Banner triangles

How could the government’s proposals for freeports affect the UK labour market?

A consultation has launched regarding up to 10 freeports in the UK.

The government’s aims for these proposals are to boost economic activity across disadvantaged areas of the country, and the plans draw from freeports in existence in other parts of the world. We look at how the freeport proposals might work in practice and what the implications could be for the UK’s labour market.

What is a freeport?

Freeports are secure customs zones, usually located around seaports or airports, which have in place special rules in relation to business and trade laws. Importantly, goods can be imported, manufactured, stored and exported without being subject to customs duties.

Freeports are not a new idea – they existed in the UK until 2012 and are still commonly used in other parts of the world, with the most well-known examples including Dubai, Luxembourg, Singapore and the Isle of Man. They are well-established in the USA, which has almost 300 foreign-trade zone’ allowing manufacturers to import raw materials at a low cost and make them into goods for export at a lower rate of duty.

The proposals and the reasoning behind them

The government’s freeports consultation entitled “Boosting Trade, Jobs and Investment Across the UK”, is based on ideas first raised by Boris Johnson during his Conservative leadership campaign. The consultation paper suggests that the creation of UK freeports would ’release the potential’ of deprived communities and allow them to benefit from opportunities created by leaving the EU.

The government’s proposal is to build upon the traditional customs-related benefits of a freeport to create a bespoke, enhanced UK package of incentives. The consultation paper discusses the following elements:

  • Tax: The government is weighing up changes to various tax measures, including business rates discounts and enhanced capital allowances (both of which are already available in existing enterprise zones), stamp duty land tax, research and development tax credits, VAT and excise on goods, and – most interestingly from an employment law perspective – employer’s National Insurance contributions.
  • Planning: The proposal includes planning liberalisation to enable faster development. Amendments to permitted development rights and zonal planning are discussed, as is a revamp of the National Policy Statement for Ports.
  • Regeneration measures: A stated aim of the freeport scheme is to revive disadvantaged UK towns and cities. The government envisages investing in infrastructure and housing to accommodate growth and offering business support to local enterprises. The policy paper also sets out an expectation that businesses involved in freeports will support local colleges and universities to help upskill the local workforce.
  • Innovation: The proposal also contains several elements aimed to promote technological innovation in freeports.

Once the freeport scheme comes into force, areas will be invited to bid for freeport status. Several parts of the UK have expressed their interest in the scheme, some of which - Liverpool and Belfast, for example - had been classified as a freeport under the previous regime.

Potential implications for employers

The consultation paper suggests that freeports could be a lucrative opportunity.- Any companies looking to capitalise on it will need to put its mind to the potential consequences, both positive and negative.

According to the government, a prime reason for setting up in or relocating to a freeport is that it will reduce the costs of hiring workers. The consultation paper does not specify exactly how this will work beyond floating a potential reduction in Employer National Insurance contributions, but it clearly envisages that businesses will recruit new workforces.

This may not translate into reality, however. Setting up a large operation, especially as one of many large businesses establishing themselves in the same area, will require a significant pool of workers to draw from. Underprivileged areas of the UK are unlikely to have sufficient workforces to fill the significant number of vacancies and may lack people with the expertise needed for specialist roles. Whilst the government’s suggestion is that businesses will work with higher education providers to train people up, in reality they are likely to move existing workforces into the freeport zones or advertise the vacancies nationally.

If a company is planning to move its existing workforce - or at least part of it - into a freeport, then the question becomes how they can do this. In the absence of both parties agreeing to do so the primary consideration will be whether they have the contractual right require the employee to relocate. In other words, the employment contracts of the staff to be moved must contain a mobility clause permitting the employer to relocate them to another site.

Even where there is such a clause in the contracts, the employer is obliged to exercise that clause reasonably – a failure to do so could amount to a breach of the implied term of mutual trust and confidence. Reasonableness will depend on a range of factors, including whether the employee was given sufficient notice of the relocation, how far the employee’s new workplace will be from their home and whether the employer will meet the costs of the employee’s relocation.

If the employer looks to advertise for roles, then, as stated above, they are unlikely to confine that search to the areas local to the freeports. They may choose to advertise regionally or nationally, or in some cases even internationally. In the post-Brexit landscape, an issue all employers have to grapple with is the hiring of EU staff for UK roles.

According to the government’s latest policy statement on post-Brexit immigration rules, an EU migrant would have to have a job offer for a skilled role with a salary of at least £25,600 and achieve at least 70 points under a new Australian-inspired points system. It seems unlikely that employers moving into freeports will be able to rely on EU migration to fill low-skilled, modestly paid jobs, as such roles will not meet new visa requirements.

The final factor employers will need to consider is what the future will look like. As mentioned above, freeports have existed in the UK before and were removed. There is no guarantee that, even if introduced, the proposed freeport structure will stand the test of time or a change in the political tides. If things change, employers who have established themselves in freeports need to have a contingency plan in place.

The best way of doing this is to build flexibility into employment contracts, not only to allow for mobility as discussed above, but also to give the employer the option to change other terms and conditions of employment as may be required. Whilst this would be rather straightforward for new hires into the freeport, it would be more complicated in the case of existing workers.

Potential implications for workforces

A stated aim of the proposals is to create new jobs in underprivileged areas. A report by Rishi Sunak MP - now Chancellor - in 2016 claimed that as many as 86,000 jobs could be created across Britain through the introduction of freeports and construction group, Mace thinks the figure could be as high at 150,000. Creating more jobs will clearly be beneficial to local workforces and should lead to a decrease in the unemployed populations in areas surrounding freeports. This could help retain talent within those communities and reduce the numbers of people who feel they must move away from their hometowns to find work.

However, as trailed above, there is no guarantee that the introduction of freeports will have this effect. It is likely that employers moving into freeports will populate the roles in the new premises at least partly by moving existing workforces from other parts of the country. If so, this could reduce the number of opportunities created by the freeports for local workers and lead to a downturn in the areas from which people are moved. At the very least, competition for workers will undoubtedly increase.

Quote mark icon

Lower operating costs in freeports might also mean that there will be additional capital available for salaries which might give freeports the edge when it comes to attracting talent. However, this may come at the expense of other parts of the country.

Disclaimer

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

Insights

Read the latest articles and commentary from Shoosmiths or you can explore our full insights library.