeports, particularly with respect to the art market, which I worked in before being elected. We take note of the G7’s Financial Action Task Force. There are important questions that need to be explored and understood, and we must be sure that we overcome those risks before going further.

I thank my hon. Friend the Member for Middlesbrough South and East Cleveland for raising an important issue. Personally, I am highly engaged in it, along with the Chief Secretary. We want to see substantive proposals brought forward for us to consider, which can inform the debate and answer some of the questions that I and other Members have raised. How would free zones genuinely be additive and drive forward the prosperity of the whole United Kingdom? How can we overcome some of the disadvantages in terms of criminality and illicit trade that we have seen around the world? From a customs perspective, how would a freeport add something to our business-friendly customs environment that we do not have already, bearing in mind the analysis and comments I have laid out? How can that play a part in our wider strategy to use devices such as development corporations or enterprise zones to help areas seize economic opportunities, liberalise planning, build a business-friendly vision and attract business leadership to take forward their communities and economies?

This is an interesting and exciting opportunity worthy of further thought and consideration. I look forward to working with colleagues on both sides of the Chamber on it in the future.

Photo of Simon Clarke Simon Clarke Conservative, Middlesbrough South and East Cleveland 2:57 pm, 11th October 2018

I thank everyone who spoke in the debate. I particularly thank the Minister for sending out a really encouraging signal that there is serious engagement from the Government. The gauntlet is thrown down to us and the ports sector to make the proposition viable.

Anna Turley set out a compelling case, which is close to my own heart, for why Teesport is such a great candidate to be a freeport if the initiative gets off the ground. Leaving aside what Harold Macmillan would term a little local difficulty about our positions on Brexit, I welcome the consensus that we have achieved. There is no suggestion that a freeport should, for example, weaken workers’ rights. It would be insanity as well as bad practice for us to do anything that took us down that route. This matter is about economic potential, not deregulation in that sense.

My hon. Friend Martin Vickers is such a doughty champion. I am so pleased that he set up the all-party group. Obviously, his area, like mine, could benefit enormously from making a go of freeports. He pointed out that the initiative is perfectly designed for northern communities that have been left behind. It is absolutely about embracing the opportunities of Brexit, as he rightly said.

My hon. Friend Julia Lopez spoke. It is rare that I get the chance to praise London and the opportunities that it offers. It is true that London is a complex and diverse city. The idea that it is all Bentleys and million-pound homes in Sloane Square is not true. It is important that places like Havering get to benefit from initiatives such as the logistics hub. The hon. Member for Redcar and I are working on promoting such a bid for Teesside—nothing passes without Teesside getting a mention. Logistics hubs are a great idea and Havering seems to me to have many of the characteristics that would make it a successful location.

[Mr Peter Bone in the Chair]

My hon. Friend Lee Rowley has emerged as the foremost champion of social and economic liberalism within my intake of Conservative MPs. He rightly identifies that we need to be nimble, dynamic and fearless as we leave the European Union. If we are to do that, I think freeports are a great opportunity. I wish him luck working out how to get the sea a little bit closer to North East Derbyshire.

Douglas Chapman eloquently set out his party’s position on Brexit. He is absolutely right about the importance of EU trade. I draw him back to my point that current EU state aid rules restrict us from creating freeports in a way that would allow them to succeed. He made his own powerful case for Rosyth to form part of a freeport, were such a policy to be initiated. He is certainly right to pay tribute to the work of the UK ports sector in helping us to prepare for today’s debate.

Judith Cummins rightly highlighted the importance of EU trade. We struck genuine cross-party consensus that this must not be an opportunity to deregulate things that are important to all of us, including hard-won advances in workers’ rights. It did seem slightly ironic that she took the Government to task over the lack of clarity on Brexit. I lose track of the exact position of the Opposition on this point, but it is fair to say that it is difficult for all parties, and we need to bear that in mind.

More broadly, I hope that Labour can find a way to make this policy a part of its platform, as it has enormous potential for many Labour constituencies. The fact that the hon. Member for Redcar is here and the fact that Frank Field, a friend whom I admire greatly, is the co-sponsor of the debate, shows that this idea goes to the heart of regenerating places that have had a really raw deal over the last 30 years and have really struggled with the challenges of deindustrialisation. They could potentially benefit enormously from making this policy work. I certainly do not think we need to worry about her colourful suggestion about the transport of weapons of mass destruction. I promise now that Teesport will not become a centre for that—it is the only thing that I will rule out for Teesside.

I turn to the points made by the Exchequer Secretary to the Treasury, my hon. Friend Robert Jenrick. It was a huge pleasure to welcome him to Skelton a few weeks ago; we had a really good visit. I know he is one of the most thoughtful and effective champions of enterprise in Government and someone who I think will go right to the very top of Government—he certainly deserves to. It is great to hear about his close engagement with the ports sector and he is right that the onus now passes to the sector to come up with workable, serious proposals. We have expanded upon the intellectual framework for why this could work and it is now about getting the granularity of detail that the Government require to make it happen.

Whatever the framework within which we choose to leave the European Union, it must allow the broadest possible powers for future enterprise. That takes me back to my point about Chequers. I really do want to see supply side benefits realised. There is a particular opportunity at a time when the Government have embraced a place-based industrial strategy to make the case for areas like the Humber and South Tees, where there are enormous brownfield sites. I appreciate there are ports that are constrained, such as Dover and Liverpool, but there are others where the potential is unlimited—as much land as is needed can be given. This is something that is exciting and it resonates.

It would be wrong of me to close without paying tribute to the work of Ben Houchen and the whole regeneration initiative, which is making a huge impact cross-party. It is getting people’s hopes up in places like South Tees. Sometimes it is not just about changing the economic reality but about changing the intellectual and emotional response to where we are now. We have had one narrative for a long time and hopefully we are starting to get into a much more enterprising and forward-looking mood in our area. This is an exciting and hugely challenging time. There will be great opportunities and pitfalls in the months and years ahead. That is what comes when one takes back control of policy. Today has crystallised the next steps that we are going to have to take in order to make freeports a serious, workable prospect for our future.

Question put and agreed to.

Resolved,

That this House
has considered the establishment of freeports in the UK.

Sitting adjourned.