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What are Freeports?

Archive for April, 2021

What are Freeports?

Wednesday, April 7th, 2021

Many people will have heard Chancellor Rishi Sunak announce the creation of eight freeports in his Budget speech. The freeports – which are due to become operational later this year – will be at East Midlands Airport, Teesside, the Humber, the Solent, Plymouth, Liverpool City Region, Felixstowe and Harwich, and the Thames. 

But what is a freeport? How will the rules governing them be different? And will they really benefit the UK economy? 

Rishi Sunak mentioned freeports in his first Budget speech, so it was always likely that he would introduce them this year: he’ll be hoping they can play their part in revitalising the UK economy, regenerating areas in need of investment and, in the long run, contributing towards the bill for Covid-19. 

What are freeports? 

Freeports are usually located around ports or airports: the UK had seven between 1984 and 2012, including Southampton, Liverpool and the Port of Tilbury. Goods arriving in a freeport are not subject to the usual tariffs that are levied on imports: these only become payable if the goods leave the freeport and are moved elsewhere in the UK. If the goods are shipped back overseas, no tariffs are payable. 

Each of the new freeports can be up to 45km (27 miles) across – so they’ll cover significant geographical areas. 

How will the rules governing them be different? 

As the Chancellor set out in his Budget, the new generation of freeports will have different rules – including tax breaks and relaxed planning requirements – to make it easier and cheaper to do business. Employers will also pay reduced national insurance for new staff they take on.

In addition, companies will pay less tax on existing buildings and receive tax concessions when they buy new buildings. Clearly the Chancellor wants to do as much as possible to encourage companies to invest in the freeports. 

Will they really benefit the UK economy? 

Supporters of freeports say they help increase manufacturing and encourage jobs and investment in areas that might otherwise struggle to attract them. When the idea of freeports was first mooted, construction group Mace suggested they could create 150,000 jobs and add £9bn a year to the UK economy. This would be a key part of the Government’s proposed ‘levelling up’ agenda, helping rebalance economic growth around the country. 

Opponents of freeports are less enthusiastic. They argue that they don’t boost overall economic activity, but simply shift it from one area to another – with the taxpayer footing the bill through the tax subsidies and concessions the freeports enjoy. 

The Government, though, is committed to freeports. There are around 80 freeports in the European Union and – with the UK in theory having more flexibility now it is no longer bound by European law – the UK freeports could expect to win a lot of business. That’s certainly what the Chancellor will be hoping. 


The Net Zero Innovation Portfolio

Wednesday, April 7th, 2021

Most of the headlines in Rishi Sunak’s recent Budget were made by the tax rises, both for individuals and companies, and by the inevitable bill for the pandemic. 

There was a strong ‘green’ theme running through the Budget. This was shown through the National Infrastructure Bank being established in Leeds, and the Bank of England’s remit being revised to reflect the Government’s stated commitment to move to ‘net zero’ by 2050. In addition, the Chancellor confirmed details of a new Net Zero Innovation Portfolio. What is it? And what will it mean for the UK’s green economy? 

Let us start, though, by answering an even more basic question. What is ‘net zero?’ The term refers to the balance between the amount of greenhouse gas produced and the amount removed from the atmosphere. We reach ‘net zero’ when the amount we add does not exceed the amount taken away. 

The UK is now committed to reaching net zero by 2050 – with the ban on the sale of new petrol and diesel cars from 2030 perhaps the most high profile commitment to  this. 

The Net Zero Innovation Portfolio is another step in this direction, providing funding for low carbon technologies and systems. Alongside it, the Chancellor announced separate funding to support Scotland’s transition away from oil and gas. “If we want a better future,” said the Chancellor, “We have to do things that have never been done before.” Sustainable businesses would have a “key role” to play in his “investment-led recovery.” 

The Prime Minister had put it rather more colourfully the week before, declaring that the UK would become, “the Saudi Arabia of wind.” 

There are, of course, sceptics. Critics point to the huge amount of construction going on in developing economies such as China and India, arguing that the UK’s commitment to net zero will make little practical difference and could come at a huge cost. China, they argue, plans to build 200 airports over the next 15 years. India is investing $6.4bn (£4.6bn) in 32 mining projects as it looks to boost coal output. 

In the West, though, the drive to net zero seems unstoppable – and is a core part of the UK Government’s industrial strategy. The Net Zero Innovation Fund is another step in this direction as it looks to put the UK at the forefront of global markets for clean technology. 

We are likely to see the further development of offshore wind farms, of battery technology to store clean energy, and carbon capture, so that as much carbon as possible is captured and – according to the Government’s briefing paper – returned to under the North Sea. 

Welcome to the National Infrastructure Bank

Wednesday, April 7th, 2021

One of the most eye-catching announcements in Rishi Sunak’s recent Budget was the creation of  the National Infrastructure Bank, which – as part of the Government’s commitment to economic ‘levelling-up’ across the UK – will be based in Leeds. 

What is the new bank? Why is it being introduced? And what impact might it have on both the regional and national economies? 

The Bank is part of the Government’s stated aim to reach ‘net zero’ by 2050, part of what the Chancellor described as a “green industrial revolution.” 

Launched with £12bn of capital, the Bank is aiming to attract a further £40bn of private investment into green projects. According to UK Government documents, “the Bank will provide leadership in the development of new technologies.” The Bank will also be able to issue £10bn worth of guarantees, as well as having the ability to “draw capital from the Treasury and borrow from private markets.” 

Initially it looks as though much of the Bank’s lending will be to local authorities. It appears that one of the key aims of the Bank – as with the Budget’s freeports initiative – will be to regenerate areas that have previously suffered from a lack of investment. The Government’s initial briefing notes talk of ‘high value and strategic projects of at least £5m.’ The National Infrastructure Bank won’t be lending you and me money to put solar panels on our roof…

These are clearly early days – at the moment the Bank is little more than another headline. But it has been broadly welcomed: this was certainly true in Leeds, with the council seeing the Bank as confirmation of the city as the biggest financial hub outside London – and another feather in the region’s cap following Channel 4’s recent move to Leeds. 

There have, inevitably, been one or two dissenting voices. Mark Robinson, chief executive of procurement authority Scape said, “There is a pressing need for [the Bank] to move at speed to create the best conditions for local economic growth and sustainable inward investment.” 

In other words, if the economy is going to bounce back from the pandemic, then the Chancellor’s ‘green industrial revolution’ – and the Bank behind it – needs to get to work, quickly and effectively. 

In theory, it should be able to do this. According to figures produced by the Office for Budget Responsibility, the Bank will initially provide less than half the funding previously provided by the European Investment Bank (EIB). The Government’s intention is that the Bank will provide ‘more targeted’ support than the EIB and, with the UK no longer bound by European rules and the Government keen to press ahead with the ‘green industrial revolution,’ we may see the National Infrastructure Bank expand rapidly. 

Major pension funds commit to net zero carbon by 2050

Thursday, April 1st, 2021

A new Net Zero Investment Framework has been launched by the Institutional Investors Group on Climate Change (IIGCC) which outlines a commitment to net zero carbon emissions by 2050. The framework aims to encourage investors to develop an investment strategy that achieves net zero, and the framework is already being put into practical use.

At the time of writing, 36 investors collectively managing assets of over £6.1trillion have adopted the framework. Among these investors are a significant number of pension schemes: Scottish Widows, the Environment Agency Pension Fund, Royal London, National Grid UK Pension Scheme, the Church of England Pensions Board, Brunel Pension Partnership, Northern Local Government Pension Scheme, Lloyds Banking Group Pensions Trustees Limited and Nest. 

The investment framework is designed to deliver on the Paris Agreement goal of keeping global warming well below 2 degrees celsius, compared to pre-industrial levels, preferably below 1.5degrees. It’s built upon three specific types of target which will be used to measure success. These are portfolio level targets for decarbonisation and investment in climate solutions, timebound portfolio coverage targets for companies and assets to meet net zero or aligned criteria, and engagement coverage threshold ensuring intensive engagement to drive the transition. 

UK Pensions Minister, Guy Opperman, had this to say about the framework: “Bringing climate change to the top of the agenda and ensuring that Britain’s pension investments act on managing climate change risk will not only help the UK reach net zero, but ensure a brighter future for all.”

“In the run up to COP26 (the UN Climate Change Conference) more countries than ever are signing up for net zero. This creates huge opportunities, but also risks, for institutional investors such as pension schemes. That is why we’re the first major economy to legislate to require pension schemes to set targets to manage their own climate risks.”

“I therefore welcome both the ambition and hugely practical guidance contained in this framework, which will help even more institutional investors aim for net zero.”